<PAGE>
As filed with the Securities and Exchange Commission on May 7, 1997
Registration No. 333-19289
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO THE
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
BANKWEST FINANCIAL, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
MONTANA 81-0513357 6712
- ------------------------------- ------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification No.) Classification Code Number)
</TABLE>
444 WEST IDAHO
KALISPELL, MONTANA 59904 (406) 758-2265
-------------------------------------------------
(Address including ZIP Code and telephone number,
including area code, of registrant's principal executive offices)
Douglas K. Morton, President Copies To:
444 West Idaho Karen L. Witt, Esq.
Kalispell, Montana 59904 Rothgerber, Appel, Powers & Johnson LLP
(406) 758-2265 1200 17th Street, Suite 3000
(Name and address of Denver, Colorado 80202
agent for service) (303) 623-9000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE
OF THE SECURITIES TO THE PUBLIC:
The exchange of shares is to take place on or after June 1, 1997, which date
will be after approval is received from the Office of the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System.
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. / /
<TABLE>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
-------------------------------
Title of Each Class Proposed Amount of
of Securities to be Amount Being Maximum Offering Proposed Maximum Registration
Registered Registered Price Per Unit(1) Aggregate Offering(1) Fee
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 71,880 shares $52.057 $3,741,857.10 $1,133.90*
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
*Previously paid.
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act for 1933, as amended,
based on the book value per share of the stock as of December 31, 1996
($520.57), and the ten-for-one exchange ratio.
<PAGE>
BANKWEST FINANCIAL, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b)
OF REGULATION S-K
<TABLE>
HEADINGS IN PROSPECTUS ITEMS OF FORM S-4
---------------------- -----------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus Proxy Statement and Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information Summary of Proxy Statement
(a), (b), (c), (g), (h), and (i) Summary of Proxy Statement
(d), (e) Selected Financial Data (to the
extent applicable)
(f) Market Price of and Dividends on
Bank Stock and Company Stock
(j) Summary of Proxy Statement and
Comparison Between Company
Stock and Bank Stock
(k) Summary of Proxy Statement and
Information Concerning
Consolidation Agreement
4. Terms of The Transaction
(a)(l), (2), (5), and (6) Information Concerning
Consolidation Agreement
(a)(3) and (4) Comparison Between Company
Stock and Bank Stock
(b) Not Applicable
(c) Summary of Proxy Statement
5. Pro Forma Financial Information Not Applicable
-ii-
<PAGE>
6. Material Contacts with the Company Being
Acquired Description of the Company
7. Additional Information Required for
Reoffering by Persons and Parties Deemed
to be Underwriters Not Applicable
8. Interests of Named Experts and Counsel Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Description of the Company--
Indemnification and Limitation of
Personal Liability; Description of the
Bank--Indemnification and
Limitation of Personal Liability
10. Information with Respect to S-3 Registrants Not Applicable
11. Incorporation of Certain Information by
Reference Not Applicable
12. Information with Respect to S-2 or S-3
Registrants Not Applicable
13. Incorporation of Certain Information by
Reference Not Applicable
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants
(a), (b) and (c) Description of the Company
(d) Market Price of and Dividends on
Bank Stock and Company Stock
(e), (f), (g), (h) and (i) Not Applicable
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3
Companies Not Applicable
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies
(a) and (b)(4), (6) and (9) Not Applicable
(b)(1) Description of the Bank
-iii-
<PAGE>
(b)(2) Market Price of and Dividends on
Bank Stock and Company Stock
(b)(3) Selected Financial Data
(b)(5) Management's Discussion and
Analysis of Financial Condition and
Results of Operations
(b)(7) Financial Statements
(b)(8) Financial Statements
18. Information if Proxies, Consents or
Authorizations are to be Solicited
(a)(l) and (2) Concluding Paragraph of Notice
and Proxy Statement
(a)(3) Information Concerning
Consolidation Agreement--Rights
of Dissenting Shareholders
(a)(4) Summary of Proxy Statement
(a)(5) Principal Holders of Voting Securities
(a)(6) Summary of Proxy Statement;
Information Concerning
Consolidation Agreement;
Description of the Bank
(a)(7)(i) Description of the Bank--
Management
(a)(7)(ii) Description of the Bank--Executive
Compensation
(a)(7)(iii) Description of the Bank--
Indebtedness of and Transactions
with Management
(b) Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or
in an Exchange Offer Not Applicable
</TABLE>
-iv-
<PAGE>
BANKWEST, NATIONAL ASSOCIATION
444 West Idaho
Kalispell, Montana 59904
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders of
BankWest, National Association to be held on the ____ day of ______________,
1997, at 3:00 p.m., local time, at The Outlaw Inn, 1701 Highway 93 South,
Kalispell, Montana. The discussion and vote upon the Consolidation Agreement
will not commence until 4:00 p.m. Your Notice of the Annual Meeting,
Prospectus/Proxy Statement and proxy are enclosed.
At the Annual Meeting you will be asked to elect six (6) directors and to
consider and vote on a Plan of Consolidation and Consolidation Agreement (the
"Consolidation Agreement") whereby BankWest Interim Bank, N.A. (the "Interim
Bank") will consolidate with and into BankWest, National Association (the
"Bank"). The Interim Bank will be a wholly owned subsidiary of BankWest
Financial, Inc. (the "Company"), a company incorporated in the State of Montana
at the direction of the Bank's management. In the reorganization, the Bank will
become a wholly owned subsidiary of the Company. The Company will become a
registered bank holding company and will be owned by the Bank's current
shareholders.
On the effective date of the consolidation, each one (1) share of common
stock of the Bank issued and outstanding immediately prior to the effective
date, other than the Flathead Shares, as defined below, shall automatically be
converted into ten (10) shares of common stock of the Company. The Company will
become a registered bank holding company and will be owned by the Bank's current
shareholders with each shareholder, other than shareholders owning Flathead
Shares, owning an approximately 25% greater interest in the Company as he or she
owned in the Bank due to the purchase and cancellation of Flathead Shares by the
Company.
As you may know, Flathead Holding Company of Bigfork ("Flathead") is a bank
holding company owning Flathead Bank of Bigfork and a branch bank in Lakeside.
Until late 1996 it was affiliated with Mountain Bank of Whitefish and Evergreen.
All of these institutions are competitors with the Bank in the Kalispell market.
In June 1996, the Federal Reserve Board approved Flathead's application to
acquire up to 23.4% of the voting shares of the Bank, which would have made
Flathead the Bank's single largest shareholder. The Bank's Board of Directors
determined that it was in the best interest of the Bank's shareholders,
customers and employees to resist Flathead's acquisition effort due to
Flathead's resulting ability to influence Bank management decisions and place at
least one director upon the Bank's Board, and the extent to which Flathead's
community ownership of stock and management style differs from that of the Bank.
Therefore, in July 1996, Douglas Morton, President of the Bank, along with
Bank directors Richard Dasen and Charles Lee and the Bank's legal counsel,
commenced negotiations with Flathead's President and Chairman, Larry W. Jochim,
and Flathead's legal counsel for the purchase
-v-
<PAGE>
of the Bank stock held by Flathead or to be acquired by Flathead pursuant to
options granted by Bank shareholders (the "Flathead Shares") to Flathead.
The result of these negotiations was the Stock Purchase Agreement dated
December 5, 1996, a copy of which is attached to the Consolidation Agreement
as Exhibit A to the Prospectus/Proxy Statement, pursuant to which the Company
agreed to purchase the Flathead Shares for cash to prevent Flathead's
continued ownership of Bank stock. The Company is not soliciting approval of
the Stock Purchase Agreement which has already been consummated.
Since the Company is unable to purchase shares of Bank stock until after
the bank holding company formation is completed, on January 24, 1997, six
officers and directors of the Bank purchased the Flathead Shares from Flathead
in order to halt the daily acceleration of the per share price of the Flathead
Shares payable to Flathead pursuant to the Stock Purchase Agreement. 1,842
Flathead Shares were purchased at $810.00 per share, or $1,492,020 in the
aggregate, and $40,500 was placed in escrow for the remaining 50 Flathead
Shares. The 1,892 Flathead Shares represented a 20.5% block of Bank stock held
by Flathead at the time of the sale. The $810.00 per share price paid for the
1,892 Flathead Shares represents approximately 1.55 times the book value per
share of the Bank stock at January 24, 1997 ($522.73), or approximately 1.2
times the average trading price in the fourth quarter of 1996 ($679.95). Bank
stock has historically traded at or near book value. Other than the purchase of
Flathead Shares from Flathead, the most recent trade of Bank stock was on
November 1, 1996, at approximately 1.3 times book value per share. Flathead
paid approximately 1.3 times book value to acquire the Flathead Shares. The
$810.00 price was negotiated at arms' length by the representatives of Flathead
and the Bank. No formal or informal appraisals or valuations were obtained by
the Bank relating to the price paid. The Bank's Board believes that the $810.00
price represented the fair market value of a 20.5% block of Bank stock on
January 24, 1996, based upon the book value and historical trades of Bank stock
and its negotiations with Flathead. However, it is unlikely that shareholders
dissenting to the Consolidation Agreement or shareholders selling smaller blocks
of Bank stock or Company stock in the future would receive this price due to the
general market premium placed upon large blocks of a company's stock. The
immediate effect of the purchase of Flathead Shares by the Company will be a
$7.86 per share decrease in the book value of the remaining shares of Company
stock. Even though there is an initial decrease in book value, management
strongly believes that the transaction described more fully herein is in the
best long-term interests of Bank shareholders.
Bank directors Richard Dasen, Richard Gunlikson, Charles Lee, Douglas
Morton, Teruko Rogers and Barry Smith each purchased 307 Flathead Shares on
January 24, 1997, with their own funds and on their own behalf in order to
protect the interests of the Bank. Each person obtained an individual loan in
order to purchase the Flathead Shares. Another 50 Flathead Shares were not
available for transfer so an escrow account was established with the $40,500
purchase price for these shares. If the Consolidation Agreement is approved,
the Company will purchase the 1,842 Flathead Shares from the six directors, in
lieu of an exchange for Company stock, at the price paid to Flathead
-vi-
<PAGE>
therefor plus interest accruing on the individual funds each such person
borrowed in order to purchase the Flathead Shares. In addition, the $40,500
in escrow for the remaining 50 Flathead Shares will be released upon receipt
of the stock certificates representing these shares. The Flathead Shares
will subsequently be canceled. All shares of Bank stock owned by the six
directors, other than the Flathead Shares, will be exchanged for Company
stock in the consolidation on the same 10-for-1 basis as Bank stock held by
all other shareholders. If the Consolidation Agreement is not approved and
the Company is not formed, the Company will not purchase the Flathead Shares.
The six directors will either retain ownership of their Flathead Shares or
may try to resell the shares in order to pay the costs associated with their
individual loans used to purchase the shares.
The purpose of the Consolidation Agreement is the formation of the Company
as a bank holding company for the Bank. Shareholder approval is not being
solicited for the purchase of the Flathead Shares, and is not separately
required, except as part of the terms of the Consolidation Agreement. However,
approval of the Consolidation Agreement and the subsequent formation of the
Company will make possible the Company's purchase of the Flathead Shares. A
vote against the Consolidation Agreement will constitute a vote against all of
its terms, including formation of the Company and the Company's purchase of the
Flathead Shares.
If you dissent from this proposal and properly perfect your right of
dissent with respect to the consolidation, you will receive the value of your
Bank stock in cash in compliance with the applicable statutory provisions under
the National Bank Act. To the extent permitted by law, the obligations of the
Bank to pay dissenters will be assumed by the Company.
It is management's opinion that the proposed formation of the Company,
which is more fully described in the accompanying Prospectus/Proxy Statement,
will provide certain advantageous financing alternatives not currently available
to the Bank and will enable the Bank to continue to meet the changing financial
requirements of its customers and the community it serves. It may also provide
some liquidity for shareholders and flexibility in the future if it is
determined to be desirable to acquire other financial institutions or to enter
into certain banking-related activities which the Bank cannot now legally
undertake.
The Bank has requested the opinion of the law firm of Rothgerber, Appel,
Powers & Johnson LLP that the acquisition, if consummated, will be tax-free to
the Bank, the Company and to Bank stockholders who receive only common stock of
the Company. A draft of the tax opinion is a part of the enclosed
Prospectus/Proxy Statement. The acquisition will not be consummated unless such
opinion can be given at closing.
Under federal securities law the Proxy Statement of the Bank is deemed to
be a Prospectus under which the Company offers its stock to you pursuant to the
Consolidation Agreement. This is the reason for the statement in bold-face type
below, which federal securities law requires on all prospectuses.
-vii-
<PAGE>
Management and the Board of Directors of the Bank believe that the
Consolidation Agreement is in the best interest of the shareholders of the Bank
and urge you to vote in favor of its ratification and confirmation.
Very truly yours,
BANKWEST, NATIONAL ASSOCIATION
---------------------------------------
Douglas K. Morton
President/Chief Executive Officer
Date: ______________, 1997
---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-viii-
<PAGE>
BANKWEST, NATIONAL ASSOCIATION
444 West Idaho
Kalispell, Montana 59904
NOTICE
OF
ANNUAL MEETING OF SHAREHOLDERS
to be held __________, 1997
Notice is hereby given that pursuant to the call of its Board of Directors,
the Annual Meeting of Shareholders of BankWest, National Association (the
"Bank") will be held on _____day, ______________, 1997, at 3:00 p.m., local
time, at The Outlaw Inn, 1701 Highway 93 South, Kalispell, Montana. The
discussion and vote upon the Consolidation Agreement will not commence until
4:00 p.m.
The purposes of the meeting are:
(1) To elect six (6) persons to the Board of Directors of the Bank to hold
office until the next Annual Meeting of Shareholders or until their respective
successors shall be elected and qualified.
(2) To ratify and confirm a Plan of Consolidation and Consolidation
Agreement (the "Consolidation Agreement"), a copy of which is attached as
Exhibit A to the accompanying Proxy Statement, which provides for the
consolidation of BankWest Interim Bank, N.A. with and into the Bank. BankWest
Interim Bank, N.A. is a wholly owned subsidiary of BankWest Financial, Inc., a
Montana corporation. Pursuant to the Consolidation Agreement, BankWest Interim
Bank, N.A. and the Bank will consolidate and the Bank will become the Continuing
Bank. All stock of the Bank will be held by BankWest Financial, Inc. upon
consummation of the transaction and the stock of BankWest Financial, Inc. will
be held by the current shareholders of the Bank as further discussed in the
Prospectus/Proxy Statement. The Continuing Bank will continue business under
the name BankWest, National Association, subject to all the conditions set forth
in the attached Proxy Statement/Prospectus and subject to the approval of the
Office of the Comptroller of the Currency and the Board of Governors of the
Federal Reserve System. The purpose for the Consolidation Agreement is the
formation of the Company.
(3) To transact such other business as may be legally brought before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business as of 5:00 p.m. on
_______________, 1997, will be entitled to vote at the meeting. You may revoke
your proxy at any time prior to its exercise.
By Order of the Board of Directors
------------------------------------
Donald B. McCarthy, Secretary
Kalispell, Montana
-ix-
<PAGE>
_____________, 1997
- -------------------------------------------------------------------------------
IMPORTANT--PLEASE MAIL YOUR PROXY PROMPTLY
In order that there may be proper representation at the meeting,
you are urged to sign and return the enclosed proxy in the envelope
provided to the principal office of BankWest, National Association
no later than 5:00 p.m., _______________, 1997. If you attend the
meeting, you may withdraw your proxy and vote in person. That
number of shares of Bank Stock represented by proxies which are
returned unmarked will be voted in favor of the Consolidation
Agreement.
- -------------------------------------------------------------------------------
-x-
<PAGE>
PROSPECTUS
The Date of this Prospectus/Proxy Statement is ______________, 1997
BANKWEST FINANCIAL, INC.
71,880 SHARES
COMMON STOCK
THIS DOCUMENT SERVES AS A PROSPECTUS FOR SHARES OF COMMON STOCK OF
BANKWEST FINANCIAL, INC. AND ALSO AS A PROXY STATEMENT FOR THE ANNUAL
MEETING OF THE SHAREHOLDERS OF BANKWEST, NATIONAL ASSOCIATION.
This Prospectus covers 71,880 shares of common stock of BankWest
Financial, Inc., a Montana corporation (the "Company"), to be issued in
connection with the acquisition of BankWest, National Association (the
"Bank") by the Company as described in the attached Prospectus/Proxy
Statement. The common stock of the Company ("Company Stock") will be
exchanged for shares of common stock of the Bank ("Bank Stock") on a
ten-for-one basis by Bank stockholders other than stockholders owning the
Flathead Shares, as discussed further herein, who do not dissent from the
proposal and perfect their rights of appraisal under applicable provisions of
the National Bank Act.
Consummation of the Plan of Consolidation and Consolidation Agreement
(the "Consolidation Agreement"), a copy of which is attached hereto as
EXHIBIT A and is incorporated herein by this reference, is conditioned upon
the approval of the acquisition by two-thirds of the outstanding shares of
Bank Stock entitled to vote and various other conditions as described in the
attached Prospectus/Proxy Statement. The purpose of the Consolidation
Agreement is the formation of a bank holding company for the Bank.
----------------------
THE SHARES OF COMPANY STOCK DESCRIBED IN THE PROSPECTUS/PROXY STATEMENT ARE
NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. THESE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
-1-
<PAGE>
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD _______________, 1997
This Prospectus/Proxy Statement is furnished in connection with the
solicitation by the Board of Directors of BankWest, National Association (the
"Bank") of proxies for use at the Annual Meeting of Shareholders of the Bank
to be held ____________, 1997. Only shareholders of record as of 5:00 p.m. on
_____________, 1997, will be entitled to notice of, and to vote at, the
Annual Meeting. Each share is entitled to one vote on the matters to be voted
on at this Annual Meeting. There were 9,080 shares of Bank Stock outstanding
as of May 1, 1997.
The cost of soliciting proxies will be borne by the Bank. In addition
to use of the mails, proxies may be solicited personally or by telephone or
telegraph by officers and directors who will not be specially compensated for
such solicitation.
This Prospectus/Proxy Statement and enclosed proxy were first mailed to
the Bank's shareholders on or about ______________, 1997.
Any shareholder giving a proxy has the right to revoke it at any time
before it is exercised, and, therefore, execution of the proxy will not in
any way affect the shareholder's right to attend the meeting in person.
Revocation may be made prior to the meeting by written revocation or a duly
executed proxy bearing a later date sent to the Bank, Attention: Donald B.
McCarthy, Secretary, 444 West Idaho, Kalispell, Montana 59904, or it may be
done personally upon oral or written request at the Annual Meeting. In the
absence of specific instructions to the contrary, proxies received by the
Board of Directors will be voted in favor of the proposals described herein.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
-2-
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
PURPOSE OF THE ANNUAL MEETING OF SHAREHOLDERS . . . . . . . . . . . . . . 7
PROPOSED ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . .13
PROPOSAL 1--ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . .14
PROPOSAL 2--INFORMATION CONCERNINGCONSOLIDATION AGREEMENT. . . . . . . . . . .15
REASONS FOR THE ACQUISITION . . . . . . . . . . . . . . . . . . . . . . .15
HISTORY OF FLATHEAD SHARES. . . . . . . . . . . . . . . . . . . . . . . .16
DESCRIPTION OF THE CONSOLIDATION AGREEMENT. . . . . . . . . . . . . . . .18
DESCRIPTION OF COMPANY DEBT . . . . . . . . . . . . . . . . . . . . . . .21
RIGHTS OF DISSENTING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . .21
EMPLOYEE BENEFIT PLANS. . . . . . . . . . . . . . . . . . . . . . . . . .22
FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT . . . . . . . . . . .22
OTHER POSSIBLE CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . .23
MARKET PRICE OF AND DIVIDENDS ON BANK STOCK AND COMPANY STOCK. . . . . . . . .25
HISTORICAL AND PRO FORMA CAPITALIZATION. . . . . . . . . . . . . . . . . . . .26
DESCRIPTION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . .27
ORGANIZATION AND OPERATION. . . . . . . . . . . . . . . . . . . . . . . .27
REGULATION AND SUPERVISION. . . . . . . . . . . . . . . . . . . . . . . .27
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY. . . . . . . . . . .31
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
SALES OF ADDITIONAL SECURITIES. . . . . . . . . . . . . . . . . . . . . .32
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
ANTI-TAKEOVER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . .32
DESCRIPTION OF BANKWEST INTERIM BANK, N.A. . . . . . . . . . . . . . . . . . .33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE BANK . . . . . . . .33
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . .33
COMPARISON OF OPERATING RESULTS . . . . . . . . . . . . . . . . . . . . .34
INTEREST RATE SENSITIVITY AND LIQUIDITY . . . . . . . . . . . . . . . . .42
-3-
<PAGE>
CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
IMPACT OF INFLATION . . . . . . . . . . . . . . . . . . . . . . . . . . .44
DESCRIPTION OF THE BANK. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
HISTORY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
INVESTMENT PORTFOLIO. . . . . . . . . . . . . . . . . . . . . . . . . . .48
DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
REGULATION AND SUPERVISION. . . . . . . . . . . . . . . . . . . . . . . .52
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
COMPENSATION OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . .54
BOARD COMMITTEES AND MEETINGS . . . . . . . . . . . . . . . . . . . . . .54
EXECUTIVE COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . . . .54
STOCK OPTION PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT
AND OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY. . . . . . . . . . .56
EMPLOYEES AND EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . .56
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
PRINCIPAL HOLDERS OF VOTING SECURITIES . . . . . . . . . . . . . . . . . . . .57
COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK. . . . . . . . . . . . . . . .59
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
PREEMPTIVE AND OTHER RIGHTS . . . . . . . . . . . . . . . . . . . . . . .59
ASSESSMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
LIQUIDATION RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .60
SHARES ELIGIBLE FOR FUTURE SALE . . . . . . . . . . . . . . . . . . . . .60
ANTI-TAKEOVER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . .60
INFORMATION CONCERNING ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . .61
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .62
-4-
<PAGE>
EXHIBITS
A. Plan of Consolidation and Consolidation Agreement between BankWest,
National Association, BankWest Interim Bank, N.A. and BankWest
Financial, Inc.
B. Section 215 of the National Bank Act, concerning dissenters' rights.
C. Draft opinion of Rothgerber, Appel, Powers & Johnson LLP as to certain
tax consequences of the proposed acquisition.
D. Articles of Incorporation of BankWest Financial, Inc.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT, AND IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN
THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT
WOULD BE UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS/PROXY STATEMENT AT ANY TIME, NOR ANY OFFER OR SOLICITATION
MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
----------------------------------------------------------------------------
ANNUAL REPORTS TO SHAREHOLDERS
If the Consolidation Agreement is effected, the Company will furnish
to shareholders annual reports of the Company, including consolidated
financial statements of the Company and the Bank prepared in accordance
with generally accepted accounting principles. Audited financial
statements for the Bank's past two fiscal years are included with this
package.
----------------------------------------------------------------------------
-5-
<PAGE>
SUMMARY
Following is a brief summary of certain information set forth in the
Prospectus/Proxy Statement. This summary does not purport to be complete and
should be read in conjunction with the Prospectus/Proxy Statement as a whole,
including the Exhibits hereto. Bank shareholders are urged to read carefully
the entire Prospectus/Proxy Statement, including the Exhibits.
CERTAIN DEFINITIONS
"Annual Meeting" shall mean the Annual Meeting of the shareholders of
Bank Stock to be held _______________, 1997, at The Outlaw Inn, 1701 Highway
93 South, Kalispell, Montana, at 3:00 p.m., local time.
"Bank" shall mean BankWest, National Association, 444 West Idaho,
Kalispell, Montana 59904.
"Bank Stock" shall mean the $100 par value common stock of the Bank,
more fully described in "COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK."
"Company" shall mean BankWest Financial, Inc., 444 West Idaho,
Kalispell, Montana 59904, a Montana corporation, which will acquire up to
100% of the issued and outstanding Bank Stock from Bank shareholders.
"Company Stock" shall mean the common stock of the Company, more fully
described in "COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK."
"Consolidation Agreement" shall mean the Plan of Consolidation and
Consolidation Agreement attached as EXHIBIT A and further discussed herein.
"Effective Date" shall mean the date of consummation of the
Consolidation Agreement.
"Flathead Shares" shall mean the 1,892 shares of Bank Stock purchased or
to be purchased from Flathead Holding Company of Big Fork, Montana, by six
officers or directors of the Bank (Messrs. Dasen, Gunlikson, Lee, Morton and
Smith and Ms. Rogers) on January 24, 1997, pursuant to the Stock Purchase
Agreement dated December 5, 1996, as more fully described in "INFORMATION
CONCERNING CONSOLIDATION AGREEMENT--HISTORY OF FLATHEAD SHARES."
"FRB" shall mean the Board of Governors of the Federal Reserve System,
also known as the Federal Reserve Board.
"Interim Bank" shall mean BankWest Interim Bank, N.A., 444 West Idaho,
Kalispell, Montana 59904, a wholly owned subsidiary of BankWest Financial,
Inc.
"OCC" shall mean the Office of the Comptroller of the Currency.
-6-
<PAGE>
PURPOSE OF THE ANNUAL MEETING OF SHAREHOLDERS
The meeting is an Annual Meeting of Shareholders of the Bank at which
shareholders will be asked to elect six (6) directors to the Board, to vote
on a major Consolidation Agreement and to vote upon other matters as may
properly be presented at the meeting. The holders of record of Bank Stock as
of 5:00 p.m. on ___________, 1997, are entitled to vote on all matters at the
Annual Meeting. See "ELECTION OF DIRECTORS" and "INFORMATION CONCERNING
CONSOLIDATION AGREEMENT."
PROPOSED ACQUISITION
CONSOLIDATION AGREEMENT. At the Annual Meeting, shareholders will
consider and vote upon the proposed Consolidation Agreement, a copy of which
is attached hereto as EXHIBIT A. As a result of the acquisition, the Bank
will become a wholly owned subsidiary of the Company. On the Effective Date,
each one (1) share of outstanding Bank Stock, other than Flathead Shares,
shall automatically be converted into and represent a right to receive ten
(10) shares of outstanding Company Stock, and shareholders of the Bank, other
than those holding Flathead Shares, will automatically become shareholders of
the Company with a greater percentage ownership interest in the Company due
to the purchase and cancellation of the Flathead Shares. The Board of
Directors believes that the 10-for-1 share exchange is in the best interest
of all shareholders in order to decrease the per share price of Company Stock
to a value of $50 to $100. Several shareholders have indicated an interest
in purchasing additional shares, but are unwilling or unable to spend in
excess of $500 for one share of Bank Stock. This has the effect of limiting
the market for the Bank Stock. Additionally, several shareholders have
expressed an interest in transferring Bank Stock to family members for estate
planning purposes, but have been somewhat limited in their options by the few
number of shares of Bank Stock owned by them and the relatively high price
per share. Stock certificates representing shares of Company Stock will be
distributed to each shareholder in exchange for their stock certificates
representing shares of Bank Stock after the Effective Date within 30 days
after the Company has received the stock certificates representing that
shareholder's shares of Bank Stock.
The six officers and directors of the Bank holding the 1,842 Flathead
Shares shall receive on the Effective Date in exchange for the Flathead
Shares, in lieu of Company Stock, a cash payment in the amount of $810.00 per
Flathead Share owned by them, plus accrued interest thereon. The $810.00 per
share held in an escrow account for the remaining 50 Flathead Shares will be
paid to the holder of these shares upon receipt of the certificates
representing these shares. See "INFORMATION CONCERNING CONSOLIDATION
AGREEMENT--HISTORY OF FLATHEAD SHARES." Shares of Bank Stock other than the
Flathead Shares held by these six persons will be exchanged for Company Stock
on a 10-for-1 basis. Shareholders who do not dissent from the proposal and
perfect their rights of payment under the National Bank Act may exchange each
one (1) share of Bank Stock owned by them for ten (10) shares of Company
Stock. Shareholders who object to the Consolidation Agreement have the right
to perfect their rights as dissenters and to receive the value of their
shares of Bank Stock in cash after the Effective Date. THE BOARD OF
DIRECTORS OF THE BANK IS UNANIMOUSLY IN FAVOR OF THE PRO-
-7-
<PAGE>
POSED CONSOLIDATION AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR ITS
APPROVAL.
The individuals who constitute the Board of Directors of the Bank and
the Board of Directors of the Company will be identical. In the event the
directors of either the Bank, the Interim Bank or the Company conclude that
the acquisition is not in the best interest of either of the respective
entities, the Consolidation Agreement may be terminated upon resolution
adopted by the Board of any such entity, written notice of which shall be
given to the Boards of the other entities and to the shareholders of the
Bank. See "INFORMATION CONCERNING CONSOLIDATION AGREEMENT--DESCRIPTION OF
THE CONSOLIDATION AGREEMENT."
PURPOSES OF THE ACQUISITION. The immediate purpose of the Consolidation
Agreement is to transfer ownership of the Bank to the Company in order to
make available certain advantages associated with ownership of the Bank
through a one-bank holding company, including (i) creating a market for
shares of Company Stock, (ii) having the ability to borrow funds, as
necessary, which could be contributed to the Bank, (iii) permitting greater
flexibility in responding to new banking laws, (iv) facilitating acquisition
activities, (v) engaging in activities closely related to banking, and (vi)
transferring dividends from the Bank to the Company without being subject to
taxation. See "INFORMATION CONCERNING CONSOLIDATION AGREEMENT--REASONS FOR
THE ACQUISITION." Management believes that the Company's ownership of the
Bank will enable the Bank to continue to meet the changing financial
requirements of all segments of the Bank's community. The purchase of
Flathead Shares for cash was negotiated by Bank management in order to
prevent Flathead from acquiring a controlling interest in the Bank. See
"INFORMATION CONCERNING CONSOLIDATION AGREEMENT--HISTORY OF FLATHEAD SHARES."
DEBT OF THE COMPANY. An unrelated financial institution has approved
commitments for standby lines of credit to the Company in the amount of
$125,000 for organizational expenses of the Company, $120,000 to temporarily
capitalize the Interim Bank, and up to $883,602 to pay the holders of the
Flathead Shares. Any additional amounts necessary to pay the holders of the
Flathead Shares or any dissenters will be paid by a dividend declared by the
Bank to the Company. Management is not aware of any plan to dissent on the
part of holders of Bank Stock and estimates that only a minimal number of
Bank shareholders may dissent. See "INFORMATION CONCERNING CONSOLIDATION
AGREEMENT--DESCRIPTION OF COMPANY DEBT."
CONDITIONS TO CONSUMMATION OF THE CONSOLIDATION AGREEMENT. The
affirmative vote of the holders of two-thirds of the shares of Bank Stock
(66 2/3%) is required for approval of the Consolidation Agreement. Management
believes that shareholder approval of the Consolidation Agreement is
virtually assured because as of May 1, 1997, the directors and executive
officers of the Bank (seven persons) beneficially owned or controlled 58.4%
of the outstanding Bank Stock. See "PRINCIPAL HOLDERS OF VOTING SECURITIES."
Each of these persons has indicated his or her intention to vote in favor of
the Consolidation Agreement.
Management of the Bank does not anticipate that there will be dissenting
shareholders. The consummation of the Consolidation Agreement also requires
final approval of the OCC and final
-8-
<PAGE>
approval of the FRB of an application by the Company to become a one-bank
Company. The FRB application was filed on December 17, 1996, and approved on
January 22, 1997. The OCC application was filed on December 19, 1996. The
OCC granted approval to form the Interim Bank on December 30, 1996, and
approved the Consolidation Agreement on January 30, 1997. Such approval
should not be construed as an endorsement or recommendation of the proposed
acquisition. The Consolidation Agreement is also subject to this
Prospectus/Proxy Statement being declared effective by the Securities and
Exchange Commission (the "SEC") which occurred on _______________, 1997. See
"INFORMATION CONCERNING CONSOLIDATION AGREEMENT--DESCRIPTION OF THE
CONSOLIDATION AGREEMENT."
RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of the Bank who vote
against the proposal and file a written notice of dissent at or prior to the
meeting and perfect their dissenters' rights will have the right to be paid
the fair cash value of their shares if they fully comply with the applicable
procedures of Section 215 of Title 12 of the United States Code, attached
hereto as EXHIBIT B. Notice should be given to Douglas K. Morton, President,
at 444 West Idaho, Kalispell, Montana 59904. For further information see
"INFORMATION CONCERNING CONSOLIDATION AGREEMENT--RIGHTS OF DISSENTING
SHAREHOLDERS."
TAX CONSEQUENCES. The Bank has requested an opinion from special
counsel to the effect that no gain or loss will be recognized for federal
income tax purposes by the Bank, Bank shareholders (other than the holders of
Flathead Shares and those Bank shareholders who dissent and receive cash for
their Bank Stock) or the Company in connection with the proposed
Consolidation Agreement. The full text of the draft opinion is attached as
EXHIBIT C. For a summary of the opinion, see "INFORMATION CONCERNING
CONSOLIDATION AGREEMENT--FEDERAL TAX CONSEQUENCES OF CONSOLIDATION
AGREEMENT." This opinion will be given prior to and as a condition of
consummation.
BUSINESS OF THE BANK AND THE COMPANY. The Bank is chartered as a
national bank under the laws of the United States of America and conducts a
commercial banking business in Montana. The Company is a corporation,
incorporated on October 4, 1996, under the laws of the State of Montana,
which has applied for and received prior approval from the FRB and the OCC to
become a one-bank holding company. Upon completion of the Consolidation
Agreement, the Company will own all of the outstanding shares of Bank Stock.
It may engage in other activities permitted under the Federal Bank Company
Act of 1956, as amended. See "DESCRIPTION OF THE BANK" and "DESCRIPTION OF
THE COMPANY."
DIFFERENCES BETWEEN BANK STOCK AND COMPANY STOCK. Holders of shares of
Bank Stock are entitled to dividends as and when declared by the Board of
Directors out of funds legally available therefor, to one vote for each share
held and, in the event of liquidation, to the net assets remaining after
satisfaction of all liabilities. Bank shareholders do have preemptive rights
to purchase newly issued shares of Bank Stock and do not have cumulative
voting rights in the election of directors.
The holders of Company Stock are also entitled to dividends as and when
declared by the Board of Directors out of funds legally available therefor
and, in the event of liquidation, to the net assets remaining after
satisfaction of all liabilities. Company shareholders will not be entitled to
-9-
<PAGE>
cumulative voting rights in the election of directors and will not have
preemptive rights. See "COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK."
ANTI-TAKEOVER PROVISIONS. The Company's Articles of Incorporation
provide certain anti-takeover provisions, including a "super-majority" vote
for fundamental corporation transactions. These provisions may deter
attempts to gain control over the Company. See "COMPARISON BETWEEN COMPANY
STOCK AND BANK STOCK--ANTI-TAKEOVER PROVISIONS."
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON. As of May 1,
1997, the directors and executive officers of the Bank (seven persons)
beneficially owned or controlled, directly or indirectly, 5,301 shares or
58.4% of outstanding Bank Stock. See "PRINCIPAL HOLDERS OF VOTING
SECURITIES." Each of the executive officers and directors of the Bank has
indicated his intention to vote in favor of the Consolidation Agreement.
Public resale of the Company Stock by certain persons deemed to be
affiliates (control persons) of the Company, such as Mr. Morton and other
directors and executive officers of the Bank, will be restricted pursuant to
certain provisions of Rule 145 promulgated under the Securities Act of 1933.
Stock certificates representing Company Stock issued to such persons will
bear a legend to that effect. No resales will be made pursuant to this
Prospectus/Proxy Statement or the Registration Statement in which it was
filed under federal securities laws. See "PRINCIPAL HOLDERS OF VOTING
SECURITIES."
Affiliates can only publicly sell in any three-month period an amount of
stock representing no more than one percent of all outstanding shares of
Company Stock and can only publicly sell when current public information
about the Company is available. Additionally, public resale by affiliates can
only be made through brokers' transactions or in transactions with market
makers. In certain situations, a notice of public sale on Form 144 will be
required to be filed with the SEC.
CERTAIN HISTORICAL AND PRO FORMA PER SHARE DATA. The following tables
show certain historical income data, per share data, dividend data and pro
forma data that assumes that the transaction had occurred prior to the
periods indicated. See also "SELECTED FINANCIAL DATA" and "HISTORICAL AND
PRO FORMA CAPITALIZATION." All historical data refers to historical Bank
information and all pro forma data refers to the combined information of the
Company and the Bank as the Company's subsidiary. The pro forma data has
been prepared by an accounting method similar to a pooling of interests
accounting method, i.e., any new organization under common control, as it is
anticipated that the acquisition will be treated on a pooling of interests
basis for accounting purposes. Further, it is anticipated that in the
acquisition the Company will be the acquirer and the Bank will be the
acquiree. The tables are not necessarily indicative of the actual results
that would have been obtained had the acquisition been consummated in the
past or which may be obtained in the future.
-10-
<PAGE>
Net Income
Year Ended December 31
---------------------------------
1996 1995 1994
-------- -------- --------
Bank historical $673,366 $595,771 $547,118
Company pro forma adjustments
Interest expense(1) (36,960) (36,960) (36,960)
Foregone investment interest(2) (28,035) (28,035) (28,035)
Total adjustments $(64,995) $(64,995) $(64,995)
Company pro forma net income $608,371 $530,776 $482,123
- -------------------
(1) Interest is computed on a $767,000 loan at an estimated annual rate of 8%
and adjusted for income taxes.
(2) The Bank intends to declare an $890,000 dividend to pay organizational
costs ($125,000) and for a portion of the Flathead Shares ($765,000).
Foregone interest is the interest that could be earned on the $890,000 at
an annual investment rate of 5.25% and adjusted for income taxes at a 40%
tax rate.
Net Income per Share(1)
Year Ended December 31
---------------------------------
1996 1995 1994
-------- -------- --------
Bank historical(2) $78.44 $72.44 $68.39
Company pro forma combined,
7,046 shares outstanding(3) 86.34 75.33 68.43
(1) Assumes acquisition occurred on January 1 of each year for the pro forma
amounts in a one-for-one exchange. The difference between the historical
and pro forma figures the purchase of Flathead Shares at a cost of
$1,532,000. Of this amount, $765,000 will be paid through a dividend and
the balance of $767,000 will be paid through the acquisition of debt.
Estimated organizational expenses of $125,000 will be paid through the
issuance of a dividend.
(2) Determined by dividing historical net income by the average weighted number
of shares of Bank common stock outstanding during each period. The
weighted average number of shares outstanding was 8,585, 8,224 and 8,000
for 1996, 1995 and 1994, respectively.
(3) Reflects purchase of Flathead Shares and assumes no shareholders of the
Bank dissent to the acquisition. Determined by dividing the pro forma net
income by 7,046 shares.
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<PAGE>
Book Value per Share(1)
Year Ended December 31
--------------------------------
1996 1995 1994
------- ------- -------
Bank historical $503.75 $440.85 $372.47
Company pro forma combined
7,046 shares outstanding(2) $530.40 $304.91 $194.26
- ----------------------
(1) See also "HISTORICAL AND PRO FORMA CAPITALIZATION."
(2) Reflects purchase of Flathead Shares and assumes no Bank shareholders
dissent to the acquisition.
Dividends per Share(1)
Year Ended December 31
--------------------------------
1996 1995 1994
------- ------- -------
Bank historical $5.00 $5.00 $5.00
Company pro forma combined
7,046 shares outstanding(2) 6.34 6.06 5.68
- ----------------------
(1) Dividend per share information is based actual shares outstanding at the
end of each period and total dividends paid in each period. Shares
outstanding were 8,938, 8,540 and 8,000 for 1996, 1995 and 1994,
respectively. Total dividends paid were $44,690, $42,700 and $40,000 for
1996, 1995 and 1994, respectively. Although no assurance of the level of
future dividends can be made, the Board of Directors does not anticipate a
significant change in the dividend policy.
(2) Reflects purchase of Flathead Shares and assumes no Bank shareholders
dissent to the acquisition.
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<PAGE>
SELECTED FINANCIAL DATA
The following table presents summary financial information about the Bank
for the years ended December 31, 1996, 1995 and 1994, as well as certain per
share data for each period indicated. The information for the years ended
December 31, 1994, through December 31, 1996, are derived from the Bank's
financial statements which have been audited.
December 31
------------------------------
1996 1995 1994
-------- -------- --------
(in thousands, except per share data)
Summary of operations
Interest income $ 3,525 $ 3,121 $ 2,520
Interest expense 1,543 1,325 874
-------- -------- --------
Net interest income $ 1,983 $ 1,796 $ 1,646
Provision for loan losses 67 36 77
-------- -------- --------
Net interest income after
provision for loan losses $ 1,916 $ 1,760 $ 1,569
Other income 801 734 730
Other expenses 1,666 1,567 1,454
-------- -------- --------
Income before income taxes $ 1,051 $ 927 $ 846
Income tax expense 377 331 298
-------- -------- --------
Net income $ 673 $ 596 $ 547
-------- -------- --------
-------- -------- --------
Per share information
Net income (average shares outstanding) $ 78.44 $ 72.44 $ 68.39
-------- -------- --------
-------- -------- --------
End of period book value $ 503.75 $ 440.85 $ 372.47
Shares issued and outstanding 8,938 8,540 8,000
Balance sheet information
Total assets $ 43,199 $ 40,274 $ 34,745
Total deposits $ 35,693 $ 34,441 $ 30,572
Total loans $ 30,038 $ 28,281 $ 24,350
Allowance for loan losses $ 331 $ 357 $ 346
Shareholders' equity $ 4,503 $ 3,765 $ 2,980
Return on equity and assets information
Return on assets 1.57% 1.56% 1.65%
Return on equity 16.38% 17.69% 19.54%
Dividend payout ratio 6.67% 7.17% 7.31%
Equity to assets ratio 9.59% 8.82% 8.43%
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<PAGE>
PROPOSAL 1--ELECTION OF DIRECTORS
In accordance with the Bank's Bylaws, six (6) directors will be elected
to the Board of Directors to serve until the 1998 Annual Meeting of
Shareholders or until their successors are duly elected and qualified. The
proxies will be voted, unless authority to do so is withheld, in favor of the
six (6) nominees recommended by the Board. MANAGEMENT RECOMMENDS VOTING IN
FAVOR OF EACH PERSON NAMED BELOW:
Name and Age
(as of 12-31-96) Position in Bank
---------------- ----------------
Richard Dasen, 54 Director
Richard Gunlikson, 68 Director
Charles Lee, 62 Director
Douglas Morton, 52 President and Chairman
Teruko Rogers, 58 Director
Barry Smith, 42 Director
During the past five years, the business experience of each nominee for
director has been as follows:
RICHARD DASEN has been a director of the Bank since 1987. He is Chairman
of Dasen Company, a holding company for various business interests, located in
Flathead County. He is also CFO of City Service, Inc. of Kalispell.
RICHARD GUNLIKSON has been a director of the Bank since 1987. He is a
Certified Public Accountant and owner of R. Gunlikson & Assoc. CPA, P.C. and a
partner in Montana Menswear.
CHARLES LEE has been a director of the Bank since 1987. He is President
of Lee Distributing, Inc., a wholesale beer distributor, Chuck Lee Trucking,
Inc. and C. L. Wine, a wholesale wine distributor.
DOUGLAS MORTON has been Chairman of the Board and President of the Bank
since 1987. He brings 17 years of banking experience to the Bank.
TERUKO ROGERS has been a director of the Bank since 1987. She is
Controller of Ponderosa Motors, an automobile dealership.
BARRY SMITH was a director of the Bank from 1987 through August 1991 when
he moved out of the area. He was reelected to the Board in April 1996. Mr.
Smith is President of Barry Smith Logging, Inc.
Information concerning ownership of Bank Stock, compensation and other
information about these six persons can be found beginning at "DESCRIPTION OF
THE BANK--MANAGEMENT" and at "PRINCIPAL HOLDERS OF VOTING SECURITIES."
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<PAGE>
PROPOSAL 2--INFORMATION CONCERNING
CONSOLIDATION AGREEMENT
At the Annual Meeting, Bank shareholders will consider and vote upon a
Consolidation Agreement under which, if approved, the Bank will be conducted
as a wholly owned subsidiary of the Company. If the Consolidation Agreement
is approved, shareholders of the Bank other than those holding Flathead Shares
who do not elect to exercise their dissenters' rights will receive ten (10)
shares of Company Stock in exchange for one (1) share of the $100.00 par value
Bank Stock. THE BOARD OF DIRECTORS OF THE BANK IS UNANIMOUSLY IN FAVOR OF THE
PROPOSED CONSOLIDATION AGREEMENT AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR ITS
APPROVAL.
REASONS FOR THE ACQUISITION
MARKET FOR SHARES. Holding companies, unlike banks, can make a market in
their own shares. Banks cannot repurchase their own shares without regulatory
approval but holding companies can repurchase up to 10% of their outstanding
stock in any 12-month period without seeking the approval of any regulatory
authority. Because the Bank Stock is not widely held, an active market for
its shares does not exist. The Company can assist shareholders wishing to
dispose of their shares by standing ready to repurchase them. To this end,
the Company will be agreeable to purchase outstanding shares of the Company
Stock in the future to the extent, in the opinion of its Board of Directors,
it has funds available for such purchases. However, regulations of the FRB
prohibit redemptions by bank holding companies of their stock in excess of 10%
of their equity capital in any 12-month period without prior notice. In
addition, purchases by the Company of its stock cannot be made if the
Company's consolidated capital would fall below then applicable minimum
capital guidelines of bank regulatory agencies. It is anticipated that when
Company Stock is repurchased it will be repurchased on terms negotiated at
that time. It is not anticipated that there will be an active market for the
Company Stock upon consummation of the Consolidation Agreement.
FUTURE FINANCING ADVANTAGES. Acting pursuant to their responsibility for
regulating and supervising banks, federal bank regulatory authorities have the
authority to require that banks maintain adequate capital to meet the demands
of new growth. Rapid future growth in the Bank's assets could result in a
decline in the Bank's required capital-to-assets ratio. A bank holding
company has the ability to borrow funds, which could then be either
contributed to the capital of the Bank or invested in the Bank through the
purchase of newly authorized shares. The Company has no current plans to
engage in activities other than acting as a holding company for the Bank.
RESPONSE TO CHANGING NEEDS. In the opinion of the Board of Directors of
the Bank, the Consolidation Agreement will permit greater flexibility in
responding to the rapidly changing law and practice in the banking industry.
These changes are required by customer demand for new and more varied
services, to meet the competition of other financial institutions, and to take
advantage of opportunities brought about by recent legislation and changes in
government regulations. Some of the ways in which the Consolidation Agreement
will enable the Bank to respond to such changes are set forth below.
-15-
<PAGE>
ACQUISITION ACTIVITIES. Holding companies can invest in corporations
performing banking-related functions to an extent not permitted to banks. The
Bank's management believes that the Consolidation Agreement may facilitate
acquisition activities which would otherwise be unavailable to the Bank. See
"DESCRIPTION OF THE COMPANY--REGULATION AND SUPERVISION." The Company
currently has no specific acquisition plans other than acquisition of the Bank.
NONBANKING ACTIVITIES. Restrictions imposed by law prohibit the Bank
from directly expanding its services into other fields of financial and
managerial activities closely related to banking. Banks can, however, invest
to a limited extent in a bank services corporation which can engage in
activities other than banking. A bank holding company can also engage in
financial and managerial activities closely related to banking, although,
unlike a bank services corporation, it is not limited in the amount it may
invest in these activities. Thus, the bank holding company structure provides
flexibility and can be used advantageously to move into other financially
oriented activities. A holding company can either carry on these activities
directly or it can form one or more subsidiaries for that purpose. A holding
company can also acquire existing companies already established in such
activities. It is not currently anticipated that the Company will engage in
any other operations other than the operation of the Bank as a subsidiary,
even though it has the ability and could do so in the event that, at any time
in the future, management believes such a course of action would be advisable.
Prior to the organization or acquisition of any related business, the Company
must obtain prior approval of the FRB. See "DESCRIPTION OF THE
COMPANY--REGULATION AND SUPERVISION."
TAX BENEFITS. On the Effective Date, the Company will own 100% of the
outstanding shares of Bank Stock, and the Bank will then be the Company's
subsidiary. The Bank and the Company will file consolidated federal income
tax returns for years following the year of the exchange. One advantage of
this is that dividends from the Bank can be transferred to the Company (to
enable it to pay interest and principal on any indebtedness incurred in the
Consolidation Agreement) without being subjected to taxation. In addition,
interest deductions on Company indebtedness may be used to offset the income
of the Bank, reducing its tax burden. See "INFORMATION CONCERNING
CONSOLIDATION AGREEMENT--FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT."
HISTORY OF FLATHEAD SHARES
Flathead is a bank holding company owning Flathead Bank of Bigfork and a
branch bank in Lakeside. Until late 1996 it was affiliated with Mountain Bank
of Whitefish and its branch in Evergreen. All of these institutions are
competitors with the Bank in the Kalispell market. In June 1996, the Federal
Reserve Board approved Flathead's application to acquire up to 23.4% of the
voting shares of the Bank, which would have made Flathead the Bank's single
largest shareholder. The Bank's Board of Directors determined that it was in
the best interest of the Bank's shareholders, customers and employees to
resist Flathead's acquisition effort due to Flathead's resulting ability to
influence Bank management decisions and place at least one director upon the
Bank's Board, and the extent to which Flathead's community ownership of stock
and management style differs from that of the Bank.
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<PAGE>
Therefore, in July 1996, Douglas Morton, President of the Bank, along
with Bank directors Richard Dasen and Charles Lee and the Bank's legal
counsel, commenced negotiations with Flathead's President and Chairman, Larry
W. Jochim, and Flathead's legal counsel for the purchase of the Bank Stock
held by Flathead or to be acquired by Flathead pursuant to options granted by
Bank shareholders (the "Flathead Shares") to Flathead. The result of these
negotiations was the Stock Purchase Agreement dated December 5, 1996, a copy
of which is attached to the Consolidation Agreement as Exhibit A to the
Prospectus/Proxy Statement, pursuant to which the Company agreed to purchase
the Flathead Shares for cash to prevent Flathead's continued ownership of Bank
Stock. The Company is not soliciting approval of the Stock Purchase Agreement
which has already been consummated.
Since the Company is unable to purchase shares of Bank stock until after
the bank holding company formation is completed, on January 24, 1997, six
officers and directors of the Bank purchased the Flathead Shares from Flathead
in order to halt the daily acceleration of the per share price of the Flathead
Shares payable to Flathead pursuant to the Stock Purchase Agreement. 1,842
Flathead Shares were purchased at $810.00 per share, or $1,492,020 in the
aggregate, and $40,500 was placed in escrow for the remaining 50 Flathead
Shares. The 1,892 Flathead Shares represented a 20.5% block of Bank stock
held by Flathead at the time of the sale. The $810.00 per share price paid
for the 1,892 Flathead Shares represents approximately 1.55 times the book
value per share of the Bank stock at January 24, 1997 ($522.73), or
approximately 1.2 times the average trading price in the fourth quarter of
1996 ($679.95). Bank stock has historically traded at or near book value.
Other than the purchase of Flathead Shares from Flathead, the most recent
trade of Bank stock was on November 1, 1996, at approximately 1.3 times book
value per share. Flathead paid approximately 1.3 times book value to acquire
the Flathead Shares. The $810.00 price was negotiated at arms' length by the
representatives of Flathead and the Bank. No formal or informal appraisals or
valuations were obtained by the Bank relating to the price paid. The Bank's
Board believes that the $810.00 price represented the fair market value of a
20.5% block of Bank stock on January 24, 1996, based upon the book value and
historical trades of Bank stock and its negotiations with Flathead. However,
it is unlikely that shareholders dissenting to the Consolidation Agreement or
shareholders selling smaller blocks of Bank stock or Company stock in the
future would receive this price due to the general market premium placed upon
large blocks of a company's stock. The immediate effect of the purchase of
Flathead Shares by the Company will be a $7.86 per share decrease in the book
value of the remaining shares of Company stock. Even though there is an
initial decrease in book value, management strongly believes that the
transaction described more fully herein is in the best long-term interests of
Bank shareholders.
Bank directors Richard Dasen, Richard Gunlikson, Charles Lee, Douglas
Morton, Teruko Rogers and Barry Smith each purchased 307 Flathead Shares on
January 24, 1997, with their own funds and on their own behalf in order to
protect the interests of the Bank. Each person obtained an individual loan in
order to purchase the Flathead Shares. Another 50 Flathead Shares were not
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<PAGE>
available for transfer so an escrow account was established with the $40,500
purchase price to pay for these shares. If the Consolidation Agreement is
approved, the Company will purchase the 1,842 Flathead Shares from the six
directors, in lieu of an exchange for Company Stock, at the price paid to
Flathead therefor plus interest accruing on the individual funds each such
person borrowed in order to purchase the Flathead Shares. In addition, the
$40,500 in escrow for the remaining 50 Flathead Shares will be released upon
receipt of the stock certificates representing these shares. The Flathead
Shares will subsequently be canceled. All shares of Bank Stock owned by the
six directors, other than the Flathead Shares, will be exchanged for Company
Stock in the consolidation on the same 10-for-1 basis as Bank Stock held by
all other shareholders.
The purpose of the Consolidation Agreement is the formation of the
Company as a bank holding company for the Bank. Shareholder approval is not
being solicited for the purchase of the Flathead Shares, and is not separately
required, except as part of the terms of the Consolidation Agreement.
However, approval of the Consolidation Agreement and the subsequent formation
of the Company will make possible the Company's purchase of the Flathead
Shares. A vote against the Consolidation Agreement will constitute a vote
against all of its terms, including formation of the Company and the Company's
purchase of the Flathead Shares.
DESCRIPTION OF THE CONSOLIDATION AGREEMENT
The Company has been organized under the Montana Business Corporation Act
at the direction of Bank management and will hold 100% of the stock of the
newly organized Interim Bank. The reorganization is to be accomplished
through the consolidation of the Interim Bank with the Bank pursuant to the
terms of the Consolidation Agreement, a copy of which is attached as EXHIBIT
A. The affirmative vote of the holders of two-thirds of the outstanding
shares of the Bank and of the Interim Bank is required for approval of the
Consolidation Agreement. Bank management does not anticipate that there will
be dissenting shareholders.
Shareholders other than those holding Flathead Shares who do not dissent
from the proposal and perfect their rights of payment under the National Bank
Act may exchange each one (1) share of Bank Stock for ten (10) shares of
Company Stock. The Board of Directors believes that the 10-for-1 share
exchange is in the best interest of all shareholders in order to decrease the
per share price of Company Stock to a value of $50 to $100. Several
shareholders have indicated an interest in purchasing additional shares, but
are unwilling or unable to spend in excess of $500 for one share of Bank
Stock. This has the effect of limiting the market for the Bank Stock.
Additionally, several shareholders have expressed an interest in transferring
Bank Stock to family members for estate planning purposes, but have been
somewhat limited in their options by the few number of shares of Bank Stock
owned by them and the relatively high price per share.
If the Consolidation Agreement is approved, the six officers and
directors of the Bank holding the 1,842 Flathead Shares shall receive in
exchange for the Flathead Shares, in lieu of Company Stock, a cash payment in
the amount of $810.00 per share or $1,492,020 in the aggregate, plus accrued
interest. The $810.00 per share held in an escrow account for the remaining
50 Flathead Shares will be paid to the holder of these shares upon receipt of
the certificates representing these shares. If the Consolidation Agreement is
not approved and the Company is not formed, the
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<PAGE>
Company will not purchase the Flathead Shares. The six directors will either
retain ownership of their Flathead Shares or may try to resell the shares in
order to pay the costs associated with their individual loans used to purchase
the shares. Shareholders who object to the Consolidation Agreement have the
right to perfect their rights as dissenters and to receive the value of their
shares of Bank Stock in cash after the Effective Date. See "INFORMATION
CONCERNING CONSOLIDATION AGREEMENT--HISTORY OF FLATHEAD SHARES" and "--RIGHTS
OF DISSENTING SHAREHOLDERS."
The OCC must grant preliminary conditional approval of the proposed
consolidation pursuant to the Bank Merger Act of 1966. The OCC will not issue
final approval of the proposed transaction until approval by the Bank
shareholders is received. The Application to Charter the Interim Bank and to
Consolidate was filed on December 19 1996, and preliminary approval to
organize the Interim Bank was granted by the OCC on December 30, 1996.
Preliminary conditional approval of the consolidation was granted on January
30, 1997. If the OCC grants final approval, such approval reflects only its
view that the transaction does not contravene applicable competitive standards
imposed by law, and that the transaction is consistent with regulatory
policies relating to safety and soundness. The OCC's approval is not an
opinion by the OCC that the proposed transaction is favorable to the
shareholders from a financial point of view or that the OCC has considered the
adequacy of the terms of the transaction. THE COMPTROLLER OF THE CURRENCY'S
APPROVAL IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE PROPOSED CONSOLIDATION
TRANSACTION.
Final approval of the FRB of an application by the Company to become a
one-bank holding company is also required. The FRB approved the application
on January 22, 1997. Such approval should not be construed as an endorsement
or recommendation of the proposed consolidation transaction.
The SEC must also declare effective this Prospectus/Proxy Statement prior
to its mailing to shareholders. Effectiveness was declared on
__________________, 1997.
Assuming satisfaction of the listed conditions, the Consolidation
Agreement will be consummated on the Effective Date specified in the
Certificate of Approval to be issued by the OCC. After the Effective Date,
the business of the Continuing Bank will be carried on as a subsidiary of the
Company with the same directors, officers, personnel, properties and names as
those of the Bank. See "DESCRIPTION OF THE COMPANY--MANAGEMENT."
Costs of the operation of the Company will be in addition to those of the
Bank. Director and officer positions in the Bank will not be eliminated in
the reorganization.
TERMINATION. If the number of shares of Bank Stock voted against the
Consolidation Agreement is such as to make consummation of the Consolidation
Agreement unwise in the opinion of either the Board of Directors of the Bank,
the Interim Bank or the Company; or any and all permits, licenses or
qualifications from authorities administering the federal securities laws,
state securities laws or similar laws, satisfactory in form and substance to
Bank counsel, shall not have been obtained; or there shall not have been
obtained a ruling from the Internal Revenue Service or an
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<PAGE>
opinion of counsel that neither gain nor loss will be recognized for federal
income tax purposes to the Bank, the Interim Bank or the Company by the
acquisition; or for any other reason consummation of the Consolidation
Agreement is inadvisable in the opinion of either the Board of Directors of
the Bank, the Interim Bank or the Company, then the Consolidation Agreement
may be terminated at any time before the Effective Date by written notice by
either the Bank or the Interim Bank to the other of them, authorized or
approved by resolution adopted by the Board of Directors of the one of them
giving such notice. There is no number of negative votes which would cause
the Bank's Board to terminate the Consolidation Agreement. The Board will
consider termination of the Consolidation Agreement based upon negative votes
only if one or more other factors described in this paragraph have occurred.
The individuals who constitute the Board of Directors of the Bank and of the
Company will be identical.
Upon termination as provided in the Consolidation Agreement, the
Consolidation Agreement shall be void and of no further effect. Under the
terms of the Consolidation Agreement, there shall be no liability on the part
of the Bank, the Interim Bank or the Company by reason of such termination.
Shareholders should note that the exculpatory provisions of the Consolidation
Agreement are designed to ensure that neither the Bank, the Interim Bank nor
the Company will institute any action in the event of termination of the
Consolidation Agreement. These provisions do not, however, preclude the
institution of legal actions by shareholders, who are not signatories of the
Consolidation Agreement, against the Bank, the Interim Bank or the Company or
their officers or directors.
CONSUMMATION. Upon consummation of the Consolidation Agreement,
shareholders of the Bank will become shareholders of the Company. Bank
shareholders other than those holding Flathead Shares upon surrender of their
present Bank Stock certificates will be entitled to receive new certificates
evidencing shares of Company Stock. Until so exchanged, the certificates
representing shares of Bank Stock will represent the right to receive Company
Stock into which such shares have been converted. However, the Company may
withhold any dividends declared upon the Company Stock in respect to shares
represented by unexchanged certificates until such Bank Stock certificates are
presented for exchange, at which time the dividends so withheld on such shares
shall be paid without interest. The persons holding the Flathead Shares, upon
surrender of their certificates representing the Flathead Shares, will be
entitled to receive cash in the amount of $810.00 per share, subject to
adjustment as provided in the Consolidation Agreement.
The capital and surplus of the Interim Bank will be returned to the
Company, its sole shareholder, in cancellation of all of the outstanding
shares of the Interim Bank on the Effective Date.
The expenses of the Company's organizational costs are estimated at
$125,000, temporary capitalization of the Interim Bank at $120,000 and
payments to holders of the Flathead Shares are estimated at $1,532,000. If
the Consolidation Agreement is approved by shareholders and consummated, such
costs will be borne by the Company. See "DESCRIPTION OF COMPANY DEBT" below.
The Bank, the Interim Bank and the Company and shareholders of each will pay
any other expenses incurred by them in connection with the Consolidation
Agreement. In the event the Consolidation Agreement is not consummated, such
expenses as are incurred, including the cost of organizing the Company and
Interim Bank, will be assumed by the Bank.
-20-
<PAGE>
DESCRIPTION OF COMPANY DEBT
First National Bank in Libby, Libby, Montana, has approved a revolving
line of credit in the amount of $125,000, which will accrue interest at 10.0%
per annum, to pay the costs associated with the organization of the Company.
The principal plus all accrued unpaid interest is due and payable on May 15,
1997. This line of credit is secured by 550 shares of Bank Stock owned by
Douglas Morton. First National Bank in Libby has approved a second
commitment for a standby line of credit in the amount of $120,000, which will
accrue interest at 10.0% per annum, to pay the costs associated with the
temporary capitalization of the Interim Bank. This line of credit is
unsecured and will terminate on or before May 15, 1997. This debt will be
repaid by a dividend to be declared and paid by the Bank to the Company
shortly after the Effective Date. The dividend will only be declared and
paid in accordance with 12 U.S.C. Sections 56 and 60.
First National Bank in Libby has also approved a loan in the amount of
$883,602.00 which will be used by the Company to purchase the Flathead Shares
along with a dividend to be declared by the Bank to the Company. The Company
currently anticipates borrowing $767,000 under this loan and using a Bank
dividend in the amount of $765,000 to purchase the Flathead Shares. The loan
will accrue interest at a variable rate index tied to the monthly weighted
average cost of funds to the 11th District FHLBB institutions plus 316 basis
points on a 360/360 basis with monthly adjustments. As of April 1, 1997, the
average cost of funds of 4.759% plus 316 basis points would equal a variable
rate of 7.917%. Interest will be payable quarterly and principal is payable
annually with the balance due and payable seven years from date of inception.
This loan will be secured by all of the outstanding shares of Bank Stock.
Although indebtedness may be incurred for the purchase of Bank Stock
from shareholders who elect to exercise dissenters' rights to receive payment
for their shares, management is not aware of any plan to dissent on the part
of holders of any substantial amount of Bank Stock and estimates that owners
of only a minimum number of the outstanding Bank Stock may dissent. Current
shareholders of the Bank currently plan to purchase the shares from any
dissenters; therefore, indebtedness will not be incurred for the purchases of
Bank Stock from dissenting shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of the Bank who vote against the proposal and file a
written notice of dissent at or prior to the meeting and perfect their
dissenters' rights will have the right to be paid the fair cash value of
their shares if they fully comply with the applicable procedures of Section
215 of Title 12 of the United States Code, attached hereto as EXHIBIT B, as
briefly summarized below.
To assert dissenters' rights, a Bank shareholder must give notice in
writing at or prior to the Annual Meeting to Douglas K. Morton, President of
the Bank, at 444 West Idaho, Kalispell, Montana 59904, that he dissents from
the Consolidation Agreement and must vote against the consolidation Agreement
at the Annual Meeting either in person or by proxy. Such shareholder shall
be entitled to receive the value of the Bank Stock so held by him, if and
when the consolidation is consummated, upon written request made to the
Continuing Bank at any time before thirty days after the Effective Date
accompanied by the surrender of his Bank Stock certificates. A shareholder's
failure to either (a) vote against the proposed transaction or (b) give
written notice of his dissent from the proposal
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<PAGE>
at or prior to the Annual Meeting to the presiding officer of the Annual
Meeting shall be deemed to constitute a waiver of the right to receive the
value of the shareholder's Bank Stock.
The value of the shares of any dissenting shareholder shall be
ascertained, as of the Effective Date, by appraisal made by a committee of
three persons: (i) one selected by the vote of the holders of the majority of
the Bank Stock, the owners of which are entitled to payment in cash (by
reason of such request for appraisal); (ii) one selected by the directors of
the Continuing Bank; and (iii) one selected by the two so selected. The
valuation agreed upon by any two of the three appraisers shall govern. If
the value so fixed shall not be satisfactory to any dissenting shareholder
who has requested payment, that shareholder may, within five days after being
notified of the appraised value of his shares, appeal to the OCC, which shall
cause a reappraisal to be made which shall be final and binding as to the
value of the shares of the appellant.
If, within ninety days from the Effective Date, for any reason one or
more of the appraisers is not selected as herein provided, or the appraisers
fail to determine the value of such shares, the OCC shall, upon written
request of any interested party, cause an appraisal to be made which shall be
final and binding on all parties. The expenses of the OCC in making the
reappraisal or the appraisal, as the case may be, shall be paid by the
Company. It is anticipated that the value of the shares ascertained shall be
paid by the Company.
The shares of Company Stock which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold at an
advertised public auction or pursuant to such other method of sale approved
by the OCC, and the Company may purchase such shares for cancellation or as
treasury shares. If the shares are sold at public auction at a price greater
than the amount paid to the dissenting shareholders, the excess of such sale
price shall be paid to the dissenting shareholders, pro rata. SHAREHOLDERS
SHOULD CAREFULLY CONSIDER EXHIBIT B AND MAY WISH TO CONSULT WITH THEIR LEGAL
COUNSEL REGARDING THEIR RIGHT TO DISSENT FROM THE TRANSACTION AND TO RECEIVE
THE APPRAISED VALUE OF THEIR SHARES.
EMPLOYEE BENEFIT PLANS
The BankWest 401(K) Profit Sharing Plan, the BankWest Employee Stock
Ownership Plan, the BankWest Bonus Incentive Plan and the BankWest Stock
Option Plan will be continued in substantially their present forms. See
"DESCRIPTION OF THE BANK--EMPLOYEES AND EMPLOYEE BENEFITS" and "--STOCK
OPTION PLAN."
FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT
The Company has asked the firm of Rothgerber, Appel, Powers & Johnson
LLP, special counsel to the Bank and the Company, for its opinion concerning
certain federal income tax aspects of the Consolidation Agreement.
Rothgerber, Appel, Powers & Johnson LLP has provided the Company with a draft
of such an opinion, found at EXHIBIT C, which is summarized below. This
summary covers the material terms of the draft opinion and is qualified in
its entirety by the full text of that draft opinion, including certain facts,
representations and assumptions outlined therein.
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It is the opinion of special counsel that the transfer of Bank shares by
Bank shareholders for Company Stock will constitute an exchange within the
meaning of Section 351 and thus, Bank shareholders who receive only Company
Stock will not recognize gain or loss; and that the use of the Interim Bank
solely to effect the Consolidation Agreement will be disregarded for federal
income tax purposes and the transactions will be viewed as transfers by the
Bank shareholders of their Bank Stock to the Company for Company Stock.
Shareholders owning Flathead Shares and dissenting shareholders who
receive only cash do not qualify for nonrecognition. These shareholders are
deemed to receive a distribution in redemption of their shares of Bank Stock,
which is taxed as a sale or exchange (generally capital gain or loss) to
shareholders qualifying under Section 302(b) and as a dividend (ordinary
income to the extent of earnings and profits) to those who do not so qualify.
The tests under Section 302(b) are applied in light of all the facts and
circumstances surrounding each individual shareholder. Since those facts may
vary from shareholder to shareholder, each shareholder is urged to consult
his or her own tax counsel before acting on the proposed transaction.
The basis of the Company Stock will be the same as the basis of the Bank
Stock exchanged therefor, for those shareholders receiving only Company
Stock. I.R.C. Section 358(a). The holding period of Company Stock will
include the period for which the shareholders held the Bank Stock exchanged
therefor, for shareholders who held the Bank Stock as a capital asset.
I.R.C. Section 1223(1).
The Bank and the Company will receive nonrecognition treatment under
Section 1032. The basis of the Bank Stock received by the Company in
exchange for Company Stock will be the same as the basis of such stock in the
hands of the respective Bank shareholders immediately prior to the exchange.
Section 362(a). The basis of the Bank Stock received by the Company in
exchange for cash will be the amount of cash paid for such stock. The
holding period of the Bank Stock to be received by the Company in exchange
for Company Stock will include the periods during which such stock was held
by the respective Bank shareholders before the exchange. Section 1223(2).
THE ABOVE DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF FEDERAL TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER OR TO CERTAIN TYPES OF
SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL TAX LAWS (E.G.,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS).
ACCORDINGLY, BANK SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE CONSEQUENCES OF THE TRANSACTION TO THEM. FURTHERMORE, COUNSEL'S OPINION
IS NOT BINDING ON THE INTERNAL REVENUE SERVICE.
OTHER POSSIBLE CONSEQUENCES
PROPERTY AND INCOME TAXES. Shares of Bank Stock, being stock of a bank,
are exempt from personal property taxes in certain jurisdictions, whereas
shares of Company Stock may not be exempt from such taxes. In addition,
under the income tax laws of some states which may be applicable to certain
shareholders of the Bank, dividends on Company Stock may be taxable, whereas
dividends on shares of the Bank Stock may be not taxable. It is suggested
that shareholders consult their
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individual tax counsel in order to determine whether under local or state
laws their status will be changed upon consummation of the proposed
transaction.
LEGAL INVESTMENT. Similarly, under laws of some jurisdictions, shares
of Company Stock may not be legal investments for certain institutions and
fiduciaries, whereas shares of Bank Stock are, under the laws of most
jurisdictions, legal investments.
INDEMNIFICATION. Officers, directors, employees and agents of the
Company, as well as persons serving in such capacities for another
corporation or enterprise at the request of the Company, are entitled to
indemnification as expressly permitted by Montana law and the Company's
Articles of Incorporation and Bylaws. See "DESCRIPTION OF THE
COMPANY--INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY."
CHANGE IN BANK CONTROL. FRB Regulation Y requires that prior notice of
a change in bank control be filed with the FRB. A change in control may
occur in either of two circumstances: (a) where an acquisition of shares by
a person causes that person to own at least 25% of the outstanding shares of
a bank or bank holding company; or (b) where an acquisition of shares by a
person causes that person to own at least 10%, but less than 25%, of the
outstanding shares of a bank or bank holding company, and no other person
owns a greater percentage of such outstanding shares.
The exercise of dissenters' rights in the reorganization by any Bank
shareholder will automatically cause each Bank shareholder participating in
the reorganization, other than those persons holding Flathead Shares, to own
a greater percentage of Company Stock than he currently owns of Bank Stock.
If, as a result of the Consolidation Agreement any person attains ownership
of at least 25% of the outstanding shares of Company Stock, or attains
ownership of at least 10%, but less than 25%, of the outstanding shares of
Company Stock and no other person holds a greater percentage thereof, such
person must promptly file notice of change in bank control with the FRB.
THIS FILING IS THE RESPONSIBILITY OF THE SHAREHOLDER.
RESTRICTIONS ON RESALE OF SECURITIES OFFERED. Affiliates of the Bank
and the Company will be subject to restrictions on any public sales (i.e.,
through a stockbroker, auction or other public means) of Company Stock which
they received as a result of the acquisition. Share certificates issued to
affiliates will bear a legend describing this restriction. Executive
officers, directors and individuals who otherwise control the affairs of the
Bank or the Company will be considered affiliates. Affiliates can only
publicly sell in any three-month period an amount representing no more than
one percent of all outstanding shares of Company Stock and can only sell when
current public information about the Company is available. Additionally,
public resale by the affiliates can only be made through brokers'
transactions or in transactions with market makers. In certain situations, a
notice of public sale will be required to be filed by the affiliate with the
SEC. See "PRINCIPAL HOLDERS OF VOTING SECURITIES."
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MARKET PRICE OF AND DIVIDENDS ON
BANK STOCK AND COMPANY STOCK
Bank Stock is not publicly traded, and no broker maintains a public
market for Bank Stock. Company Stock also shall not be publicly traded, and
no broker shall maintain a public market for Company Stock. The amounts
received in private trades of Bank Stock are generally not disclosed to Bank
management.
The following table sets forth the estimated high and low trade prices
for the Bank Stock at the end of each quarter since the first quarter of
1994, along with the estimated number of trades in such quarter. On November
1, 1996, five shares of Bank Stock were traded at a price of $679.95 per
share. Other than the purchase of the Flathead Shares by the Company's six
directors, no other trades of Bank Stock have taken place since that date.
Due to the fact that trading of Bank Stock has historically been limited and
infrequent and disclosure of trade prices are not always made available to
Bank management, all amounts are based on management's best estimates. As of
May 1, 1997, there were 186 holders of Bank Stock.
Number
Quarter High Low of Trades
------- ---- --- ---------
First 1994 $347.93 $347.93 25
Second 1994 359.46 359.46 1
Third 1994 382.64 382.64 13
Fourth 1994 399.66 399.66 10
First 1995 475.70 475.70 100
Second 1995 509.82 509.82 76
Third 1995 NA NA 0
Fourth 1995 570.45 461.09 82
First 1996 637.00 473.94 363
Second 1996 647.51 621.53 254
Third 1996 647.51 582.39 1,464
Fourth 1996 679.95 679.95 5
First 1997 through
May 1, 1997 No trades
Because the Company is newly formed there is no market for the Company
Stock and no information exists with respect to stock performance of Company
Stock. It is anticipated that, to the extent any market develops for Company
Stock, such market will be no more active or widespread than the current
market for Bank Stock.
A limitation exists on the availability of the Bank's undistributed net
assets for the payment of dividends to its shareholders pursuant to the
National Bank Act. The Bank is prevented from declaring and paying any
dividend which would impair capital or which exceeds its net profits then on
hand. In each calendar year since 1993, the Bank has declared dividends of
$5.00 per share.
The ability of the Company to pay dividends is subject to Montana law.
Under Montana law, the Company may pay dividends, as authorized by its Board
of Directors, unless the distribution would make the entity unable to pay its
debts as they come due. Management anticipates that the Company will be able
to pay dividends on Company Stock similar to those paid historically on
shares of Bank Stock and consistent with its financial performance.
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HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the historical capitalization of the Bank
and the Company as of December 31, 1996, and the pro forma consolidated
capitalization of the Company and the Bank, adjusted as of such date to give
effect to the Consolidation Agreement. The number of shares outstanding
assumes that none of the Bank's shareholders perfected dissenters' rights and
received cash rather than Company Stock. Management is not aware of any plan
by shareholders of Bank Stock to dissent.
<TABLE>
Pro Forma Company
Bank Adjustments (Consolidated)
---- ----------- --------------
<S> <C> <C> <C>
LONG-TERM DEBT $ 0 $ 767,000 (1) $ 767,000
SHAREHOLDERS' EQUITY:
Bank Stock, $100 par value
10,000 shares authorized,
8,938 issued & outstanding 893,800 (893,800)(2) 0
Additional paid-in capital 919,562 (919,562)(3) 0
Retained earnings 2,687,671 (765,000)(4)
(125,000)(5)
765,000 (4)
125,000 (5)
(1,148,667)(6) 1,539,004
Company Stock
500,000 shares authorized,
89,380 issued & outstanding 0 (383,853)(6)
919,562 (3)
1,429,509 (2)
Net unrealized gains on available
for sale securities, net of deferred
taxes of $958 1,498 0 1,498
Total shareholders' equity $4,502,531 $2,970,011
Book value per share $ 503.75 (7) $ 42.15 (8)
- ------------------------
(1) Reflects anticipated debt for payment to holders of Flathead Shares.
(2) Reflects the exchange of Bank Stock for Company Stock.
(3) Reflects the elimination of the surplus component in the exchange of
Bank Stock for Company Stock.
(4) Reflects the estimated dividend to be paid by the Bank to the Company
to cover payments for Flathead Shares and, therefore, reduces the Bank's
retained earnings; however, the Company will reflect a corresponding
amount of dividend income which increases its retained earnings, leaving
consolidated retained earnings unchanged.
(5) Reflects the estimated expenditures for the Company formation which will
be capitalized on the Company's financial statements and is expected to
be repaid shortly after the Effective Date by a dividend paid by the Bank
to the Company. See (4) for dividend effect.
(6) Reflects the cost of Flathead Shares redeemed by the Company and retired.
(7) Based on 8,938 shares outstanding.
(8) Based on 70,460 shares outstanding which reflects the existing 8,938
shares outstanding, less the 1,892 Flathead Shares which will be canceled,
and adjusting for the 10-for-1 exchange.
</TABLE>
-26-
<PAGE>
DESCRIPTION OF THE COMPANY
ORGANIZATION AND OPERATION
The Company, a Montana corporation, was incorporated on October 4, 1996,
at the direction of the Board of Directors of the Bank for the purpose of
acquiring 100% of outstanding Bank Stock. The Company is a shell corporation
that has not yet engaged in any business activity. On December 17, 1996, the
Company applied for approval from the FRB to become a bank holding company.
Approval of the FRB was received on January 22, 1997. On December 19, 1996,
the Company applied for approval from the OCC to form the Interim Bank.
Approval from the OCC was received on December 30, 1996.
Although the Company may engage in other activities permitted under the
Federal Bank Company Act of 1956, as amended, it has no present plans to
engage in any activities other than acting as a holding company for the
capital stock of the Bank. The Company does not contemplate any substantial
expenditures for equipment, plant or additional personnel in the near future,
and, accordingly, the Company does not expect that it will be necessary to
raise additional funds to meet its capital requirements through the end of
1997.
REGULATION AND SUPERVISION
As a registered bank holding company under the Bank Holding Company Act,
the Company will be subject to the regulations and supervision of the FRB.
The Bank Holding Company Act will require the Company to file reports with the
FRB and provide additional information requested by the FRB. The Company must
receive the approval of the FRB before it may acquire all or substantially all
of the assets of any bank, or ownership or control of the voting shares of any
bank if, after giving effect to such acquisition of shares, the Company would
own or control more than 5% of the voting shares of such bank.
The Company will be prohibited from engaging in, or acquiring direct or
indirect ownership or control of more than 5% of the voting shares of any
company engaged in, non-banking activities, unless the FRB by order or
regulation has found such activities to be closely related to banking or
managing or controlling banks as to be a proper incident thereto. In making
such determinations, the FRB considers whether the performance of such
activities by a bank holding company would offer advantages to the public
which outweigh any possible adverse effects.
The Company and any subsidiaries that it may acquire will be deemed to be
affiliates of the Bank under the Federal Reserve Act. That Act establishes
certain restrictions which limit the extent to which an affiliated bank may
supply funds to the Company and other affiliates. The Company is also subject
to restrictions on the underwriting and the public sale and distribution of
securities and is prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, sale or lease of property, or
furnishing of services. See also "DESCRIPTION OF THE BANK--REGULATION AND
SUPERVISION."
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<PAGE>
Federal Reserve Regulation "Y" (12 C.F.R. Part 225) sets forth those
activities which are regarded as closely related to banking or managing or
controlling banks and, thus, are permissible activities that may be engaged in
by bank holding companies, subject to approval in individual cases by the FRB.
Litigation has challenged the validity of certain activities authorized by
the FRB for bank holding companies, and the FRB has various regulations and
applications in this regard still under consideration.
Although the Company, as a bank holding company, will have an opportunity
not enjoyed by the Bank to expand its business operations into permissible
nonbanking areas, the Company has no immediate plans for such expansion.
However, the Company will continue to evaluate its options and may engage in
other permitted activities as warranted by business conditions and
opportunities.
DIVIDENDS. Under Montana law, cash dividends by the Company are subject
to declaration by the Board of Directors at its discretion. Dividends cannot
be declared and paid if, after such payment, the Company would not be able to
pay its debts as they become due in the usual course of business.
FRB policy prohibits a bank holding company from declaring or paying a
cash dividend which would impose undue pressure on the capital of subsidiary
banks or would be funded only through borrowings or other arrangements that
might adversely affect the holding company's financial position. The policy
further declares that a bank holding company should not continue its existing
rate of cash dividends on its common stock unless its net income is sufficient
to fully fund each dividend and its prospective rate of earnings retention
appears consistent with its capital needs, asset quality and overall financial
condition. Other FRB policies forbid the payment by bank subsidiaries to
their parent companies of management fees which are unreasonable in amount or
exceed a fair market value of the services rendered (or, if no market exists,
actual costs plus a reasonable profit).
The Company's sole source of income and funds will be dividends paid by
the Bank. The ability of the Bank to pay dividends is subject to federal
banking law and to the powers of the FRB. See "DESCRIPTION OF THE
BANK--REGULATION AND SUPERVISION."
In addition, the FRB has the authority to prohibit banks regulated by it
from engaging in practices which in its opinion are unsafe or unsound. Such
practices could include the payment of dividends under some circumstances.
Moreover, the payment of dividends may be inconsistent with capital adequacy
guidelines of the various regulatory authorities. Under federal and state
law, the Company may be subject to assessment to restore the capital of the
Bank should it become impaired.
The Bank is subject to the minimum capital requirements of the FRB. As a
result of these requirements, the growth in assets of the Bank is limited by
the amount of its capital accounts as defined by the FRB. Capital
requirements may have an effect on profitability and the payment of
distributions by the Company. If the Bank is unable to increase its assets
without violating the minimum capital requirements, or is forced to reduce
assets, its ability to generate earnings would be reduced. Therefore, the
Company's ability to generate earnings would also be reduced.
-28-
<PAGE>
CAPITAL REQUIREMENTS. The Company will be subject to the minimum capital
requirements of the FRB and the OCC. As a result of these requirements, the
growth in assets of the Company will be limited by the amount of its capital
account as defined by the regulatory agencies. Capital requirements may have
an effect on profitability and the payment of dividends by the Company. If
the Company is unable to increase its assets without violating the minimum
capital requirements or is forced to reduce assets, its ability to generate
earnings would be reduced.
The FRB and the OCC have adopted guidelines utilizing a risk-based
capital structure. These guidelines apply on a consolidated basis to bank
holding companies with consolidated assets of $150 million or more. For bank
holding companies with less than $150 million in consolidated assets, the
guidelines apply on a bank-only basis unless the holding company is engaged in
non-bank activity involving significant leverage or has a significant amount
of outstanding debt that is held by the general public. The Company will have
consolidated assets of less than $150 million; accordingly, the risk-based
capital guidelines will apply to only to the Bank.
The risk-based guidelines will require the Company to maintain a level of
capital based primarily on the risk of its assets and off-balance sheet items
which are placed in one of four risk categories. Assets in the first
category, such as cash, have no risk and therefore carry a zero percent
risk-weight and require no capital support. Capital support is required for
assets in the remaining three risk categories--those categories having a
risk-weight of 20%, 50% and 100%, respectively. A financial institution's
risk-based capital ratio is calculated by dividing its qualifying total
capital base by its risk-weighted assets. Qualifying capital is divided into
two tiers. Core capital (Tier 1) consists of common shareholders' equity
capital, non-cumulative perpetual preferred stock and minority interests in
equity capital accounts of consolidated subsidiaries, less goodwill and other
intangible assets. Supplementary capital (Tier 2) consists of items such as
allowance for possible loan and lease losses, cumulative and limited-life
preferred stock, mandatory convertible securities and subordinated debt. Tier
2 capital qualifies as a part of total capital up to a maximum of 100% of Tier
1 capital. Amounts in excess of these limits may be issued but are not
included in the calculation of the risk-based capital ratio.
Under current guidelines, the Company will be required to maintain a
risk-based capital ratio of 8%, of which at least 4% must be in the form of
core capital. The Bank's ratios of Tier 1 and total capital to risk-weighted
assets were 14.5% and 15.6% at December 31, 1996.
The purposes of the new risk-based capital guidelines are twofold--to
make capital requirements more sensitive to differences in risk profiled among
banking organizations, and to aid in making the definition of bank capital
uniform internationally. To achieve these purposes, the guidelines recognize
the riskiness of assets by lowering capital requirements for some assets that
clearly have less risk than others, and they recognize that there are risks
inherent in off-balance sheet activities. The guidelines require that banking
organizations hold capital to support such activities. In addition, the
guidelines establish a definition of capital and minimum risk-based capital
standards which are consistent on an international basis and that place a
greater emphasis on equity capital.
The federal regulatory agencies have also adopted a minimum leverage
ratio which is intended to supplement risk-based capital requirements and to
insure that all financial institutions continue to
-29-
<PAGE>
maintain a minimum level of capital. Current regulations stipulate that banks
maintain a minimum level of Tier 1 capital to total assets. The most highly
rated banks in terms of safe and sound operation that are not experiencing or
anticipating significant growth are required to have Tier 1 capital equal to
at least 3% of total assets. All other banks are expected to maintain a
minimum leverage capital ratio (i.e., Tier 1 capital divided by total assets)
in excess of the 3% minimum level. The FDIC regulations require a financial
institution to maintain a minimum ratio of 4% to 5%, depending on the
condition of the institution. The Bank's leverage ratio was 10.17% at
December 31, 1996.
GOVERNMENTAL MONETARY POLICIES AND ECONOMIC CONDITIONS. The principal
sources of funds essential to the business of banks and bank holding companies
are deposits, stockholders' equity and borrowed funds. The availability of
these and other potential sources of funds, such as preferred stock or
commercial paper, and the extent to which they are utilized depends on many
factors, the most important of which are the FRB's monetary policies and the
relative costs of different types of funds. An important function of the FRB
is to regulate the national supply of bank credit in order to combat recession
and curb inflationary pressure. Among the instruments of monetary policy used
by the FRB to implement these objectives are open market operations in United
States Government securities, changing the discount rate on bank borrowings,
and changing reserve requirements against bank deposits. The monetary
policies of the FRB have had a significant impact on the operating results of
commercial banks in the past and are expected to continue to do so in the
future. In view of the recent changes in regulations affecting commercial
banks and other actions and proposed actions by the federal government and its
monetary and fiscal authorities, including proposed changes in the structure
of banking in the United States, no prediction can be made as to future
changes in interest rates, credit availability, deposit levels, the overall
performance of banks generally or of the Bank.
RECENT LEGISLATION AND REGULATORY ACTION. The Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 was enacted by Congress in
September of 1994. Under the Act, beginning on September 29, 1995, bank
holding companies could acquire banks in any state, notwithstanding contrary
state law, and all banks commonly owned by a bank holding company could act as
agents for one another. An agent bank can receive deposits, renew time
deposits, accept payments and close and service loans for its principal bank,
but will not be considered a branch of that principal bank.
A bank may also merge with a bank in another state and operate either
office as a branch, notwithstanding pre-existing contrary state law. This law
becomes automatically effective in all states on June 1, 1997, unless (1) the
law becomes effective in a given state at any earlier date selected by
legislation in that state; or (2) the law does not become effective at all in
a given state because by legislation enacted before June 1, 1997, that state
opts out of coverage by the interstate merger provision. Upon consummation of
an interstate merger, the resulting bank may acquire or establish branches on
the same basis that any participant in the merger could have if the merger had
not taken place.
Banks may also merge with branches of banks in other states without
merging with the banks themselves, or may establish de novo branches in other
states, if the laws of the other states expressly permit such mergers or such
interstate de novo branching.
-30-
<PAGE>
MANAGEMENT
The directors and executive officers of the Company are as follows:
Age (as of Position with
Name 12-31-96) Company
---- --------- -------------
Richard Dasen 54 Director
Richard Gunlikson 68 Director
Charles Lee 62 Director
Donald McCarthy 41 Secretary and Treasurer
Douglas Morton 52 President and Chairman
Teruko Rogers 58 Director
Barry Smith 42 Director
All of the above directors have held their positions since the
incorporation of the Company on October 4, 1996, and will hold their positions
until the first annual meeting of shareholders and until their successors are
duly elected and qualified. The executive officers named above were elected
at the Company's organizational meeting and will hold office until the next
annual meeting of directors and until their successors are duly elected and
qualified. The business experience of each of the above directors and
executive officers during the past five years is included in the biographical
summaries under "DESCRIPTION OF THE BANK--MANAGEMENT."
There are no arrangements or understandings among any of the directors,
executive officers or any other persons pursuant to which any of the above
directors or executive officers have been selected as directors or executive
officers.
COMPENSATION
The Company has not compensated any of its officers or directors. There
are no plans at the present time to provide compensation to any officers or
directors of the Company. Because the Company has no present plans to engage
in any primary activity other than acting as a Company for the capital stock
of the Bank, it is expected that it will be necessary for the officers and
directors of the Company to devote only a small portion of their time to
Company management. See "DESCRIPTION OF THE BANK--EXECUTIVE COMPENSATION" for
the compensation received by officers and directors of the Bank.
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY
Officers, directors, employees and agents of the Company are entitled to
indemnification under Montana law and Article VI of the Company's Bylaws.
Montana law also provides for the limitation of personal liability for
directors for those corporations that incorporate the limitation of liability
provisions in their Articles of Incorporation. Article VII of the Company's
Articles of Incorporation provides for the limitation of personal liability
for its directors and officers.
-31-
<PAGE>
In addition, the Company may purchase and maintain liability insurance on
behalf of any person who is or was a director, officer, employee or agent of
the Company, to pay any expenses incurred in any proceeding and any
liabilities asserted against him in his capacity.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
PROPERTY
The Company owns no properties. In the event that its business will
require office space, the amount will be minimal and will be located in the
Bank's main office at 444 West Idaho, Kalispell, Montana.
SALES OF ADDITIONAL SECURITIES
The Company has authorized 500,000 shares of Common Stock. Approximately
71,880 shares will be issued if the Consolidation Agreement is consummated.
The Board of Directors of the Company will have flexibility to raise
additional capital for infusion into the Bank or for other corporate purposes
through the sale of Company Stock without further shareholder approval. See
"COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK--SHARES ELIGIBLE FOR FUTURE
SALE."
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings before any
court, administrative agency or other tribunal. Further, the Company is not
aware of any litigation which is threatened against it in any court,
administrative agency or other tribunal.
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation include a "super-majority"
provision requiring that the holders of at least two-thirds of the voting
power of the Company approve a sale, merger, consolidation, liquidation,
dissolution or other disposition of the assets of the Company if the Board of
Directors does not approve such transaction. These anti-takeover provisions
may discourage an unwanted tender offer for Company Stock. A copy of the
Company's Articles of Incorporation are attached hereto as EXHIBIT D. See
"COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK--ANTI-TAKEOVER PROVISIONS."
-32-
<PAGE>
DESCRIPTION OF BANKWEST INTERIM BANK, N.A.
BankWest Interim Bank, N.A. (In Organization) of Kalispell, Montana, will
be chartered under the National Bank Act. It was granted preliminary approval
to organize by the OCC on December 30, 1996, and the Organization Certificate
was signed on January 24, 1997. It has not and will not commence to do
business with the public. On the Effective Date, the corporate existence of
the Bank and the Interim Bank will be consolidated and continued in the
Continuing Bank, which shall do business under the Bank's charter as
"BankWest, National Association." The Continuing Bank will be deemed to be
the same entity as the Bank and the Interim Bank and will be responsible for
all debts, obligations, liabilities and contracts of both such entities.
Additionally, all rights of both the Bank and the Interim Bank in and to any
type of property, contracts or choses--in--action shall inure to the
Continuing Bank.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE BANK
GENERAL
The following analysis of the Bank's financial condition and results of
operations for the years ended December 31, 1996, 1995 and 1994, should be
read in conjunction with the audited Financial Statements of the Bank and
notes thereto, and information presented elsewhere herein.
The Bank's results of operations depend primarily on its net interest
income, which is the difference between interest earned on its
interest-earning assets, such as loans and investment securities, and the
interest paid on its interest-bearing liabilities, such as its deposits. The
amount of net interest income is a function of the difference between the
weighted average rate received on interest-earning assets and the weighted
average rate paid on interest-bearing liabilities, as well as the average
level of interest-bearing assets as compared with that of interest-bearing
liabilities. Net income is also affected by the amount of non-interest income
and by operating expenses.
FINANCIAL CONDITION
Total assets increased $2,925,000 or 7.3% from $40,274,000 at December
31, 1995, to $43,199,000 at December 31, 1996, after increasing $5,529,000 or
15.9% from $34,745,000 at December 31, 1994, to December 31, 1995. The Bank's
loan portfolio increased $1,120,000 or 3.9% from $29,034,000 at December 31,
1995, to $30,154,000 at December 31, 1996, after increasing $4,820,000 or
19.9% from $24,214,000 at December 31, 1994, to December 31, 1995. The
increases are due primarily to increased business development activities and
an expanded customer base brought on by strong local economic conditions and
consolidation of lending and operations at other local financial institutions.
See "DESCRIPTION OF THE BANK--LENDING." The recent slowdown in growth, from
15.9% in 1995 to 7.3% in 1996, was particularly evident during the second half
of 1996 and is attributable to increased competition in the local economy and
the recent addition of two financial institution offices in the area. Overall
growth has been largely funded by increased deposits and increased long term
borrowings from the Federal Home Loan Bank
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<PAGE>
of Seattle. Deposits increased $1,252,000 or 3.6% from $34,441,000 at
December 31, 1995, to $35,693,000 at December 31, 1996, after increasing
$3,869,000 or 12.7% from $30,572,000 at December 31, 1994, to December 31,
1995. Borrowings increased $1,004,000 or 57.8% from $1,738,000 at December 31,
1995, to $2,742,000 at December 31, 1996, after increasing $906,000 or 108.9%
from $832,000 at December 31, 1994, to December 31, 1995.
Total assets increased $2,925,000 or 7.3% from $40,274,000 at December
31, 1995, to $43,199,000 at December 31, 1996, after increasing $5,529,000 or
15.9% from $ 34,745,000 at December 31, 1994, to December 31, 1995.
Investment securities held to maturity decreased $497,000 or 20.8% from
$2,390,000 at December 31, 1995, to $1,894,000 at December 31, 1996.
Investment securities available for sale increased $434,000 or 9.2% from
$4,711,000 at December 31, 1995, to $5,145,000 at December 31, 1996. The
shifts in the investment categories, which largely offset each other, was done
through maturities and new purchases to move the portfolio into the available
for sale category to increase liquidity and flexibility.
Money market investments that consist of overnight federal funds
increased $1,275,000 or 159.4% from $800,000 at December 31, 1995, to
$2,075,000 at December 31, 1996, after increasing from $0 at December 31,
1994. Increases were due to growth in deposits.
Expenses for Bank premises decreased $33,000 or 2.1% from $1,566,000 at
December 31, 1995, to $1,533,000 at December 31, 1996, as a result of
depreciation charges on the building, fixtures and equipment. This was after
an increase of $221,000 or 16.4% from $1,344,000 at December 31, 1994, to
December 31, 1995, as a remodel and expansion of the Bank's facility was
completed.
Stockholders' equity increased $743,000 or 19.7% from $3,765,000 at
December 31, 1995, to $4,508,000 at December 31, 1995. Of this increase
$40,000 or 4.7% is attributed to additional paid-in capital from the exercise
of outstanding options during 1996. The remaining $703,000 or 94.6% is due
primarily to earning retention. Stockholders' equity increased $785,000 or
26.3% from $2,980,000 at December 31, 1994, to December 31, 1995. Of this
amount $113,000 or 14.3% is attributed to additional paid-in capital from the
exercise of outstanding options during 1995. The remaining $672,000 or 85.6%
is due primarily to earnings retention. Retained earnings increased $632,000
or 30.6% from $2,062,000 at December 31, 1995, to $2,694,000 at December 31,
1995, after increasing $551,000 or 36.5% from $1,511,000 at December 31, 1994,
to December 31, 1995.
COMPARISON OF OPERATING RESULTS
NET INCOME. Net income increased $77,000 or 12.9% from $596,000 for the
year ended December 31, 1995, to $673,000 for the year ended December 31,
1996, and increased $49,000 or 9.0% from $547,000 at December 31, 1994, to
December 31, 1995. The increase in net earnings from 1995 to 1996 was
primarily due to an increase in net interest income of $184,000 for the year
and an increase in other income of $67,000. The increase in income was
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<PAGE>
partially offset by an increase of $31,000 in the provision for loan losses,
an increase of $99,000 in other operating expenses and a $46,000 increase in
income taxes.
Net income increased $49,000 or 9.0% from $547,000 for the year ended
December 31, 1994, to December 31, 1995. The net earnings increase was due to
an increase in net interest income of $150,000 in addition to a decrease of
$41,000 in the loan loss provision. The increase in net interest income after
provision for loan losses was offset in part by a $113,000 increase in other
operating expenses and a $33,000 increase in income taxes from 1994 to 1995.
NET INTEREST INCOME. The results of operations of the Bank depend to a
large extent on net interest income. Net interest income is the difference
between the interest income the Bank earns on its loans, investments and other
interest-earning assets, and the interest cost of deposits and other
interest-bearing liabilities necessary to fund these interest-earning assets.
Interest rates are highly sensitive to many factors, including domestic and
international economic and political conditions and governmental monetary
policies. See "DESCRIPTION OF THE BANK--REGULATION AND SUPERVISION."
Conditions such as inflation, recession, unemployment, money supply,
international disorders and other factors beyond the control of the Bank and
may affect interest rates and adversely affect the Bank's operations.
In general, the net interest income of a financial institution will
benefit if the institution has a negative interest sensitivity gap during
periods of declining interest rates and a positive interest sensitivity gap
during periods of increasing interest rates, and vice-versa. The Bank
monitors its interest rate sensitivity and attempts to reduce the risk of a
significant decrease in net interest income caused by a change in interest
rates. See "INTEREST RATE SENSITIVITY AND LIQUIDITY."
Net interest income increased $187,000 or 10.4% from $1,796,000 for the
year ended December 31, 1995, to $1,983,000 for the year ended December 31,
1996, after increasing $150,000 or 9.1% from $1,646,000 for the year ended
December 31, 1994, to December 31, 1995. The increase from 1995 to 1996 was
attributable to an increase in the average loan portfolio of $3,494,000 and an
increase in the average money market investments of $442,000. This growth was
funded by an increase in average deposits of $3,668,000 and an increase in
average long term borrowings of $91,000 from December 31, 1995, to December
31, 1996. The increase from 1994 to 1995 was attributable to an increase in
the average loan portfolio of $4,542,000 and an increase in average money
market investments of $970,000. This growth was funded by a decrease in the
average outstanding securities portfolio of $912,000, an increase in average
deposits of $3,673,000 and an increase in average long term borrowings of
$746,000 from December 31, 1994, to December 31, 1995.
The Bank's average cost of funds was 3.66% for the year ended 1994, 4.72%
for the year ended 1995 and 4.93% for the year ended 1996. The average yield
on a tax equivalent basis on interest-earning assets increased 0.08% from
8.92% in 1995 to 9.00% in 1996 after an increase of .62% from 8.30% in 1994 to
8.92% in 1995. The interest rate spread decreased 0.13% from 4.20% in 1995 to
4.07% in 1996 following a decrease of 0.44% from 4.64% in 1994 to 4.20% in
1995. The average net interest rate margin decreased 0.08% from 5.13% in 1995
to 5.05% in 1996. See "INTEREST RATE SENSITIVITY AND LIQUIDITY."
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<PAGE>
The following table provides an analysis of the Bank's net interest
income, net interest spread and net interest margin for the periods indicated:
<TABLE>
December 31
----------------------------------------------------------------------------
1996 1995 1994
------------------------ ---------------------- -----------------------
Average Yield/ Average Yield/ Average Yield/
Balance Income Rate Balance Income Rate Balance Income Rate
------- ------ ---- ------- ------ ---- ------- ------- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets
Loans $30,514 $3,045 9.98% $26,686 $2,664 9.98% $22,144 $2,100 9.48%
Securities 6,695 380 5.68% 6,752 374 5.54% 7,664 392 5.11%
Federal funds sold 1,968 100 5.08% 1,526 825 .37% 556 28 5.40%
------- ------ ------- ------ ------- ------
Total earnings assets $39,177 $3,525 9.00% $34,964 $3,120 8.92% $30,364 $2,520 8.30%
Cash and due from banks 1,854 1,773 1,748
Premises and equipment 1,567 1,553 1,146
Other assets, net 408 381 330
Less: unrealized loss on
securities (23) (104) (93)
Less: allowance for
loan losses (334) (352) (297)
------- ------- -------
Total assets $42,649 $38,215 $33,198
------- ------- -------
------- ------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing demand
deposit $ 3,306 $ 77 2.33% $ 3,146 $ 73 2.32% $ 3,299 $ 74 2.24%
Money market deposits 4,267 147 3.45% 4,531 162 3.58% 5,516 172 3.12%
Savings deposits 3,371 101 3.00% 3,781 113 2.99% 3,888 116 2.98%
Time deposits under
$100,000 13,896 823 5.92% 11,821 694 5.87% 8,320 377 4.53%
Federal funds purchased 46 3 6.52% 132 10 7.58% 336 14 4.17%
Time deposits over $100,000 4,727 297 6.28% 3,062 184 6.01% 1,645 72 4.38%
Long-term debt 1,715 95 5.54% 1,624 89 5.47% 878 48 5.47%
------- ------ ------- ------ ------- ------
Total interest-
bearing liabilities $31,328 $1,543 4.93% $28,097 $1,325 4.72% $23,882 $ 873 3.66%
Noninterest-bearing deposits 6,931 6,489 6,346
Other liabilities 300 259 171
Shareholders' equity 4,090 3,370 2,799
------- ------- -------
Total liabilities and
shareholders' equity $42,649 $38,215 $33,198
------- ------- -------
------- ------- -------
Net interest rate spread 4.07% 4.20% 4.64%
Net interest income/net
interest margin $1,979 5.05% $1,795 5.13% $1,647 5.42%
</TABLE>
-36-
<PAGE>
INTEREST INCOME. Total interest income increased $404,000 or 12.9% from
$3,121,000 for the year ended December 31, 1995, to $3,525,000 for the year
ended December 31, 1996, and increased $601,000 or 23.8% from $2,520,000 for
the year ended December 31, 1994, to December 31, 1995. Loans represent the
largest component of interest-earning assets and generally result in greater
rate of yield than investment securities. Interest and fees on loans
increased $741,000 or 27.8% from $2,664,000 during 1995 to $3,045,000 during
1996. The increase in interest income was primarily due to an increase of
$3,494,000 or 13.09% in average loans outstanding from $26,686,000 for 1995
to $30,180 for 1996, and an increase in the average yield on interest-earning
assets from 8.92% in 1995 to 9.00% in 1996. Average money market investments
increased $442,000 or 28.96% from $4,531,000 in 1995 to $1,968,000 in 1996.
Total interest income increased $564,000 or 26.9% from $2,100,000 during
1994 to $2,664,000 during 1995. The increase in interest income was
primarily due to an increase of $4,542,000 or 20.5% in average loans
outstanding from $22,144,000 for 1994 to $26,686,000 for 1995, and an
increase in the average yield on interest-earning assets from 8.3% in 1994 to
8.9% in 1995. This increase was offset in part by a $912,000 or 11.9%
decrease in average investment securities from $7,664,000 at December 31,
1994, to $6,752,000 at December 31, 1995. Interest income on investments
decreased $18,000 or 4.6% from $392,000 in 1994 to $374,000 in 1995 as a
result of the lower average balances in 1995.
Following is an analysis of volume and rate changes on net interest
income and expense for the periods indicated:
<TABLE>
1996 over 1995 1995 over 1994
------------------- ---------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans $381 $ 0 $381 $431 $ 133 $564
Investment securities (3) 9 6 (47) 29 (18)
Federal funds sold 24 (6) 18 53 1 54
---- --- ---- ----- ----- ----
Total $402 $ 3 $405 $437 $163 $600
-37-
<PAGE>
Increase (decrease) in interest expenses:
Demand deposits, interest bearing 4 0 4 (3) 2 (1)
Money market deposits (9) (6) (15) (31) 21 (10)
Savings deposits (12) 0 (12) (3) 0 (3)
Time deposits 122 7 132 159 158 317
Federal funds sold (7) 0 (7) (9) 5 (4)
Time deposits over $100,000 100 13 113 62 50 112
Long-term borrowings 5 1 6 41 0 41
---- --- ---- ---- ----- ----
Total $203 $15 $221 $215 $ 237 $452
---- --- ---- ---- ----- ----
Increase (decrease) in net interest income $199 $(12) $184 $253 $(123) $130
---- --- ---- ---- ----- ----
---- --- ---- ---- ----- ----
</TABLE>
INTEREST EXPENSE. Total interest expense increased $218,000 or 16.45%
from $1,325,000 for the year ended December 31, 1995, to $1,543,000 for the
year ended December 31, 1996, and increased $452,000 or 51.78% from $873,000
for the year ended December 31, 1994, to December 31, 1995. The increase
from 1995 to 1996 was due to an increase in the average volume of
interest-bearing deposits and an increase in the average rate paid on
interest-bearing liabilities from 4.72% in 1995 to 4.93% in 1996. Average
interest-bearing deposits increased by $3,668,000 or 11.17% from $32,830,000
in 1995 to $36,498,000 in 1996. The increase in the average rate paid was
due to both to an increase in the average volume of higher rate certificates
of deposits and decreases in the volume of lower rate savings,
interest-bearing demand and money market accounts and a higher overall rate
paid on certificates of deposit. The increase from 1994 to 1995 was due to
an increase in the average volume of interest-bearing deposits and an
increase in the average rate paid on interest-bearing liabilities from 3.66%
in 1994 to 4.72% in 1995. Average interest-bearing deposits increased by
$4,215,000 or 17.6% from $23,882,000 in 1994 to $28,097,000 in 1995.
The following table presents average balances on interest-bearing
assets, deposits and other items for the periods indicated:
YEAR ENDED DECEMBER 31
-----------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Cash and due from banks $ 1,854 $ 1,773 $ 1,748
Federal funds sold 1,968 1,526 556
Securities 6,672 6,752 7,664
Loans 30,180 26,686 22,144
Other assets 1,975 1,478 1,086
------- ------- -------
Total assets $42,649 $38,215 $33,198
------- ------- -------
------- ------- -------
-38-
<PAGE>
Demand deposits $10,237 $ 9,635 $ 9,645
Money market deposits 4,267 4,531 5,516
Savings deposits 3,371 3,781 3,888
Time deposits 18,623 14,883 9,965
Federal funds purchased 46 132 336
Long-term debt 1,715 1,624 878
Other liabilities 300 259 171
------- ------- -------
Total liabilities $38,559 $34,845 $30,399
Shareholders' equity 4,090 3,370 2,799
------- ------- -------
Total liabilities and
shareholders' equity $42,649 $38,215 $33,198
------- ------- -------
------- ------- -------
ALLOWANCE AND PROVISION FOR LOAN LOSSES; NON-PERFORMING LOANS.
Regardless of credit standards, there is a risk of loss in every loan
portfolio. The allowance for loan losses is a reserve established through
charges to earnings in the form of a provision for loan losses. Management
establishes a provision for loan losses based upon its assessment of the
inherent risk in, and the growth of, the loan portfolio as a whole. A
review of the quality of the loan portfolio is conducted internally by
management on a quarterly basis with the results presented to the Bank's
Board of Directors. This evaluation considers, in addition to individual
loan review, several factors including, but not limited to, local economic
conditions, loan portfolio composition, historical loss experience, past due
levels, peer comparisons and an estimation by management of future potential
losses. No specific allocations by loan types are made.
The provision for loan losses was $67,000 in 1996, $36,000 in 1995, and
$77,000 in 1994. As of December 31, 1996, the allowance for loan losses was
$331,000 or 1.1% of total loans, compared to $357,000 or 1.2% of total loans
as of December 31, 1995, and $346,000 or 1.4% of total loans as of December 31,
1994.
The following table provides an analysis of the Bank's allowance for
loan losses as of the dates indicated:
-39-
<PAGE>
December 31
--------------------
1996 1995 1994
---- ---- ----
(in thousands)
Balance at beginning of period $357 $345 $243
Charge-offs:
Commercial, financial and agricultural 48 0 0
Real estate 0 0 0
Installment loans to individuals 56 34 0
---- ---- ----
Total charge-offs $104 $ 34 $ 0
Recoveries:
Commercial, financial and agricultural 4 0 9
Real estate 0 0 0
Installment loans to individuals 6 10 16
---- ---- ----
Total recoveries $ 10 $ 10 $ 25
Net charge-offs 94 24 (25)
Additional charge to operations 67 36 77
---- ---- ----
Balance at end of period $330 $357 $345
---- ---- ----
---- ---- ----
Ratio of net charge-offs during period to
average loans outstanding during period 0.31% 0.09% (0.11%)
---- ---- ----
---- ---- ----
Management believes the $331,000 reserve for loan losses at December 31,
1996 is adequate to absorb possible losses inherent in the Bank's loan
portfolio. No assurance can be given, however, that adverse economic
conditions or other circumstances will not result in increased losses in the
portfolio.
The Bank places commercial loans on non-accrual status when principal or
interest is past due for a period of 90 days or more unless it is both well
secured and in the process of collection. Consumer or real estate loans are
reviewed on an individual basis and placed on a non-accrual basis if it is
not well secured or in the process of collection. Consumer loans are
generally charged-off if they are 120 days delinquent. At December 31, 1996
the Bank had non-accrual loans of $40,000 and accruing loans past due in
excess of 90 days of $63,000 compared to non-accrual loans of $0 and
delinquent loans in excess of 90 days of $59,000 for 1995.
The following table summarizes the composition of the Bank's
non-performing assets as of the dates indicated:
-40-
<PAGE>
December 31
----------------------------
1996 1995 1994
---- ---- ----
(in thousands)
Non-accrual loans $ 40 $ 0 $ 8
Accruing loans past due 90 days or more 63 59 18
Restructured loans (in compliance
with modified terms) 0 0 0
---- ---- ----
Total nonperforming loans $103 $ 59 $ 26
Other real estate owned 0 0 0
---- ---- ----
Total nonperforming assets $103 $ 59 $ 26
---- ---- ----
---- ---- ----
Nonperforming loans to total loans 0.34% 0.20% 0.11%
Allowance for loan losses to
nonperforming loans 321.00% 605.00% 1326.00%
Nonperforming assets to total assets 0.24% 0.15% 0.07%
The amount of gross interest income that would have been recorded for
the twelve months ending December 31, 1996, if the non-accrual loans as of
such date had been current in accordance with their original terms and had
been outstanding throughout such period or since origination, if held for
part of such period, and the amount of interest income on such loans that was
included in net income for such periods, is not material.
Management is not aware of any significant possible credit problems of
borrowers which causes such management to have serious doubts as to the
ability of such borrowers to comply with their present loan repayment terms
and which may cause such loans to be accounted for on a non-accrual basis.
However, there can be no assurance that borrowers who currently comply with
their loan repayment terms will continue to do so.
In addition, as of December 31, 1996, the Bank had no interest-bearing
assets (other than loans) that would be accounted for on a non-accrual basis
or that were accruing and contractually past due 90 days or more.
NONINTEREST INCOME. Noninterest income, including securities gains or
losses, increased $67,000 or 9.1% from $734,000 in 1995 to $801,000 in 1996,
and increased $4,000 or 0.6% from $730,000 in 1994 to 1995. Service charges
on deposit accounts increased $8,000 or 2.8% from $284,000 in 1995 to
$292,000 in 1996, principally due to a $14,000 increase in overdraft charges
offset by a $6,000 decrease in demand account service fees. Service charges
increased $15,000 or 5.6% from $269,000 in 1994 to 1995. Loan fees increased
$32,000 or 10.4% from $309,000 in 1995 to $341,000 in 1996 primarily due to
the retention of real estate loan servicing in 1996. Servicing rights were
sold off for a portion of 1995 and in prior years. Initially this resulted
in a decrease in income, but is expected to provide a higher stream of income
in future years. Loan fees decreased
-41-
<PAGE>
$23,000 or 7.4% from $332,000 in 1994 to 1995 when the sale of servicing
rights was initially ceased. Other income increased $31,000 or 22.6% from
$137,000 in 1995 to $168,000 in 1996 primarily because of an increase in rent
income of $14,000. Other income increased $8,000 or 6.2% from $129,000 in
1994 to 1995. Total other operating income, including security transactions,
represented 18.5% of total income in 1996 compared to 19.0% of total income
in 1995.
NONINTEREST EXPENSE. Total noninterest expenses increased $99,000 or
6.3% from $1,567,000 in 1995 to $1,666,000 in 1996 and increased $113,000 or
7.8% from $1,454,000 in 1994 to 1995. Salaries and related expenses
increased $28,000 or 2.9% from $961,000 in 1995 to $ $989,000 in 1996 and
increased $74,000 or 8.3% from $887,000 in 1994 to 1995. Salary related
expenses increased due to a combination of staff additions and annual merit
and incentive compensation increases. Occupancy expense increased $11,000 or
4.7% from $233,000 in 1995 to $$433,000 in 1996 and increased $39,000 or
20.1% from $194,000 in 1994 to $233,000 in 1995, primarily due to an
expansion of bank premises and related expenses. Other operating expenses
increased $59,000 or 15.8% from $374,000 in 1995 to $433,000 in 1996.
Advertising and business development expenses increased $16,000 or 55.2% from
$29,000 in 1995 to $45,000 in 1996. Director fees increased $33,000 or 80.5%
from $41,000 in 1995 to $74,000 in 1996. Offsetting these increases was a
$33,000 or 94.3% decrease in FDIC expense from $35,000 in 1995 to $2,000 in
1996. This decrease was due to reductions on the FDIC premiums that are
assessed on outstanding deposits.
INTEREST RATE SENSITIVITY AND LIQUIDITY
INTEREST RATE SENSITIVITY. The Bank seeks to manage interest rate
sensitivity to avoid net interest margin risk and to enhance consistent
growth of net interest income through periods of changing rates. Interest
rate risk arises from mismatches between repricing or maturity
characteristics of assets and liabilities. More assets repricing or maturing
than liabilities over a given time frame is considered asset sensitive, and
more liabilities repricing or maturing than assets is considered liability
sensitive. An asset sensitive position will generally enhance earnings in a
rising interest rate environment and will negatively impact earnings in a
falling interest rate environment and a liability sensitive position will
generally enhance earnings in a falling rate environment and negatively
impact earnings in a rising interest rate environment.
Interest rate sensitivity varies with different types of
interest-earning assets and interest-bearing liabilities. Federal funds
(with respect to which rates change daily) and loans which are tied to the
prime rate differ considerably from long-term investment securities and
fixed-rate loans. Similarly, time deposits are much more interest sensitive
than regular savings accounts.
The following table sets forth the contractual maturity or repricing
distribution of the Bank's interest-earning assets and interest-bearing
liabilities as of December 31, 1996. The Bank's interest sensitivity gap
(i.e., interest sensitive assets less interest sensitive liabilities), the
ratio of cumulative total interest-earning assets to cumulative total
interest-bearing liabilities, and the Bank's cumulative interest sensitivity
gap ratio:
-42-
<PAGE>
<TABLE>
Assets/Liabilities Subject to After Through Over
Interest Rate Adjustment 1 Year 5 Years 5 Years Total
- ------------------------ ------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C>
Loans
Fixed rate by maturity $ 8,105 $11,258 $ 2,303 $21,666
Floating rate by interval 8,697 80 0 8,777
Securities
Fixed rate by maturity 177 4,730 1,347 6,254
Floating rate by interval 448 0 0 448
Federal funds sold 2,075 0 0 2,075
------- ------- ------- -------
Total interest-earning assets $19,502 $16,068 $ 3,650 $39,220
Money market accounts $ 4,019 $ 0 $ 0 $ 4,019
Interest-bearing demand deposits 3,311 0 0 3,311
Savings accounts 3,276 0 0 3,276
Time deposits $100M and over 2,032 0 0 2,032
Time deposits under $100M 7,217 3,994 0 11,211
------- ------- ------- -------
Total interest-bearing liabilities $19,855 $ 3,994 $ 0 $23,849
Net position (interest sensitivity gap) $ (353) $12,074 $ 3,650
Cumulative interest sensitivity gap $ (353) $11,721 $15,371
Ratio of cumulative gap to total assets (0.82)% 27.13% 35.58%
</TABLE>
The amount of the Bank's interest-sensitive liabilities (generally
deposits with maturities of one year or less) have in the past not matched
the amount of its interest sensitive assets (assets which reprice based on an
index or have short term maturities). This imbalance is referred to as an
interest sensitivity gap, and measures the potential impact of changes to
earnings based on changes in the general level of interest rates. In
general, the net interest income of a financial institution will benefit if
the institution has a negative interest sensitivity gap during periods of
declining interest rates and a positive interest sensitivity gap during
periods of increasing interest rates. Likewise, net interest income
generally will be adversely affected if a financial institution has a
positive interest sensitivity gap during periods of declining interest rates
or a negative interest sensitivity gap during periods of increasing interest
rates.
For a number of reasons, the table set forth above reflecting the Bank's
interest rate sensitivity analysis is not a complete picture of the possible
effect of interest rate changes in net interest income. First, changes in
the general level of interest rates will not affect all categories of assets
and liabilities equally or simultaneously. Second, the table represents a
one-day position; variations occur daily as the Bank adjusts its interest
sensitivity throughout the year. Third, assumptions must be made to
construct such a table. For example, there are several savings products
categorized as interest
-43-
<PAGE>
sensitive in the 30 day interval; however, they may be adjusted less
frequently than changes in the leading rate indicators. Fourth, the
re-pricing distribution of interest-sensitive assets may not be indicative of
the liquidity of those assets. Finally, since the table is based on
contractual maturities, it does not include estimates of early principal
payment on mortgage and installment loans.
LIQUIDITY. Liquidity is a measure of the Bank's ability to fund loans,
withdrawals of deposits and other cash outflows in a cost effective manner.
The Bank's principal source of funds is deposits and, to a lessor extent,
scheduled amortization and repayments of loan principal. In addition, the
Bank has available other sources of credit, including borrowings, sales and
maturities of investment securities and funds provided by operations. While
loan payments and maturing investments are relatively predictable sources of
funds, deposit flows are greatly influenced by general interest rates,
economic conditions and competition.
The Bank's primary source of cash from financing activities during 1996,
1995 and 1994, was from the net decrease in the investment portfolios and to
a greater extent the net increases in deposits and long term borrowings.
Total deposits equaled $35,693,000, $34,441,000, and $30,572,000 as of
December 31, 1996, December 31, 1995, and December 31, 1994, respectively.
Long term debt equaled $2,742,000, $1,738,000, and $831,765 for the same
periods. To further support and enhance its liquidity position, the Bank has
established lines of credit with other banks. In addition, the Bank may
borrow from the Federal Home Loan Bank of Seattle, subject to certain
limitations.
The Bank has an Asset/Liability Management Committee which is comprised
entirely of members of senior management of the Bank. This committee, which
advises the Bank's Board of Directors, is responsible for reviewing interest
rate risk and enhancing future liquidity needs over various time periods.
Its primary goals are to maintain an appropriate balance between
interest-earning assets and interest-bearing liabilities and to assure
adequate liquidity.
CAPITAL
Stockholders' equity increased $743,000 or 19.7% from $3,765,000 at
December 31, 1995, to $ $4,508,000 at December 31, 1996, and increased
$785,000 or 26.3% from $2,980,000 at December 31, 1994, to December 31, 1995.
The growth in all periods was generated almost entirely through earnings
retention.
The FRB and the OCC have adopted minimum capital guidelines which are
discussed at "DESCRIPTION OF THE COMPANY--REGULATION AND SUPERVISION."
IMPACT OF INFLATION
The financial statements and related financial data and notes presented
herein have been prepared in accordance with GAAP, which requires 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.
-44-
<PAGE>
Unlike most industrial companies, virtually all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates
have a more significant impact on performance than the effects of general
price levels. Although interest rates generally move in the same direction
as inflation, the magnitude of such changes varies. The possible effect of
fluctuating interest rates is discussed more fully elsewhere.
DESCRIPTION OF THE BANK
HISTORY
Organized as a de novo bank on January 10, 1986, and approved by the OCC
on May 18, 1987, the Bank commenced operations as a national banking
association on May 18, 1987, and has been operating in Montana since that
date.
The primary organizer of the Bank was Douglas K. Morton who expended
nearly two years in directing its organization. The Bank's initial mission
was to provide superior service to retail and small business accounts. The
Bank opened in a 1,500 square foot converted fast food restaurant and its
initial staff consisted of four officers and nine additional employees. The
Bank exceeded its initial projections and showed a $29,373 loss at the end of
its first fiscal year and a profit for the first twelve months of operations.
Annual growth has averaged in excess of 25% since organization and in more
recent years has slowed to 15%. The Bank's return on average assets over the
past eight years has ranged from 0.71% to 1.63% and has exceeded 1% for six
of these years. In the four most recent years, the return on average assets
has been approximately 1.60%.
Assets in the last five years have grown from $21,138,000 at December
31, 1991, to $43,199,000 at December 31, 1996. For the year ended December
31, 1996, the Bank's net income after taxes was $670,000, compared to
$596,000 for the year ended December 31, 1995. On December 31, 1996, deposit
liabilities were $35,693,000 and net loans were $29,708,000 compared to
$34,441,000 and $27,924,000, respectively, at December 31, 1995. Net
interest income for the year ended December 31, 1996, was $1,978,000 compared
to $1,796,000 at December 31, 1995. As of December 31, 1996, loans past due
90 days or more totaled $63,000, not including non-accrual loans of $40,000.
BUSINESS
The Bank offers a full line of commercial bank services including
checking, savings and money market accounts, time deposits and safe deposit
services. A variety of loans including commercial, financial, agricultural,
real estate and consumer installment loans are offered to persons and small
businesses located primarily in Flathead County, Montana. Additional
services offered include travelers checks; safe deposit boxes; escrow
services; collection services; wire transfers and notary services. The Bank
currently operates through its main office located at 444 West Idaho Street,
Kalispell, Montana.
-45-
<PAGE>
For the most part, the Bank's growth can be attributed to a stable local
economy, good product mix, superior service and a consolidation in operations
by some of the larger local banks. The Bank capitalized on these
opportunities by expanding its Real Estate Loan Department in 1993, starting a
Small Business Administration Loan Department in 1994 and adding experienced
and respected local lenders to its staff. For the past several years the Bank
has been among the top three real estate lenders in Flathead County. For the
twelve months ended September 30, 1996, the Bank was named in the top ten SBA
lenders in Montana and second in Flathead County. In late 1994 the Bank opened
a Trust Department, which was later closed in December 1995 when it became
apparent that increased competition for this type of business would make it
unprofitable for an extended period of time.
Management believes that the Bank will continue to grow in 1997, but at a
much slower pace than in the past. Growth slowed from 15% in recent years to
7% in 1996. Most of this slowdown was experienced in the last half of 1996
when two additional financial offices opened in the Bank's market area and
another changed ownership. Although no major product or operational changes
are anticipated, the Bank will continue to look for opportunities to improve
on its product mix and operating efficiencies. Management believes the Bank's
independent widespread status and local ownership are important competitive
advantages as ownership of other local banks continues to consolidate and the
decision making processes are moved farther away.
LENDING
The Bank concentrates its lending activities in four principal areas:
commercial/financial/agricultural, real estate construction, real estate
mortgage and consumer installment. At December 31, 1996, these categories
accounted for approximately 57%, 7%, 2% and 34%, respectively, of the Bank's
loan portfolio. The interest rates charged for the loans made by the Bank
vary with the degree of risk, the size and maturity of the loans, the
borrower's relationship with the Bank, and prevailing money market rates
indicative of the Bank's cost of funds. The majority of the Bank's loans are
generated in Flathead County, Montana.
The following table sets forth the amounts of loans outstanding by
category as of the dates indicated:
December 31
---------------------------
1996 1995 1994
------- ------- -------
(in thousands)
Commercial, financial and agricultural $17,307 $15,145 $11,707
Real estate--construction 2,087 2,205 2,001
Real estate--mortgage 473 1,140 243
Installment loans to individuals 10,616 10,901 10,609
------- ------- -------
Total loans $30,483 $29,391 $24,560
------- ------- -------
------- ------- -------
-46-
<PAGE>
Average loan balances for 1996 were up 14% over 1995. The 1996 year end
loan balance of $29,708,000 was 6% higher than the balance on the same date of
1995. At year end 1996, the loan to deposit ratio was 84% versus 82% at
December 31, 1995. Average loan balances for 1995 were up 33% over 1994. The
1995 year end loan balance of $29,391,000 was 20% higher than the balance on
the same date of 1994. At year end 1995, the loan to deposit ratio was 82%
versus 79% at December 31, 1994. The higher growth rate in both years
resulted from increasing economic activity in general.
The Bank relies substantially on local promotional activity and personal
contacts by bank officers, directors and employees to compete with other
financial institutions. The Bank makes loans to borrowers whose applications
include, in the opinion of Bank management, a sound purpose, a viable
repayment source and a plan of repayment established at inception and
generally backed by a secondary source of repayment. The Bank has established
a written loan policy for each of its categories of loans which is reviewed
periodically by the Board of Directors. The loan portfolio is reviewed
periodically by the Bank's Board of Directors to initiate steps to accelerate
the collections of past due loans and other actions deemed necessary in order
to maintain a good quality loan portfolio.
COMMERCIAL/FINANCIAL/AGRICULTURAL LOANS. This category of loans includes
business-related loans priced by the Bank at variable and fixed rates of
interest. At December 31, 1996, approximately 57% or $17,307,000 of the
Bank's loan portfolio consisted of commercial/financial/agricultural loans.
Commercial loans include operating lines of credit, letters of credit, loans
for working capital and asset acquisition and loans for business-related
purposes.
REAL ESTATE CONSTRUCTION AND MORTGAGE LOANS. Approximately 9% or
$2,560,000 of the total loan portfolio at December 31, 1996, was to finance
construction or the purchase of real estate. The loan to value ratio for a
real state loan is dependent upon the borrower, the type of project and the
duration. Loan to value ratios are generally at 70% or less for commercial
and 90% or less for 1-4 family residential real estate loans at the time the
loan is made. The Bank has an active residential real estate department which
provides loans for 1-4 family residences. Commercial real estate lending is
generally reserved for productive as opposed to investment or speculative
purposes. The Bank requires debt service ratios which it considers to be
adequate as part of its consideration of the financial viability of the
borrower. The real property provides a secondary source of repayment.
The Bank utilizes third-party appraisers for appraising all loans secured
by real estate. These appraisers are approved annually. The Bank has adopted
real estate appraisal standards as set forth in FDIC regulations which are
applied to all regulated real estate transactions.
CONSUMER INSTALLMENT LOANS. The consumer installment loan portfolio was
approximately 34% or $10,616,000 of the total loan portfolio at December 31,
1996. These loans represent a diverse group of borrowers and include
automobile loans, personal loans, home equity lines of credit, credit cards
and overdraft protection.
-47-
<PAGE>
INVESTMENT PORTFOLIO
The Bank's investment portfolio consists primarily of U.S. Treasury and
U.S. Agency securities and mortgage-backed securities. Government regulations
limit the type and quality of investments in which the Bank may invest its
funds. See "DESCRIPTION OF THE BANK--REGULATION AND SUPERVISION."
The Bank has established a written investment policy which is reviewed
annually. This policy identifies investment criteria and states specific
objectives in terms of risk, interest rate sensitivity and liquidity. The
Bank's primary investment goal is to acquire the best mix of securities for
its investment portfolio in terms of quality, term and marketability. The
Bank's Board of Directors is responsible for reviewing interest rate risk and
liquidity needs over various time periods. It monitors the Bank's investment
portfolio to ensure compliance with guidelines.
The Bank has established an Investment Committee which is comprised of
senior officers. This Investment Committee is responsible for reviewing
interest rate risk and liquidity needs over various time periods. The
Investment Committee monitors the Bank's investment portfolio to ensure
compliance with guidelines.
The following table presents the mix of the Bank's investment portfolio
along with the amortized cost and the market values of those components for
the periods indicated:
<TABLE>
December 31
-------------------------------------------------------
1996 1995 1994
----------------- ----------------- -----------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
------ ------ ------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity
U.S. Treasury $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
U.S. agencies 1,531 1,519 1,807 1,797 1,930 1,795
States and political
subdivisions 25 25 271 270 1,219 1,179
Other 338 338 313 313 296 296
------ ------ ------ ------ ------ ------
Total investment
securities-HTM $1,894 $1,882 $2,391 $2,380 $3,445 $3,270
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
Securities available for sale
U.S. Treasury $ 500 $ 503 $ 250 $ 250 $ 248 $ 244
U.S. agencies 3,785 3,781 3,365 3,345 2,968 2,771
States and political
subdivisions 706 709 956 961 0 0
Other 152 152 157 155 697 686
------ ------ ------ ------ ------ ------
Total investment
securities--AFS $5,143 $5,145 $4,728 $4,711 $3,913 $3,701
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
-48-
<PAGE>
The portfolio includes no obligation of a single state or political
subdivision issuer with an aggregate book value in excess of 10% of
shareholders' equity other than a bond issued by Steelton Highspire
Pennsylvania School District. This bond matures on March 1, 1998, and as of
December 31, 1996, had a book value of $470,000 and a market value of
$474,000. Mortgage-backed securities are scheduled according to anticipated
principal repayments and prepayments.
DEPOSITS
Deposits are the primary source of funds used by the Bank for lending and
other general business purposes. In addition to deposits, the Bank may derive
additional funds from principal repayments on loans, the sale of loans and
investment securities and borrowings from other financial institutions and the
FHLC (which lends to the member institutions within its assigned region). The
level of deposit liabilities can vary significantly and is influenced by
prevailing interest rates, money market conditions, general economic
conditions and competition.
The Bank primarily attracts deposits from local businesses and retail
customers. The Bank offers a full range of depository accounts including
checking, savings, money market accounts and certificates of deposit. The
Bank attempts to control the flow of deposits primarily by pricing its
accounts to remain competitive with other financial institutions in its market
area, although the Bank does not necessarily seek to match the highest rates
paid by competing institutions. The Bank attempts to ensure a satisfied
customer base by offering a full range of banking products. Management
believes that the customers provide a strong and relatively stable core
deposit base.
The following chart shows the average balance and average rate paid on
each category of deposits for the periods indicated:
<TABLE>
Year Ended December 31
--------------------------------------------------------
1996 1995 1994
----------------- ----------------- ----------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ----- ------- ----- ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 6,931 0% $ 6,489 0% $6,346 0%
Interest-bearing demand deposits 3,306 2.33% 3,146 2.32% 3,299 2.24%
Money market deposits 4,267 3.45% 4,531 3.58% 5,516 3.12%
Other savings deposits 3,371 3.00% 3,781 2.99% 3,888 2.98%
Time deposits 18,623 6.03% 14,883 5.90% 9,965 4.51%
</TABLE>
The following chart shows certificates of deposits in amounts of $100,000
or more as of the dates indicated:
-49-
<PAGE>
December 31
------------------------
1996 1995 1994
------ ------ ------
(in thousands)
Time remaining until maturity
Less than 3 months $1,904 $1,430 $ 802
3 months to 12 months 1,356 1,575 850
Over 1 year through 5 years 1,403 847 325
Over 5 years 0 0 0
------ ------ ------
Total $4,663 $3,852 $1,977
------ ------ ------
------ ------ ------
Total deposits increased $3,869,000 or 12.7% from $30,572,000 in 1994 to
$34,441,000 in 1995 and increased $1,252,000 or 3.6% from 1995 to $35,693,000
in 1996. Certificates of deposits in amounts of $100,000 or more increased
$1,875,000 or 94.8% from $1,977,000 in 1994 to $3,852,000 in 1995 and
increased $811,000 or 21% from 1995 to $4,663,000 in 1996. At December 31,
1996, total deposits were comprised of approximately 28% demand deposits, 20%
savings deposits and 52% time deposits.
PROPERTY
The Bank operates out of its only office located at 444 West Idaho,
Kalispell, Montana. The facility includes a very attractive and functional
building and grounds which occupies seven city lots on the edge of downtown
Kalispell. The property was purchased in 1987 for a cost of $487,000. At
that time the Bank operated out of a 1,500 square foot facility. In 1989 a
new facility was built on the site for a cost of $490,000. In 1995 the
building was expanded at a cost of $360,000. Ample off-street parking is
maintained with room to expand if necessary. Management believes the present
facility will be adequate in size for the foreseeable future. Bank facilities
include approximately 9,500 square feet of usable space, 3,500 of which is
leased to other commercial tenants.
The Bank's facility contains 4 teller windows, 4 drive-up lanes and an
ATM. The Bank also has three remote ATMs located at Rosauers Supermarket on
the south entrance to Kalispell, the Gateway West Mall on the west end of
Kalispell and the Evergreen Cenex store on the east end of Kalispell. All
three ATM locations are leased pursuant to a formula based upon the monthly
usage of the machines. The Bank has no other leased facilities or equipment.
COMPETITION
The primary service area of the Bank is Flathead County in northwest
Montana. Flathead County covers 5,140 square miles and includes the cities of
Kalispell, Whitefish, Columbia Falls, Evergreen, Bigfork and Lakeside. The
area is a mixture of timber and agricultural areas with small businesses
related to timber, agriculture, tourism and manufacturing. The Bank is
located in Kalispell, the county seat. The greater Kalispell area has a
population of approximately 28,000 and Flathead County's population is
approximately 70,000.
-50-
<PAGE>
With 15 financial institutions serving a population of 70,000,
competition in the Bank's primary service area is high. The Bank has
competition within its service area from many well-established financial
institutions. In addition to competition from nine other commercial banking
institutions, there is competition from two savings and loan companies and
three credit unions. Many of the Bank's competitors are larger and more
substantially capitalized than the Bank. They have established positions in
Flathead County and have greater resources than the Bank for lending and to
pay for advertising, physical facilities, personnel and interest on deposited
funds. See "DESCRIPTION OF THE BANK--BUSINESS."
The primary factors affecting competition for deposits are interest
rates, the quality and range of financial services offered and the convenience
of office locations and office hours. The primary factors in competing for
loans are interest rates, loan origination fees and the quality and range of
lending services offered. Other factors which affect competition include the
general availability of lendable funds and credit, general and local economic
conditions and the quality of service provided to customers.
The Bank relies substantially on local promotional activity, personal
contacts by its officers, directors, employees and shareholders, extended
hours, personalized service, a flexible product mix and its reputation in the
community to compete effectively. Management believes that customers
appreciate the Bank's local ownership as opposed to having decisions are made
out of the area which is common for larger institutions.
Following is the most recent information available concerning competitors
of the Bank in its principal service area, indicating the deposit size as of
June 30, 1996. The unmarked information was derived from the winter 1997
issue of Thomson Financial Publishing. Items marked * were obtained from the
Federal Home Loan Bank of Seattle Deposit Market Share Report and items marked
** were obtained from direct inquiry with the subject financial institution
-51-
<PAGE>
Total Deposits
Name of Institution (000s omitted)
------------------- --------------
American Bank $ 3,802
BN Park Credit Union** 16,106
First Citizens Bank 29,341
First Interstate Bank 64,670
First National Bank of Whitefish 22,918
First Security Bank 35,661
Flathead Bank 41,147
Flathead Govt Employee Credit Union** 6,340
Glacier Bank, FSB* 80,900
Mountain Bank 51,643
Norwest Bank* 95,260
Security Bank, FSB* 6,770
Valley Bank 74,508
Whitefish Credit Union** 163,687
The Bank's total deposits at June 30, 1996, were $36,443,000. The
proposed formation of the Company cannot assure any decrease in competitive
effects on the Bank.
LEGAL PROCEEDINGS
The Bank is not presently involved in any legal proceedings which
management believes to be material to its financial condition or results of
operations. As the nature of the Banks business involves providing certain
financial services, the collection of loans and the enforcement and validity
of mortgages and other liens, the Bank is a party in various legal
proceedings (such as garnishment proceedings) which may be considered as
arising in the ordinary course of their business.
REGULATION AND SUPERVISION
The operations of the Bank are subject to federal statutes applicable
to banks chartered under the laws of the United States. The OCC regularly
examines such areas as reserves, loans, investments, management practices and
other aspects of bank operations. These examinations are for the protection
of the Bank's depositors and not for its shareholders. In addition to these
regular examinations, the Bank must furnish to the OCC quality reports
containing a full and accurate statement of its affairs.
As a subsidiary bank of a bank holding company, the Bank will be subject
to certain restrictions imposed by the Federal Reserve Act on any extension
of credit to the bank holding company or any of its subsidiaries on
investments and stock or other securities thereof, and on the taking of such
stock or securities as collateral for loans to any borrower.
-52-
<PAGE>
DIVIDENDS. The ability of the Bank to pay dividends is subject to
federal banking law. The Bank may not, without the approval of the OCC,
declare dividends if (i) such dividends would impair the Bank's capital
structure, (ii) the Bank's surplus fund is not equal to its common stock or
(iii) dividends declared in any one calendar year would exceed the total of
net profits in that year combined with retained net profits for the preceding
two years, less any required transfer surplus. In addition, the FRB has the
authority to prohibit banks regulated by it from engaging in practices which
in its opinion are unsafe or unsound. Such practices could include the
payment of dividends under some circumstances. Moreover, the payment of
dividends may be inconsistent with capital adequacy guidelines of the various
regulatory authorities.
INSURANCE OF DEPOSITS. The operations of the Bank are also subject to
the regulations of the FDIC, which insures the deposits of the Bank up to a
maximum of $100,000 per depositor. The FDIC issues regulations, conducts
periodic examinations, requires the filing of reports and generally
supervises the operations of its insured banks. This supervision and
regulation is intended primarily for the protection of depositors.
CAPITAL REQUIREMENTS. The Company and the Bank are subject to the
minimum capital requirements of the FRB and the OCC. See "DESCRIPTION OF THE
COMPANY--REGULATION AND SUPERVISION." Under current guidelines, the Bank
must maintain a ratio of 8%, of which at least 4% must be in the form of core
capital. Under the risk-based capital regulation, the ratios of Tier 1 and
total capital to risk-weighted assets for the Bank were 14.5% and 15.6% at
December 31, 1996, and 13.12% and 14.36 at December 31, 1995, thus meeting
the classification of a "well capitalized" bank. The Bank's leverage-based
capital ratio was 10.17% as of December 31, 1996, and 9.11% at December 31,
1995. These leverage-based ratios were in excess of regulatory requirements.
The Bank expects to continue to be in compliance with these guidelines.
MANAGEMENT
The directors and executive officers of the Bank are as follows:
<TABLE>
Name and Age
(as of 12-31-96) Position in Bank Principal Occupation
---------------- ---------------- --------------------
<S> <C> <C>
Richard Dasen, 54 Director Investor and businessman
Richard Gunlikson, 68 Director Certified Public Accountant
Charles Lee, 62 Director Wholesale beverage distributor
Donald McCarthy, 41 Senior Vice President Banker
and Cashier/CFO
Douglas Morton, 52 President and Chairman Banker
Teruko Rogers, 58 Director Controller of automobile dealership
Barry Smith, 42 Director President of logging company
</TABLE>
-53-
<PAGE>
All of the directors listed above, if re-elected at this Annual Meeting,
will hold office until the 1998 Annual Meeting of Shareholders, or until
their successors are duly elected and qualified. All of the officers listed
will hold office until successors are appointed by the Board of Directors.
There are no arrangements or understandings between any of the directors or
officers or any other persons pursuant to which any of the above directors
have been selected as directors, or officers have been selected as officers.
During the past five years, Mr. McCarthy's business experience has been
as follows: Cashier and Vice President of the Bank since 1987. He was
promoted to Senior Vice President and Cashier/CFO in 1996. Prior to that
time he was an Assistant National Bank Examiner. He brings 20 years of
banking experience to the Bank.
See "ELECTION OF DIRECTORS" for additional information regarding each
director.
COMPENSATION OF DIRECTORS
In 1996 and to date, directors have received a monthly fee of $1,000 to
compensate directors for the increased time spent relating to the issues
surrounding the Consolidation Agreement, including acting in their individual
capacities to borrow funds for the temporary purchase of the Flathead Shares.
Following the 1997 Annual Shareholders Meeting, the monthly fee will
decrease to $500 plus a performance-based cash incentive under the Bank's
Bonus Incentive Plan. See "Bonus Incentive Plan." Directors' compensation
is reviewed annually by the Board.
BOARD COMMITTEES AND MEETINGS
The Board of Directors has established a Stock Option Committee,
consisting of Messrs. Dasen, Gunlikson and Lee, which administers and
determines grants of stock options under the Bank's Stock Option Plan. See
"STOCK OPTION PLAN" below. Nominees for the Board of Directors are
determined by the entire Board.
For the year ended December 31, 1996, there were 14 meetings of the
Board of Directors and two meetings of the Stock Option Committee. All
directors attended 75% or more of the Company's Board meetings and meetings
of Board committees on which they served.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
received for services rendered in all capacities to the Bank for the years
ended December 31, 1996, 1995 and 1994, by Mr. Morton, President and
Chairman. No executive officer's compensation exceeded $100,000 during the
year ended December 31, 1996. No restricted stock awards, long-term
incentive plan payouts or stock appreciation rights ("SARs") were granted to
Mr. Morton in such years.
-54-
<PAGE>
Summary Compensation Table(1)
<TABLE>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities Underlying
Name and Principal Position Year Salary(2) Bonus Stock Options
- --------------------------- ---- --------- ------- ----------------------
<S> <C> <C> <C> <C>
Douglas K. Morton 1996 $72,800 $ 8,208 0
Chairman of the Board and 1995 65,685 7,822 0
President 1994 63,600 10,704 0
</TABLE>
- --------------------
(1) The aggregate amount of perquisites and other personal benefits received,
such as contributions pursuant to the Bank's 401(K) Plan, did not exceed
the lessor of either $50,000 or 10% of the total of annual salary and bonus
reported for Mr. Morton.
(2) Includes directors fees.
BONUS INCENTIVE PLAN. The Board approved a Bonus Incentive Plan for
1996 which applies to all Bank employees after they have worked 120
consecutive days. Pursuant to this plan, bonuses are paid quarterly within
15 days after the end of each quarter. The amount of bonuses paid is based
upon the Bank's return on assets and the salary level of each employee.
STOCK OPTION PLAN
The Bank's Stock Option Plan, adopted by the Board of Directors and the
shareholders of the Bank on February 14, 1989, provides that options for Bank
Stock may be granted to such key employees, other than directors, of the Bank
who the Board of Directors deems to be important to the future of the Bank.
Options for 2,000 shares of Bank Stock may be granted under the plan. As of
December 31, 1996, options for all 2,000 shares had been granted. The period
for which an option is exercised may not exceed ten years from the date of
the grant. An option may not be exercised earlier than two years after the
date of grant. The option price per share is determined by the Board of
Directors at the time an option is granted and cannot be less than 100% of
the fair market value of Bank Stock on the date of grant.
Pursuant to the Consolidation Agreement, the options to receive Bank
Stock under the Stock Option Plan will become options to receive Company
Stock upon consummation. In all other respects, this plan will remain in
substantially the same form after the acquisition.
The Stock Option Committee, which administers the plan, designates in
its discretion the participants who receive grants of options under such plan
using criteria which include responsibilities of the individual, ability to
contribute to meeting corporate objectives and other related measurements.
Bank management believes that stock options are an integral part of its
executive compensation package, since options align the interest of
management with stockholders and focus the attention of management on the
long-term success of the Bank.
No stock options were granted to Mr. Morton in 1996. The following
table shows certain information regarding the exercise of options during the
year ended December 31, 1996, and unexercised options held by Mr. Morton as
of December 31, 1996.
-55-
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
Number of Shares Value of Unexercised
Number of Underlying Options at In-the-Money Options at
Shares Value Fiscal Year-End (#) Fiscal Year-End ($)
Acquired Realized -------------------------- ---------------------------
Name on Exercise Upon Exercise Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas K. Morton 398 $107,225.18(1) 142 0 $37,296.30(2) $0
</TABLE>
- -------------
(1) Based upon the book value of the Bank Stock on December 31, 1996 ($520.57
per share), less the option exercise price of $251.16.
(2) Based upon the book value of the Bank Stock on December 31, 1996 ($520.57
per share), less the option exercise price of $257.92. These options were
subsequently exercised on January 31, 1997.
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT AND OTHERS
The Bank has had banking transactions in the ordinary course of its
business with directors, officers, principal shareholders and their associates
on the same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with unaffiliated
parties. To the extent that such transactions consisted of extensions of
credit, they did not, in the opinion of management, involve more than a normal
risk of collectibility or present other unfavorable features. As of December
31, 1996, the Bank's directors and executive officers were indebted to the Bank
in the aggregate amount of $757,000, none of which such loans were delinquent.
This indebtedness is secured by mortgages and/or security interest in real or
personal property owned by these persons
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY
Article VI of the Bank's Articles of Incorporation provides for
indemnification of the Bank's directors, officers, employees and agents.
Consistent with the Montana Business Corporation Act, Section VII of the Bank's
Articles of Incorporation contain provisions which limit the personal liability
of directors for monetary damages to the Bank or its shareholders for breach of
their fiduciary duties as directors except to the extent such limitation of
liability is prohibited by Montana law.
EMPLOYEES AND EMPLOYEE BENEFITS
As of December 31, 1996, the Bank employed 24 persons on a full time basis
and 7 persons on a part time basis, including 11 officers and 20 staff members.
The Bank's employees are not parties to any collective bargaining agreement.
The Bank provides a variety of employee benefits and believes employee relations
are good. The Bank has experienced very little turnover in staff and
anticipates no significant changes in the foreseeable future.
As part of its effort to attract and maintain high quality staff, the Bank
adopted a 401(K) Profit Sharing Plan, effective January 1, 1991, pursuant to
which participating employees may contribute a portion of their yearly salary.
The Bank may make matching, non-elective or discretionary contributions each
year. All monies withheld from employees and the Bank's
-56-
<PAGE>
contributions are paid to a trustee who invests for the benefit of members of
the plan. The Bank intends to continue the plan in substantially the same
form after consummation of the Consolidation Agreement.
The Bank also adopted an Employee Stock Ownership Plan ("ESOP") effective
January 1, 1991. Pursuant to the ESOP, the Bank may make contributions which
are then allocated to the accounts of eligible employees. The trustee of the
ESOP invests the funds primarily in Bank Stock. The Bank intends to continue
the ESOP in substantially the same form after the Effective Date with
investments to be made primarily in Company Stock.
LEGAL PROCEEDINGS
The Bank is not a party to any pending legal proceedings before any court,
administrative agency or other tribunal other than routine litigation incidental
to conduct the business of the Bank. Bank management further believes that no
litigation is threatened in which the Bank faces potential loss or exposure
which will materially affect the shareholders' equity or the Bank's financial
position as presented herein.
PRINCIPAL HOLDERS OF VOTING SECURITIES
On May 1, 1997, there were 9,080 shares of Bank Stock outstanding, held of
record by 186 shareholders. Only shareholders of record as of ____________,
1997, shall be entitled to vote at the Annual Meeting and each share is entitled
to one vote.
After the Effective Date, there will be approximately 71,880 shares of
Company Stock outstanding held by 186 shareholders. These figures may vary
depending upon the number of Bank shareholders exercising their dissenters'
rights and whether any stock options are exercised prior to the Effective Date.
See "DESCRIPTION OF THE BANK--EXECUTIVE COMPENSATION." Each shareholder of
Company Stock will be entitled to one vote on all matters submitted to the
shareholders of the Company.
The following table sets forth as of May 1, 1997, the number of shares of
Bank Stock owned of record or beneficially by each person who owned of record,
or to the knowledge of the Bank, beneficially, more than 5% of the Bank Stock,
and the number of shares (including director's qualifying shares) individually
and beneficially owned by all directors, executive officers and key employees of
the Bank individually and as a group. In addition, the table illustrates the
number of shares of Company Stock to be owned by such persons and group upon
effectiveness of the Consolidation Agreement, assuming all such persons elect to
exchange their Bank Stock pursuant to the Consolidation Agreement. The table
does not reflect the ownership of stock options to purchase Bank Stock.
-57-
<PAGE>
<TABLE>
Company Stock to be
Bank Stock Owned Owned After Acquisition(8)
------------------------------- --------------------------------
Sole and Shared Sole and Shared
Sole Voting Voting and/or Sole Voting Voting and/or
and Investment Investment and Investment Investment
Powers Powers Powers Powers
-------------- --------------- -------------- ---------------
Name and Address of Number Number Number Number
Shareholder (Percent) (Percent) (Percent) (Percent)
- ------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Richard Dasen 630 630(1) 3,230 3,230
400 West Valley Drive 6.9% 6.9% 4.5% 4.5%
Kalispell, MT 59901
Richard Gunlikson 467 570(2) 1,600 2,630
22 Second Avenue W #3300 5.1% 6.3% 2.2% 3.6%
Kalispell, MT 59901
Charles Lee 632 652(3) 3,250 3,450
Six Meridian Road 7.0% 7.2% 4.5% 4.8%
Kalispell, MT 59901
Donald McCarthy 51 54(4) 510 540
One Walker Lane 0.6% 0.6% 0.7% 0.7%
Lakeside, MT 59922
Douglas Morton 1,522 2,169(5) 12,150 18,620
203 Somerset Drive 16.8% 23.9% 16.8% 25.7%
Kalispell, MT 59901
Teruko Rogers 327 670(6) 200 3,630
119 North Haven Drive 3.6% 7.4% 0.3% 5.0%
Kalispell, MT 59901
Barry Smith 434 556(7) 1,270 2,490
775 Kelly Lane 4.8% 6.1% 1.8% 3.4%
Missoula, MT 59901
Executive officers and 4,063 5,301 22,210 34,590
directors as a group (7 persons) 44.7% 58.4% 30.7% 47.8%
</TABLE>
- -------------
(1) Includes 307 Flathead Shares.
(2) Includes 103 shares held by members of Mr. Gunlikson's family and 307
Flathead Shares.
(3) Includes 20 shares held by Mr. Lee's wife and 25 shares held by Chuck Lee
Trucking, Inc., of which Mr. Lee is owner and 307 Flathead Shares.
(4) Includes 3 shares held jointly with members of Mr. McCarthy's family.
Excludes stock options for 270 shares of Company Stock which are currently
exercisable.
(5) Includes 647 shares held by members of Mr. Morton's family and 307 Flathead
Shares.
(6) Includes 343 shares held jointly with a family member and 307 Flathead
Shares.
(7) Includes 122 shares held by members of Mr. Smith's family and 307 Flathead
Shares.
(8) Reflects the Company's purchase of 307 Flathead Shares from each person
listed except Mr. McCarthy who owns no Flathead Shares.
The stock certificates issued by the Company to the officers, directors and
shareholders deemed to control, through share ownership or otherwise, the Bank
(unless such persons dissent from the proposed transaction and receive no
Company Stock as a result thereof) or the Company (the "Affiliates") will bear a
legend designed to prevent inadvertent violations of federal securities laws
-58-
<PAGE>
as a result of "public" sales of the Company Stock acquired by such persons
pursuant to the proposed transaction. Affiliates can only publicly sell in any
three-month period an amount representing no more than one percent of all
outstanding shares of Company Stock and can only sell when current public
information about the Company is available. Additionally, public resale by
Affiliates can only be made through brokers' transactions or in transactions
with market makers. In certain situations a notice of public sale will be
required to be filed by the affiliate with the Securities and Exchange
Commission
COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK
The Company is authorized to issue 500,000 shares of common stock. If the
proposed Consolidation Agreement is effected, up to approximately 71,880 shares
of Company Stock will be issued and outstanding. The Bank is authorized to
issue 10,000 shares of common stock, par value $100, of which 9,080 shares were
issued and outstanding on April 10, 1997.
DIVIDENDS
The holders of Bank Stock are entitled to receive such dividends as may be
paid on Bank Stock from time to time by the Bank's Board of Directors out of
funds legally available therefor. Similarly, the holders of Company Stock will
be entitled to dividends as may be paid from time to time by the Company's Board
of Directors out of funds legally available therefor. Funds for the payment of
dividends and costs of the Company are expected to be obtained primarily from
dividends received from the Bank.
VOTING RIGHTS
All voting rights are vested in the holders of Bank Stock, each share being
entitled to one vote. The same is true for holders of Company Stock.
Shareholders of the Bank do not have cumulative voting rights in the election of
directors at any shareholders' meeting. Shareholders of Company Stock also will
not have cumulative voting rights. Cumulative voting rights permit minority
shareholders of an entity who control a significant block of stock to elect a
representative to the Board of Directors.
The Company's Articles of Incorporation include a "super-majority"
provision requiring the holders of two-thirds of the voting power of the Company
to approve a sale, merger, consolidation, liquidation, dissolution or other
disposition of all or substantially all of the Company's assets when such
transaction has not been approved by the Board of Directors. See "COMPARISON
BETWEEN COMPANY STOCK AND BANK STOCK--ANTI-TAKEOVER PROVISIONS."
PREEMPTIVE AND OTHER RIGHTS
Bank shareholders do have preemptive rights to acquire unissued or treasury
shares. Holders of Company Stock do not have preemptive rights. Therefore,
shareholders of Company Stock may
-59-
<PAGE>
have their percentage holdings reduced when Company Stock is issued. In
addition, there are no conversion, redemption, sinking fund or similar
provisions regarding Company Stock or Bank Stock.
ASSESSMENT
Shares of Bank Stock are fully paid and nonassessable. Similarly, shares
of Company Stock to be issued and delivered if the Consolidation Agreement is
effected to Bank shareholders other than those holding Flathead Shares will,
when so issued and delivered, be fully paid and nonassessable.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up affairs of the Bank, the
holders of Bank Stock would be entitled to share on a pro rata basis in the net
assets of the Bank. Holders of Company Stock will be entitled to share on a pro
rata basis in the net assets of the Company which remain after satisfaction of
all liabilities.
SHARES ELIGIBLE FOR FUTURE SALE
Because 10,000 shares of Bank Stock are authorized and 9,080 shares are
issued and outstanding, Bank management could issue up to 920 additional shares
of Bank Stock without prior approval of the shareholders. Currently those 920
shares of Bank Stock are reserved for issuance pursuant to the Bank's Stock
Option Plan. See "DESCRIPTION OF THE BANK--STOCK OPTION PLAN." Montana law
allows a corporation's Board of Directors to issue shares of stock up to the
total amount of common stock authorized, without obtaining the prior approval of
the existing shareholders. Because 500,000 shares of Company Stock are
authorized and a maximum of 71,880 shares of Company Stock may be issued
pursuant to the Consolidation Agreement, the Company's Board of Directors may
later issue up to 428,120 additional shares of Company Stock without prior
approval of the shareholders in order to raise additional capital for infusion
in to the Bank or for other corporate purposes. If such stock were issued in
the future, without first offering the stock to Company shareholders, the
proportionate ownership of Company shareholders could be diluted, possibly to
the point where a change in control of the Company could result. Such stock
could also be issued to a friendly acquirer if the Company were threatened with
a hostile takeover. Management currently has no plans to issue additional
stock, except pursuant to the Stock Option Plan. See "DESCRIPTION OF THE BANK--
EXECUTIVE COMPENSATION."
ANTI-TAKEOVER PROVISIONS
The Company's Articles of Incorporation include a "super-majority"
provision, requiring that the holders of two-thirds of the voting power of the
Company must approve a sale, merger, consolidation, liquidation, dissolution or
other disposition of all or substantially all of the Company's assets when such
transaction has not been approved by the Board of Directors of the Company.
This provision may not be amended unless first approved by the affirmative vote
of at least two-thirds of the voting power of the Company. Under Montana law,
the Company's Articles of Incorporation could have been drafted to permit such
transactions to be effected upon approval of a majority of the votes cast on the
proposal.
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<PAGE>
This "super-majority" provision was included in the Articles of
Incorporation to ensure that no fundamental changes in the Company are made
without the overwhelming approval of shareholders. Another effect is that a
minority of shareholders may block such a disposition that a majority of
shareholders believes desirable.
Shareholders should be aware that the anti-takeover provisions might
discourage a tender offer for Company Stock which might be at a price above the
prevailing market rate. Management believes that the advantages of the anti-
takeover provisions to all shareholders of the Company outweigh any possible
disadvantages resulting from the decrease in the likelihood of the Company
becoming a target of a takeover bid which might be desired or favored by a
majority of Company shareholders.
Under Montana law, any merger or consolidation must be approved by the
Board of Directors before being submitted to shareholders. A merger or
consolidation, once approved by the Board of Directors, requires a two-thirds
vote of shareholders for approval.
The anti-takeover provisions in the Company's Articles of Incorporation may
not deter an acquisition of the Company. It may, however, discourage attempts
by other persons, companies or groups to acquire control of the Company without
negotiation with the Company. Management believes that shareholders other than
the person seeking control may suffer inequities and may not receive a fair
price if the Company falls under the control of another person without that
other person first negotiating with management to obtain the fairest terms for
the shareholders and the Company.
The Articles of Incorporation of the Company contain another provision that
may be deemed to be "anti-takeover" in nature. This provision authorizes the
issuance of 500,000 shares of Company Stock. The additional shares of Company
Stock (in excess of the 71,880 shares to be issued in connection with the
Consolidation Agreement) were authorized for the purpose of providing the Board
of Directors of the Company with as much flexibility as possible to issue
additional shares, without further stockholder approval, for proper corporate
purposes, including financing, acquisitions, stock dividends, stock splits,
employee stock option plans and other similar purposes. However, these
additional shares may also be used by the Board of Directors (if consistent with
its fiduciary responsibilities) to deter future attempts to gain control over
the Company. The overall effect of this provision may be to deter a future
tender offer that a majority of the shareholders might possibly deem to be in
their best interests as the offer might include a substantial premium over the
market price of the Company Stock at that time. In addition, this provision may
have the effect of assisting the Company's current management to retain its
position and place it in a better position to resist changes that the
shareholders may want to make if dissatisfied with the conduct of the Company's
business.
INFORMATION CONCERNING ACCOUNTANTS
The Bank's financial statements as of December 31, 1996, and for each of
the years in the three-year period ended December 31, 1996, have been included
herein in reliance upon the report
-61-
<PAGE>
of Galusha Higgins & Galusha, Certified Public Accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
OTHER MATTERS
The Annual Meeting is called for the purposes set forth in the notice.
Bank management does not know of any matter for action by shareholders at such
meeting other than the matter described in the notice. However, the enclosed
proxy will confer discretionary authority with respect to matters which are not
known to management at the time of the printing hereof and which may properly
come before the meeting. It is the intention of the persons named in the proxy
to vote the proxy in accordance with the recommendations of management.
LEGAL OPINIONS
The legality of the Company Stock to be issued pursuant to the
Consolidation Agreement will be passed upon for the Company by the firm of
Rothgerber, Appel, Powers & Johnson LLP.
The law firm of Rothgerber, Appel, Powers & Johnson LLP, Suite 3000, 1200
17th Street, Denver, Colorado 80202, has served as special counsel to the
Company in the preparation of the registration statement and the applications
with the various bank regulatory authorities relating to the proposed
acquisition. Further, the firm of Rothgerber, Appel, Powers & Johnson LLP will
render its opinion regarding the tax consequences of the proposed acquisition.
No members of that firm own Bank Stock, nor will any members of that firm own
Company Stock as a result of the proposed transaction.
The law firm is not employed on a contingent basis.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Certified Public Accountant F-1
Financial Statements
Statements of Financial Condition F-2
Statements of Income F-3
Statements of Shareholders' Equity F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
through F-17
-62-
<PAGE>
REPORT OF CERTIFIED PUBLIC ACCOUNTANTS'
To the Board of Directors
BankWest National Association
Kalispell, Montana
We have audited the accompanying statements of financial condition of
BankWest National Association as of December 31, 1996, 1995 and 1994, and the
related statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BankWest National
Association as of December 31, 1996, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ GALUSHA HIGGINS & GALUSHA, P.C.
Missoula, Montana
January 31, 1997
F-1
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31
<TABLE>
ASSETS 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash and due from banks $ 1,966,675 $ 1,353,150 $ 1,676,237
Federal funds sold 2,075,000 800,000 -
Securities available for sale 5,145,296 4,711,057 3,701,687
Securities held to maturity 1,893,933 2,390,746 3,445,209
Loans held for sale 445,749 1,109,732 210,470
Loans receivable, net of allowance for loan
losses of $330,533 in 1996, $357,395 in
1995, and $345,663 in 1994 29,707,669 27,923,805 24,003,889
Accrued interest receivable 356,291 314,820 318,209
Premises and equipment 1,532,922 1,566,333 1,344,702
Repossessed assets 22,953 38,723 -
Prepaid expenses 22,629 15,633 14,890
Other assets 29,588 50,026 29,283
----------- ----------- -----------
Total assets $43,198,705 $40,274,025 $34,744,576
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $10,103,373 $ 9,421,646 $ 9,612,403
Savings deposits 7,295,195 7,534,283 9,545,303
Time deposits 18,294,875 17,484,949 11,414,151
----------- ----------- -----------
Total deposits 35,693,443 34,440,878 30,571,857
Federal funds purchased - - 200,000
Dividends and interest payable 217,546 211,539 137,642
Accrued expenses and
other liabilities 42,735 118,350 23,467
Long-term debt 2,742,450 1,738,417 831,880
----------- ----------- -----------
Total liabilities 38,696,174 36,509,184 31,764,846
----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $100 par value; 10,000 shares
authorized; 8,938, 8,540, and 8,000 shares
issued and outstanding at December 31, 1996,
1995 and 1994, respectively 893,800 854,000 800,000
Additional paid-in capital 919,562 859,400 800,000
Retained earnings 2,687,671 2,062,004 1,510,508
Net unrealized appreciation (depreciation) on
available-for-sale securities, net of deferred
tax credit (asset) of $(958) in 1996, $6,752 in
1995, and $83,612 in 1994 1,498 (10,563) (130,778)
----------- ----------- -----------
Total shareholders' equity 4,502,531 3,764,841 2,979,730
----------- ----------- -----------
Total liabilities and shareholders' equity $43,198,705 $40,274,025 $34,744,576
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 3,045,154 $ 2,664,425 $ 2,100,422
Securities available for sale 254,829 224,516 193,135
Securities held to maturity 101,414 129,538 179,784
Federal funds sold 99,611 82,881 27,784
Other 24,342 19,682 19,062
----------- ----------- -----------
Total interest income 3,525,350 3,121,042 2,520,187
----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,445,084 1,225,910 812,001
Federal funds purchased 2,567 9,802 13,526
Other borrowed funds 94,898 89,110 48,212
----------- ----------- -----------
Total interest expense 1,542,549 1,324,822 873,739
----------- ----------- -----------
NET INTEREST INCOME 1,982,801 1,796,220 1,646,448
PROVISION FOR LOAN LOSSES 67,000 36,000 77,000
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,915,801 1,760,220 1,569,448
----------- ----------- -----------
NONINTEREST INCOME
Service charges 291,506 283,521 268,620
Loan servicing fees 341,223 308,993 331,640
Net realized gains (losses) on sales of
available-for-sale securities 503 60 (2,587)
Net gains (losses) from sale of fixed assets (654) 4,395 4,305
Other income 168,334 137,061 128,510
----------- ----------- -----------
Total other income 800,912 734,030 730,488
----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 988,566 960,701 887,060
Occupancy expense 244,032 232,600 194,025
Other expense 433,341 373,806 373,233
----------- ----------- -----------
Total other expenses 1,665,939 1,567,107 1,454,318
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 1,050,774 927,143 845,618
INCOME TAX EXPENSE 377,408 331,372 298,500
----------- ----------- -----------
NET INCOME $ 673,366 $ 595,771 $ 547,118
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are integral part of these financial statements.
</TABLE>
F-3
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
Net Unrealized
Appreciation
Additional (Depreciation) on Total
Common Paid-in Retained Available-for-Sale Shareholders'
Stock Capital Earnings Securities Equity
---------- ----------- ----------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 800,000 $ 800,000 $ 1,003,390 $ 21,341 $ 2,624,731
Net income for 1994 - - 547,118 - 547,118
Cash dividends paid - - (40,000) - (40,000)
Net changes in unrealized depreciation
on available-for-sale securities, net of
taxes of $80,154 - - - (152,119) (152,119)
---------- ---------- ----------- ---------- -----------
Balance at December 31, 1994 800,000 800,000 1,510,508 (130,778) 2,979,730
Net income for 1995 - - 595,771 - 595,771
Cash dividends paid - - (42,700) - (42,700)
Sale of 540 shares, at $210 each 54,000 59,400 - - 113,400
Net changes in unrealized depreciation
on available-for-sale securities, net of
taxes of $6,752 - - - 120,215 120,215
Prior period adjustment - - (1,575) - (1,575)
---------- ---------- ----------- ---------- -----------
Balance at December 31, 1995 854,000 859,400 2,062,004 (10,563) 3,764,841
Net income for 1996 - - 673,366 - 673,366
Cash dividends paid - - (44,690) - (44,690)
Sale of 398 shares, at $251.16 each 39,800 60,162 - - 99,962
Net changes in unrealized depreciation
on available-for-sale securities, net of
taxes of $(958) - - - 12,061 12,061
Prior period adjustment - - (3,009) - (3,009)
---------- ---------- ----------- ---------- -----------
Balance at December 31, 1996 $ 893,800 $ 919,562 $ 2,687,671 $ 1,498 $ 4,502,531
---------- ---------- ----------- ---------- -----------
---------- ---------- ----------- ---------- -----------
</TABLE>
The accompanying notes are integral part of these financial statements.
F-4
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 673,366 $ 595,771 $ 547,118
----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 146,081 138,455 120,660
Provision for loan losses 67,000 30,000 77,000
Net increase (decrease) in loans held for sale 663,983 (899,262) 44,347
Net unrealized gains (losses) on available-for-sale
securities 12,061 120,215 (152,119)
(Increase) decrease in accrued interest receivable (41,471) 3,389 (82,795)
Increase (decrease) in accrued expense and other
liabilities (72,617) 168,037 (101,347)
(Increase) decrease in other assets 29,212 (61,041) 11,549
----------- ----------- -----------
Total adjustments 807,258 (500,207) (82,705)
----------- ----------- -----------
Net cash provided by operating activities 1,477,615 95,564 464,413
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (1,275,000) (800,000) 300,000
Proceeds and maturities from available-for-sale securities 2,167,856 300,089 2,052,868
Purchases of available-for-sale securities (2,602,095) (1,309,459) (1,367,333)
Proceeds from held-to-maturity securities 496,813 1,054,463 492,057
Net decrease in loans (1,850,864) (3,949,916) (5,459,839)
Net purchases of premises and equipment (112,670) (360,086) (325,813)
----------- ----------- -----------
Net cash used in investing activities (3,175,960) (5,064,909) (4,308,060)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing
demand, savings, and deposit accounts 442,639 (2,201,777) 1,753,395
Net increase in time deposits 809,926 6,070,798 2,450,621
Net increase (decrease) in federal funds purchased - (200,000) 200,000
Issuance of common stock 99,962 113,400 -
Net proceeds (payment) of long-term debt 1,004,033 906,537 (100,212)
Dividends paid (44,690) (42,700) (40,000)
----------- ----------- -----------
Net cash provided by financing activities 2,311,870 4,646,258 4,263,804
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS 613,525 (323,087) 420,157
CASH AND DUE FROM BANKS
Beginning of period 1,353,150 1,676,237 1,256,080
----------- ----------- -----------
CASH AND DUE FROM BANKS
End of period $ 1,966,675 $ 1,353,150 $ 1,676,237
----------- ----------- -----------
----------- ----------- -----------
TAXES PAID $ 438,853 $ 338,430 $ 345,992
----------- ----------- -----------
----------- ----------- -----------
INTEREST PAID $ 1,442,086 $ 1,253,626 $ 840,130
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Bank provides traditional banking
services in Kalispell, Montana. Most of the Bank's customers
are retail customers and small to medium size businesses.
CASH EQUIVALENTS. For the purpose of presentation in the
statements of cash flows, cash and cash equivalents are
defined as those amounts included in the balance-sheet caption
"cash and due from banks."
SECURITIES HELD TO MATURITY. Bonds, notes, and debentures for
which the Bank has the positive intent and ability to hold to
maturity are reported at cost, adjusted for premiums and
discounts that are recognized in interest income using the
interest method over the period to maturity.
SECURITIES AVAILABLE FOR SALE. Available-for-sale securities
consist of bonds, notes debentures, and certain equity
securities not classified as trading securities nor as held-to-
maturity securities.
Unrealized holding gains and losses, net of tax, on available-
for-sale securities are reported as a net amount in a separate
component of shareholders' equity until realized.
Gains and losses on the sale of available-for-sale securities
are determined using the specific-identification method.
Premiums and discounts are recognized in interest income using
the interest method over the period to maturity or anticipated
call date.
LOANS HELD FOR SALE. Mortgage loans originated and intended
for sale in the secondary market are carried at the lower of
cost or estimated market value in the aggregate.
LOANS RECEIVABLE. Loans receivable that management has the
intent and ability to hold for the foreseeable future or until
maturity or pay-off are reported at their outstanding
principal adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans and
unamortized premiums or discounts on purchased loans.
Discounts and premiums on purchased residential real estate
loans are amortized to income over the remaining period to
contractual maturity.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of
the related loan.
The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent
cash payments are received.
The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic conditions.
-Continued
F-6
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
LOAN SERVICING. Loan servicing fees are based on a stipulated
percentage of the outstanding loan principal balances being
serviced and are included in income as related loan payments from
mortgagors are collected. The cost of mortgage servicing rights
is expensed in proportion to, and over the period of, estimated
net servicing revenues. Impairment of mortgage servicing rights
is assessed based on the fair value of those rights, fair value
being determined by discounted cash flows using current market
interest rates.
INCOME TAXES. Deferred tax assets and liabilities are
reflected at currently enacted income tax rates applicable to
the period in which the deferred tax assets or liabilities are
expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are
adjusted through the provision for income taxes.
PREMISES AND EQUIPMENT. Land is carried at cost. Bank premises,
furniture, and equipment are carried at cost, less accumulated
depreciation computed principally by the straight-line method.
FINANCIAL INSTRUMENTS. All financial instruments held or issued by
the Bank are held or issued for purposes other than trading.
OFF-BALANCE-SHEET INSTRUMENTS. In the ordinary course of
business the Bank has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit,
commitments under credit-card arrangements, commercial letters
of credit, and standby letters of credit. Such financial
instruments are recorded in the financial statements when they
are funded or related fees are incurred or received.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods
and assumptions were used by the Bank in estimating fair
values of financial instruments as disclosed herein:
CASH AND SHORT TERM INSTRUMENTS. The carrying amounts of cash
and short-term instruments approximate their fair value.
AVAILABLE-FOR-SALE AND HELD-TO-MATURITY SECURITIES. Fair
values for securities, excluding restricted equity securities,
are based on quoted market prices. The carrying values of
restricted equity securities approximate fair values.
LOANS RECEIVABLE. For variable-rate loans that reprice
frequently and have no significant change in credit risk, fair
values are based on carrying values. Fair values for certain
mortgage loans (for example, one-to-four family residential),
credit-card loans, and other consumer loans are based on
quoted market prices of similar loans sold in conjunction with
securitization transactions, adjusted for differences in loan
characteristics. Fair values for commercial real estate and
commercial loans are estimated using discounted cash flow
analyses, using interest rates currently being offered for
loans with similar terms to borrowers of similar credit quality.
Fair values for impaired loans are estimated using discounted cash
flow analyses or underlying collateral values, where applicable.
DEPOSIT LIABILITIES. The fair values disclosed for demand
deposits are, by definition, equal to the amount payable on
demand at the reporting date (that is, their carrying
amounts). The carrying amounts of variable-rate, fixed term
money-market accounts and certificates of deposit (CDs)
approximate their fair values at the reporting date. Fair
values for fixed-rate CDs are estimated using a discounted
cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
-Continued
F-7
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
SHORT-TERM BORROWINGS. The carrying amounts of federal funds
purchased approximate their fair values.
ACCRUED INTEREST. The carrying amounts of accrued interest
approximate their fair values.
LONG-TERM DEBT. The fair values of the Bank's long-term debt
are estimated using discounted cash flow analyses based on the
Bank's current incremental borrowing rates for similar types
of borrowing arrangements.
USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
NOTE B RESTRICTED CASH BALANCES
In order to satisfy federal regulatory requirements, the Bank is
required to maintain a weekly average of $300,000 of reserves (in
the form of deposits) with the Federal Reserve Bank of Minneapolis.
Deposits with the Federal Reserve totaled $592,793, $205,624 and
$423,583 at December 31, 1996, 1995 and 1994, respectively. These
reserves are included in cash and due from banks in the accompanying
statement of financial position.
NOTE C DEBT AND EQUITY SECURITIES
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $678 and $175 in 1996,
respectively; $163 and $103, respectively, in 1995; and $3,453
and $6,040, respectively, in 1994.
The scheduled maturities of securities held-to-maturity (other
than stock in Federal Home Loan Bank of Seattle and Federal
Reserve stock) and securities (other than "other securities")
available-for-sale at December 31, 1996, were as follows:
<TABLE>
Held-to-maturity Available-for-sale
Securities Securities
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 567,329 $ 564,720 $2,273,856 $2,274,433
Due from one to five years 901,690 892,383 2,868,983 2,870,863
Due from five to ten years 69,891 69,921 - -
Due after ten years 17,473 17,480 - -
---------- ---------- ---------- ----------
$1,556,383 $1,544,504 $5,142,839 $5,145,296
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
For purposes of the maturity table, mortgage-backed securities,
which are not due at a single maturity date, have been allocated
over maturity groupings based on the weighted-average contractual
maturities of underlying collateral. The mortgage-backed securities
may mature earlier than their weighted-average contractual maturities
because of principal prepayments.
Assets, principally securities, carried at approximately
$705,862 at December 31, 1996, $475,371 at December 31, 1995,
and $0 at December 31, 1994, were pledged to secure public
deposits and for other purposes required or permitted by law.
-Continued
F-8
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE CDEBT AND EQUITY SECURITIES, continued
Debt and equity securities have been classified in the
statements of financial condition according to management's
intent. The carrying amount of securities and their
approximate fair values at December 31 follow:
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE SECURITIES: Cost Gains Losses Value
---------- ---------- ---------- ----------
December 31, 1996 $ 151,735 $ - $ - $ 151,735
Equity securities
U.S. government and agency
securities 4,285,242 15,276 16,192 4,284,326
State and municipal securities 705,862 3,802 429 709,235
---------- ------- -------- ----------
$5,142,839 $19,078 $ 16,621 $5,145,296
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1995
Equity securities $ 157,566 $ - $ 2,190 $ 155,376
U.S. government and agency
securities 3,614,608 3,881 23,854 3,594,635
State and municipal securities 956,198 5,371 523 961,046
---------- ------- -------- ----------
$4,728,372 $ 9,252 $ 26,567 $4,711,057
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1994
Equity securities $ 696,621 $ - $ 10,679 $ 685,942
U.S. government and agency
securities 3,215,998 - 200,253 3,015,745
State and municipal securities - - - -
---------- ------- -------- ----------
$3,912,619 $ - $210,932 $3,701,687
---------- ------- -------- ----------
---------- ------- -------- ----------
HELD-TO-MATURITY SECURITIES:
December 31, 1996
U.S. government and agency
securities $1,531,383 $ 68 $(11,951) $1,519,500
State and municipal securities 25,000 4 - 25,004
Stock in Federal Home Loan
Bank of Seattle and Federal
Reserve stock, at cost 337,550 - - 337,550
---------- ------- -------- ----------
$1,893,933 $ 72 $(11,951) $1,882,054
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1995
U.S. government and agency
securities $1,807,196 $ 3,444 $ 13,862 $1,796,778
State and municipal securities 270,650 589 534 270,705
Stock in Federal Home Loan
Bank of Seattle and Federal
Reserve stock, at cost 312,900 - - 312,900
---------- ------- -------- ----------
$2,390,746 $ 4,033 $ 14,396 $2,380,383
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1994
U.S. government and agency
securities $1,930,122 $ - $135,087 $1,795,035
State and municipal securities 1,218,787 - 40,185 1,178,602
Stock in Federal Home Loan
Bank of Seattle and Federal
Reserve stock, at cost 296,300 - - 296,300
---------- ------- -------- ----------
$3,445,209 $ - $175,272 $3,269,937
---------- ------- -------- ----------
---------- ------- -------- ----------
-Continued
F-9
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE D LOANS RECEIVABLE
The components of loans in the statements of financial
condition were as follows:
1996 1995 1994
----------- ----------- -----------
Commercial $17,307,019 $15,144,776 $11,707,010
Consumer 10,107,553 10,480,297 10,252,396
Real estate construction 2,087,000 2,204,915 2,000,614
Credit card 486,232 377,633 314,475
Overdrafts 23,376 43,760 42,384
Contracts 27,022 29,819 32,673
----------- ----------- -----------
Subtotal 30,038,202 28,281,200 24,349,552
Allowance for loan losses (330,533) (357,395) (345,663)
----------- ----------- -----------
$29,707,669 $27,923,805 $24,003,889
----------- ----------- -----------
----------- ----------- -----------
An analysis of the change in the allowance for loan losses
follows:
1996 1995 1994
-------- -------- --------
Balance at January 1 $357,395 $345,663 $243,332
Loans charged off (92,756) (30,308) (300)
Recoveries 9,432 9,413 25,936
-------- -------- --------
Net loans charged off (83,324) (20,895) 25,636
Provisions for loan losses 55,000 30,000 77,000
Net change in credit card reserve 1,462 2,627 (305)
-------- -------- --------
Balance at December 31 $330,533 $357,395 $345,663
-------- -------- --------
-------- -------- --------
Impaired loans, those where it is probable the bank will be
unable to collect all amounts due under the contractual terms
of the loan agreement, have recorded investments of $65,939 at
December 31, 1996, $72,144 at December 31, 1995, and $15,943
at December 31, 1994 and have been recognized in conformity
with FASB Statement No. 114, as amended by FASB Statement No.
118. The average recorded investment in impaired loans during
1996, 1995, and 1994 was $46,748, $9,650, and $8,023,
respectively. The total allowance for loan losses related to
these loans was $38,487, $25,907, and $7,991 on December 31,
1996, 1995, and 1994, respectively. Interest income on
impaired loans of $3,600, $962, and $467 was recognized for
cash payments received in 1996, 1995, and 1994, respectively.
Bank policy for charge-off of impaired loans includes the
identity of at least one well defined loan weakness that
previously jeopardized full repayment of a loan, but at charge-
off was determined irreversible and a loss had occurred.
Groups of small balance homogeneous basis loans (generally the
Bank's consumer loans) are evaluated for impairment
collectively. The Bank is not committed to lend additional
funds to debtors whose loans have been modified.
NOTE E PREMISES AND EQUIPMENT
Components of properties and equipment included in the
statements of financial condition at December 31 were as
follows:
1996 1995 1994
Cost: ---------- ---------- ----------
Land $ 297,225 $ 297,225 $ 297,225
Bank premises 1,120,387 1,120,387 741,176
Furniture 295,562 301,152 171,270
Equipment 536,987 434,851 386,092
Construction in progress - - 225,224
---------- ---------- ----------
Total cost 2,250,161 2,153,615 1,820,987
Less accumulated depreciation 717,239 587,282 476,285
---------- ---------- ----------
Net book value $1,532,922 $1,566,333 $1,344,702
---------- ---------- ----------
---------- ---------- ----------
-Continued
F-10
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE F LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying statements of financial condition. The unpaid principal
balances of mortgage loans serviced for others was $15,744,022,
$9,323,925 and $5,258,280 at December 31, 1996, 1995 and 1994,
respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing, and included in demand deposits, were approximately
$84,225, $34,703, and $15,319 at December 31, 1996, 1995, and 1994,
respectively.
NOTE G DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum
denomination of $100,000 was approximately $3,259,805, $3,006,181, and
$1,652,193 in 1996, 1995, and 1994, respectively.
At December 31, 1996, the scheduled maturities of CDs are as follows:
1997 $10,176,412
1998 5,753,719
1999 2,058,269
2000 306,475
-----------
$18,294,875
-----------
-----------
NOTE H LONG-TERM DEBT
Long-term debt consisted of the following at year-end:
<TABLE>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Advances from Federal Home Loan Bank of
Seattle $2,676,663 $1,658,222 $738,222
Contracts payable 65,787 80,195 93,658
---------- ---------- --------
Total Bank $2,742,450 $1,738,417 $831,880
---------- ---------- --------
---------- ---------- --------
</TABLE>
The composition of the Federal Home Land Bank of Seattle liability at
year-end follows:
<TABLE>
<S> <C> <C> <C>
Fixed at 5.32%; matures April 1998 $ 470,000 $ 470,000 $ 470,000
Amortized at 4.73%; matures April 1998 108,222 188,222 268,222
Adjustable at 5.87%; matures February 1996 - 1,000,000 -
Amortized at 7.16%; matures July 2021 98,441 - -
Fixed at 6.14%; matures August 1998 2,000,000 - -
---------- ---------- ----------
$2,676,663 $1,658,222 $ 738,222
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Advances from Federal Home Loan Bank of Seattle for the years ending
December 31 bear interest at rates from 4.73% to 7.16% and mature as
follows:
1997 $ 84,000
1998 2,502,222
1999 4,000
2000 4,000
2001 4,000
Thereafter 78,441
----------
$2,676,663
----------
----------
-Continued
F-11
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE H LONG-TERM DEBT, continued
Advances from the FHLB are secured by pledges of FHLB stock of
$286,100, $264,900 and $248,300 at December 31, 1996, 1995 and 1994,
respectively, and a blanket assignment of the Bank's unpledged,
mortgage-backed securities and investment securities. The Bank's
total available and unused credit line with the FHLB is approximately
$3,700,000 at December 31, 1996.
NOTE I EMPLOYEE BENEFIT PLANS
The Bank has a 401(k) plan covering substantially all employees, which
requires Bank contributions equal to 100% of each participant's
contribution, up to 3% of salary and 50% of the next 2% of salary.
Additional amounts may be contributed at the Bank's discretion.
Participants are vested 25% for each year and are fully vested after 4
service years. Contributions to this plan totaled $25,139, $23,283 and
$21,731 for the years ended December 31, 1996, 1995 and 1994,
respectively.
The Bank also has a discretionary employee stock ownership plan
(ESOP). Substantially all employees with at least one year of service
are eligible. All contributions are made by the Bank, as employee
contributions are not allowed. Contributions are allocated to
participants based on the ratio that their compensation bears to the
compensation of all participants for the year. Compensation is
defined as gross wages, including bonuses and overtime. The plan
primarily invests in Bank securities. Total contributions for the
years ended December 31, 1996, 1995 and 1994 were $31,546, $19,876 and
$21,676; these contributions are included in salaries and employee
benefits.
The ESOP held 213, 249 and 232 shares of Bank Stock at December 31,
1996, 1995 and 1994, respectively. Dividends paid on shares held by
the ESOP are paid directly to the participants in their prorata share,
unless the plan has outstanding debt, at which time dividends would
first be applied to the loan balance. The plan did not have any
outstanding loans at December 31, 1996, 1995 or 1994.
NOTE J FINANCIAL INSTRUMENTS
The Bank 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 and to reduce its own exposure to fluctuations in
interest rates. These financial instruments include commitments to
extend credit, standby letters of credit and financial guarantees.
Those instruments involve, to varying degrees, elements of credit and
interest-rate risk in excess of the amount recognized in the
statements of financial condition. The contract or notional amounts
of those instruments reflect the extent of the Bank's involvement in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit, standby letters of credit, and financial guarantees written is
represented by the contractual notional amount of those instruments.
The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Bank does not require collateral or other
security to support financial instruments with credit risk.
-Continued
F-12
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE J FINANCIAL INSTRUMENTS, continued
COMMITMENTS TO EXTEND CREDIT AND FINANCIAL GUARANTEES. Commitments to
extend credit are agreements to lend to a customer as long as there is
no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the counter party. Collateral held
varies but may include accounts receivable; inventory, property,
plant, and equipment; and income-producing commercial properties.
Standby letters of credit and financial guarantees written are
conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party.
The Bank has not been required to perform on any financial guarantees
during the past three years. The Bank has not incurred any losses on
its commitments in 1996, 1995 or 1994.
The estimated fair values of the Bank's financial instruments were as
follows at:
<TABLE>
December 31, 1996 December 31, 1995 December 31, 1994
------------------------- -------------------------- --------------------------
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Value
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and due from banks
and federal funds sold $ 4,041,675 $4,041,675 $ 2,153,150 $2,153,150 $ 1,676,237 $1,676,237
Securities available for sale 5,142,839 5,145,296 4,771,057 4,711,037 3,701,687 3,701,687
Securities held to maturity 1,893,933 1,882,054 2,390,746 2,380,383 3,445,209 3,269,937
Loans receivable 29,707,669 * 27,932,805 * 24,003,889 *
Accrued interest receivable 356,291 356,291 314,820 314,820 318,209 318,209
Loans held for sale 445,749 * 1,109,732 * 210,470 *
Financial liabilities:
Deposit liabilities 35,693,443 * 34,440,878 * 30,571,857 *
Short-term borrowings - - - - 200,000 200,000
Long-term debt 2,742,450 2,742,450 1,738,417 1,738,417 831,880 831,880
Off-balance sheet liabilities:
Letters of credit - 57,500 - 125,500 - 152,698
*It was not practicable to estimate the fair value of these items as bank records have not maintained information
sufficient to determine fair value. Bank records are being enhanced to enable the presentation of this information for
any future filing. Fair value determination at December 31, 1996 includes use of interest rates, which range from 9.0%
to 12.0% for loans receivable and 2.3% to 6.6% on deposit liabilities; and instrument maturity dates, which may range
from one to ten years for loans receivable and one to five years on deposit liabilities, and current carrying value of
the asset or liability.
</TABLE>
A summary of the notional amounts of the Bank's financial instruments with
off-balance-sheet risk at December 31, 1996 follows:
Notional
Amount
----------
Commitments to extend credit $5,238,261
Credit card arrangements 1,620,936
Letters of credit 57,500
----------
$6,916,697
----------
----------
-Continued
F-13
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE K INCOME TAXES
The Bank files federal income tax returns on a calendar-year
basis. If certain conditions are met in determining taxable
income, the Bank is allowed a bad debt deduction based on
specified experience formulas. The Bank used the experience
method in 1994, 1995 and 1996.
The provision for income taxes consisted of the following for
the years ended December 31:
1996 1995 1994
-------- -------- --------
Current tax provision:
Federal $301,389 $291,620 $256,000
State 68,308 68,445 60,000
-------- -------- --------
369,697 360,005 316,000
Deferred taxes 7,711 (28,693) (17,500)
-------- -------- --------
$377,408 $331,372 $298,500
-------- -------- --------
-------- -------- --------
Deferred tax assets and liabilities included in other
assets/liabilities at December 31 consist of the following:
1996 1995 1994
-------- -------- --------
Deferred tax assets:
Allowance for loan losses $112,119 $136,190 $92,293
Net unrealized depreciation in
available-for-sale securities - 6,753 80,154
-------- -------- --------
112,119 142,943 172,447
-------- -------- --------
Deferred tax liabilities:
Accumulated depreciation 36,640 35,927 31,544
Net unrealized appreciation on
available-for-sale securities 958 - -
Other 35,368 60,151 49,330
-------- -------- --------
72,966 96,078 80,874
-------- -------- --------
Net deferred tax asset $ 39,153 $ 46,865 $91,573
-------- -------- --------
-------- -------- --------
NOTE L RELATED PARTIES
The Bank has entered into transactions with its directors,
significant shareholders, and their affiliates (related
parties). The aggregate amount of loans to such related
parties at December 31, 1996 was $724,412. During 1996, new
loans to such related parties amounted to $419,639. Related
party deposits held by the Bank at December 31, 1996 totaled
$1,120,148.
NOTE M COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Bank has various
outstanding commitments and contingent liabilities that are
not reflected in the accompanying financial statements, and it
is Bank management opinion that these items do not
significantly impact the financial statements.
At December 31, 1996 the Bank had an unused line of credit
with a bank. The line totals $1,500,000, has a variable
interest rate based on the lending bank's daily federal funds
rate, and is due on demand.
F-14
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE N RESTRICTIONS ON RETAINED EARNINGS
The Bank is not under any regulatory restrictions limiting the
amount of dividends it may declare other than the restrictions
specified for banks in 12 USC 60(b). Pursuant to this law,
approximately $1,694,763 retained earnings is available for
dividends without prior regulatory approval.
NOTE O STOCK OPTIONS
Several employees of the Bank have stock options in the Bank.
The following schedule details the total options exercised
during the period under audit and the total outstanding at
December 31, 1996:
Options outstanding, December 31, 1993 and 1994 1,800
Shares exercised, August 1995 at $210 per share (540)
Shares exercised, December 1996 at $251 per share (398)
------
Total options outstanding at December 31, 1996 862
------
------
Included in the outstanding options listed above are 142
priced at $258 per share and expire in February 1997 and 720
priced at $210 per share and expire in February 1999. All
options were issued at market in years prior to 1994, and
these financial statements do not reflect any compensation
expense associated with the options.
NOTE P REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain
mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material
effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier I
capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of
December 31, 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1996, the most recent notification from the
Office of the Comptroller of the Currency categorized the Bank
as adequately capitalized under the regulatory framework for
prompt corrective action. To be categorized as adequately
capitalized the Bank must maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that
notification that management believes have changed the
institution's category.
The Bank's actual capital amounts and ratios are also
presented in the table. Totals of $330,533, $357,395, and
$345,662 were deducted from capital for interest-rate risk in
1996, 1995 and 1994, respectively.
F-15
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE P REGULATORY MATTERS, continued
<TABLE>
Actual
(In Thousands) Minimum Ratio
--------------- Capital Adequacy
Amount Ratio Purpose
------ ----- --------
<S> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets) $ 4,797 15.61% 8.00%
Tier I Capital (to Risk Weighted Assets) $ 4,467 14.54% 4.00%
Tier I Capital (to Total Assets) $ 4,467 10.17% 3.00%
As of December 31, 1995:
Total Capital (to Risk Weighted Assets) $ 4,130 14.36% 8.00%
Tier I Capital (to Risk Weighted Assets) $ 3,773 13.12% 4.00%
Tier I Capital (to Total Assets) $ 3,773 9.11% 3.00%
As of December 31, 1994:
Total Capital (to Risk Weighted Assets) $ 3,409 13.51% 8.00%
Tier I Capital (to Risk Weighted Assets) $ 3,093 12.26% 4.00%
Tier I Capital (to Total Assets) $ 3,093 8.78% 3.00%
</TABLE>
NOTE Q RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 1996, the Financial Accounting Standards Board issued
SFAS No. 125, "Accounting of Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS
No. 125 provides guidance on accounting for transfers and
servicing of financial assets, recognition and measurement of
servicing assets and liabilities, financial assets subject to
prepayment, secured borrowings and collateral, and
extinguishment of liabilities.
SFAS No. 125 specifically provides that mortgage banking enterprises,
which includes the Bank, recognize as a separate asset rights to
service loans for others, regardless of how those servicing rights
are acquired. Rights to service loans must also be assessed for
impairment based on the fair value of the servicing assets, including
those purchased before the adoption of this statement. SFAS No. 125
also specifies that financial assets subject to prepayment, including
loans, that can be contractually prepaid or otherwise settled in such
a way that the holder would not recover substantially all of its
recorded investment be measured like debt securities available-for-sale
or trading securities under SFAS No. 115, as amended by SFAS No. 125.
Additionally, in December 1996, the Financial Accounting Standards
Board issued SFAS No. 127; "Deferral of the Effective Date of Certain
Provisions of FASB Statement No. 125." This statement groups all
transfers of financial assets into two broad categories; repurchase
agreements and similar transactions, and all other transfers and
servicing of financial assets.
SFAS No. 125 is effective for all financial asset transactions
occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not
permitted. The Bank intends to adopt the provisions of SFAS
No. 125 on January 1, 1997, and management expects adoption
will not have a material effect on the financial position or
operations of the Bank.
--Continued
F-16
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE R RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED, continued
SFAS No. 127 is effective for transactions occurring after December 31,
1996, except for certain repurchase agreements and similar transactions
which became effective for transactions after December 31, 1997. The
Bank intends to adopt these provisions and expects they will not have a
material affect on the financial position or operation of the bank.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share and applies to entities with
publicly held common stock. This statement is effective for financial
statements issued for periods ending after December 5, 1997. The Bank
intends to adopt these provisions and expects they will not have a
material affect on the financial position or operation of the bank.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 129, "Disclosure of Information about Capital Structure." SFAS No.
129 establishes standards for disclosing information about an entities
capital structure. This statement is effective for financial statements
issued for periods ending after December 15, 1997. The Bank intends to
adopt these provisions and expects they will not have a material affect
on the financial position or operation of the bank.
NOTE S SUBSEQUENT EVENTS
A special meeting of shareholders of the Bank is scheduled to be held
on or about April 1, 1997. At this meeting shareholders will consider
and vote upon a proposed Consolidation Agreement. Under the terms of
the proposal, the ownership of the Bank would be transferred to BankWest
Financial, Inc. which would operate as a one-bank holding company.
If adopted, the Consolidation Agreement would result in each share of
the BankWest National Association stock being converted to ten (10)
shares of BankWest Financial, Inc. stock.
NOTE T PRIOR PERIOD ADJUSTMENT
The prior period adjustments of $3,009 and $1,575 at December 31, 1996,
and December 31, 1995, arise from the correction of an error in which
interest expense on certificates of deposit was not properly accrued
in 1995 and 1994, respectively. The effect on net income, after income
taxes, is to decrease 1995 by $3,009 and 1994 by $1,575.
--Concluded
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to the indemnification and exculpation provisions contained in the
Montana Business Corporation Act, Articles VI and VII of the Articles of
Incorporation of the Company provide as follows:
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that he or she is or
was a director or officer of the Corporation or, while serving as a director or
officer of the Corporation, he or she is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of, or in any similar managerial or fiduciary position of, another
domestic or foreign corporation or other individual or entity or of an employee
benefit plan. The Corporation shall also indemnify any person who is serving or
has served the Corporation as director, officer, employee, fiduciary or agent,
and that person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the shareholders or directors,
contract or otherwise, so long as such provision is legally permissible.
ARTICLE VII
ELIMINATION OF LIABILITY
There shall be no personal liability of a director to the Corporation or to
its shareholders for money damages for any actions taken or any failure to take
action as a director, except liability for (i) the amount of a financial benefit
received by a director to which the director is not entitled, (ii) an
intentional infliction of harm on the Corporation or the shareholders, (iii) a
violation of Section 35-1-713 of the Act, or (iv) any intentional violation of
criminal law. Notwithstanding any other provisions herein, personal liability
of a director shall be eliminated to the greatest extent possible as is now, or
in the future, provided for by law.
<PAGE>
ITEM 21. EXHIBITS
(a) EXHIBITS.
(2) Plan of Consolidation and Consolidation Agreement between
BankWest, National Association, BankWest Interim Bank, N.A.
(In Organization) and BankWest Financial, Inc. (Exhibit A of
Proxy Statement forming part of the Prospectus of Part I
hereof).*
(3) Articles of Incorporation of BankWest Financial, Inc.
(Exhibit D of Proxy Statement forming part of the Prospectus
of Part I hereof).*
(5) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
legality.*
(8) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
federal income tax consequences. (Exhibit C of Proxy Statement
forming part of the Prospectus of Part I hereof.)*
(23.1) Consent of Rothgerber, Appel, Powers & Johnson LLP.*
(23.2) Consent of Galusha Higgins & Galusha, Certified Public
Accountants.
(24) Power of Attorney.*
(99) Form of Proxy Card to be delivered to shareholders of BankWest,
National Association in connection with the Annual Meeting to
be held for the purposes of electing six (6) directors and
voting upon the Consolidation Agreement.*
*Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
Not applicable.
(c) REPORT, OPINION OR APPRAISALS.
Not applicable.
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act
II-2
<PAGE>
of 1934) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
2. The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use
of a prospectus which is a part of this registration statement, by any person
or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain
the information called for by the applicable registration form with respect
to reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
3. The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph 2 immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part
of an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
5. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this form, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
6. Subject to appropriate interpretation, the undersigned registrant
hereby undertakes to supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it becomes effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Form S-4 Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Kalispell, State of Montana, on the 6th day of May, 1997.
BANKWEST FINANCIAL, INC.
By: /s/ DOUGLAS K. MORTON
------------------------------------------
Douglas K. Morton, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Douglas K. Morton President, Chairman and May 6, 1997
- -------------------------------- Chief Executive Officer
Douglas K. Morton
/s/ Donald B. McCarthy Secretary and Treasurer (Principal May 6, 1997
- -------------------------------- Financial Officer and Principal
Donald B. McCarthy Accounting Officer)
/s/ Douglas K. Morton Director May 6, 1997
- --------------------------------
Richard A. Dasen, by Douglas K.
Morton as attorney-in-fact
/s/ Douglas K. Morton Director May 6, 1997
- --------------------------------
Richard D. Gunlikson, by Douglas
K. Morton as attorney-in-fact
/s/ Douglas K. Morton Director May 6, 1997
- --------------------------------
Charles Lee, by Douglas K. Morton
as attorney-in-fact
/s/ Douglas K. Morton Director May 6, 1997
- --------------------------------
Teruko Rogers, by Douglas K.
Morton as attorney-in-fact
/s/ Douglas K. Morton Director May 6, 1997
- --------------------------------
Barry Smith, by Douglas K. Morton
as attorney-in-fact
</TABLE>
<PAGE>
INDEX TO EXHIBITS
(2) Plan of Consolidation and Consolidation Agreement between
BankWest, National Association, BankWest Interim Bank, N.A.
(In Organization) and BankWest Financial, Inc. (Exhibit A of
Proxy Statement forming part of the Prospectus of Part I
hereof).*
(3) Articles of Incorporation of BankWest Financial, Inc. (Exhibit D
of Proxy Statement forming part of the Prospectus of Part I
hereof).*
(5) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to
legality.*
(8) Opinion of Rothgerber, Appel, Powers & Johnson LLP as to federal
income tax consequences. (Exhibit C of Proxy Statement forming
part of the Prospectus of Part I hereof.)*
(23.1) Consent of Rothgerber, Appel, Powers & Johnson LLP.*
(23.2) Consent of Galusha Higgins & Galusha, Certified Public
Accountants.
(24) Power of Attorney.*
(99) Form of Proxy Card to be delivered to shareholders of BankWest,
National Association in connection with the Annual Meeting to
be held for the purposes of electing six (6) directors and
voting upon the Consolidation Agreement.*
*Previously filed.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
BankWest, National Association
We consent to inclusion of our report dated January 31, 1997, with respect
to the balance sheets of BankWest, National Association as of December 31,
1996, 1995 and 1994, and the related statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996, which report appears in the Form S-4 of BankWest
Financial, Inc. and to the reference to our firm under the heading "Information
Concerning Accountants" in the Prospectus/Proxy Statement.
GALUSHA HIGGINS & GALUSHA
/s/ Galusha Higgins & Galusha
Missoula, Montana
May 1, 1997
