<PAGE>
As filed with the Securities and Exchange Commission on April 18, 1997
Registration No. 333-19289
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO THE
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BANKWEST FINANCIAL, INC.
(Exact name of registrant as specified in charter)
Montana 81-0513357 6712
- ------------------------------- ------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer Primary Standard
incorporation or organization) Identification No.) Industrial
Classification
Code Number)
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 May 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>
<CAPTION>
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- -------------------------------------------------------------------------------------------------------
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>
*$1,119.38 of this amount was 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
Headings in Prospectus Items of Form S-4
---------------------- -----------------
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
-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 the Mountain Bank of
Whitefish and its branches 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.
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.
On January 24, 1997, six officers and directors of the Bank purchased the
1,842 Flathead Shares from Flathead 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, 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.
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. Although no formal
appraisals or valuations were obtained, Bank management consulted with several
professionals, including a nationally respected appraisal firm, before approving
the $810.00 per share price in the Stock Purchase Agreement. 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. 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 small increase in the book value of the remaining shares of Bank
stock, which occurs through the use of debt leverage in the transaction and the
resulting fewer number of remaining shares. 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. 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 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 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
-vi-
<PAGE>
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 purpose of the Consolidation Agreement is the formation of the
Company as a bank holding company for the Bank.
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.
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.
-vii-
<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
_____________, 1997
-viii-
<PAGE>
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.
-ix-
<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
April 10, 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. . . . . . . . . . . . . . . . . . . . . . . . . . . .12
PROPOSAL 1--ELECTION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . .13
PROPOSAL 2--INFORMATION CONCERNING CONSOLIDATION AGREEMENT . . . . . . . . . .14
REASONS FOR THE ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . . .14
HISTORY OF FLATHEAD SHARES . . . . . . . . . . . . . . . . . . . . . . . . .15
DESCRIPTION OF THE CONSOLIDATION AGREEMENT . . . . . . . . . . . . . . . . .17
DESCRIPTION OF COMPANY DEBT. . . . . . . . . . . . . . . . . . . . . . . . .19
RIGHTS OF DISSENTING SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . .20
EMPLOYEE BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . .21
FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT. . . . . . . . . . . . .21
OTHER POSSIBLE CONSEQUENCES. . . . . . . . . . . . . . . . . . . . . . . . .22
MARKET PRICE OF AND DIVIDENDS ON BANK STOCK AND COMPANY STOCK. . . . . . . . .23
HISTORICAL AND PRO FORMA CAPITALIZATION. . . . . . . . . . . . . . . . . . . .25
DESCRIPTION OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . .26
ORGANIZATION AND OPERATION . . . . . . . . . . . . . . . . . . . . . . . . .26
REGULATION AND SUPERVISION . . . . . . . . . . . . . . . . . . . . . . . . .26
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY . . . . . . . . . . . .30
PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
SALES OF ADDITIONAL SECURITIES . . . . . . . . . . . . . . . . . . . . . . .31
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
ANTI-TAKEOVER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . .31
DESCRIPTION OF BANKWEST INTERIM BANK, N.A. . . . . . . . . . . . . . . . . . .32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF THE BANK. . . . . . . . . . . . . . . . . . . . .32
GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
COMPARISON OF OPERATING RESULTS. . . . . . . . . . . . . . . . . . . . . . .33
INTEREST RATE SENSITIVITY AND LIQUIDITY. . . . . . . . . . . . . . . . . . .41
-3-
<PAGE>
CAPITAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
IMPACT OF INFLATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
DESCRIPTION OF THE BANK. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
HISTORY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
LENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
INVESTMENT PORTFOLIO . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
DEPOSITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
COMPETITION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .49
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .51
REGULATION AND SUPERVISION . . . . . . . . . . . . . . . . . . . . . . . . .51
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52
COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . .53
BOARD COMMITTEES AND MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .53
EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . .53
STOCK OPTION PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .54
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT
AND OTHERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY . . . . . . . . . . . .55
EMPLOYEES AND EMPLOYEE BENEFITS. . . . . . . . . . . . . . . . . . . . . . .55
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
PRINCIPAL HOLDERS OF VOTING SECURITIES . . . . . . . . . . . . . . . . . . . .56
COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK. . . . . . . . . . . . . . . .58
DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
VOTING RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58
PREEMPTIVE AND OTHER RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . .58
ASSESSMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
LIQUIDATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . . . . . .59
ANTI-TAKEOVER PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . .59
INFORMATION CONCERNING ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . .60
OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
INDEX TO FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . .61
-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. Stock certificates representing shares
of Company Stock will be distributed to shareholders in exchange for their stock
certificates representing shares of Bank Stock as soon as reasonably practicable
after the Effective Date. 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 PROPOSED 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."
-7-
<PAGE>
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. 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. See "INFORMATION
CONCERNING CONSOLIDATION AGREEMENT--REASONS FOR THE ACQUISITION."
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 shareholders of Bank Stock is required
for approval 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
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
-8-
<PAGE>
"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 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 April 10,
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."
-9-
<PAGE>
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." 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.
Net Income
Year Ended December 31
------------------------------------
1996 1995 1994
------ ------ ------
Historical $670,357 $595,771 $547,118
Pro forma adjustments
Interest expense(1) (36,960) (36,960) (36,960)
Foregone investment interest(2) (27,247) (27,247) (27,247)
-------- -------- --------
Total adjustments $(64,207) $(64,207) $(64,207)
Pro forma net income $606,150 $531,564 $482,911
- ------------------------
(1) Interest is computed on a $767,000 loan at an estimated annual rate of 8%
and adjusted for income taxes.
(2) Foregone interest is the interest that could be earned on $865,000 paid
out as a dividend, at an annual investment rate of 5.25% and adjusted for
income taxes.
Net Income per Share of Bank Stock(1)
Year Ended December 31
------------------------------------
1996 1995 1994
------ ------ ------
Bank historical(2) $75.00 $69.76 $68.39
Pro forma combined,
7,046 shares outstanding(3) 86.03 75.44 68.44
- ------------------------
-10-
<PAGE>
(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 number of shares of
common stock outstanding at the end of each period.
(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.
Book Value per Share of Bank Stock(1)
Year Ended December 31
------------------------------------
1996 1995 1994
------ ------ ------
Bank historical $503.75 $440.85 $372.47
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
Pro forma
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.
-11-
<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.
<TABLE>
<CAPTION>
December 31
----------------------------------
1996 1995 1994
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Summary of operations
Interest income $ 3,525 $3,121 $2,520
Interest expense 1,546 1,325 874
------- ------ ------
Net interest income $ 1,980 $1,796 $1,646
Provision for loan losses 67 36 77
------- ------ ------
Net interest income after
provision for loan losses $ 1,913 $1,760 $1,569
Other income 801 734 730
Other expenses 1,666 1,567 1,454
------- ------ ------
Income before income taxes $ 1,048 $ 927 $ 846
Income tax expense 377 331 298
------- ------ ------
Net income $ 670 $ 596 $ 547
------- ------ ------
------- ------ ------
Per share information
Net income $75.00 $69.76 $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%
</TABLE>
-12-
<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 director and
executive officer 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.
-13-
<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.
-14-
<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 the 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.
-15-
<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.
On January 24, 1997, six officers and directors of the Bank purchased the
1,842 Flathead Shares from Flathead 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, 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.
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. Although no formal
appraisals or valuations were obtained, Bank management consulted with several
professionals, including a nationally respected appraisal firm, before approving
the $810.00 per share price in the Stock Purchase Agreement. 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. 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 small increase in the book value of the remaining shares of Bank
stock, which occurs through the use of debt leverage in the transaction and the
resulting fewer number of remaining shares. 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. Another 50 Flathead Shares were not 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.
-16-
<PAGE>
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 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. 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.
-17-
<PAGE>
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 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
-18-
<PAGE>
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.
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.
-19-
<PAGE>
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 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.
-20-
<PAGE>
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.
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).
-21-
<PAGE>
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 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.
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<PAGE>
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."
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 April 10, 1997, there
were 186 holders of Bank Stock.
-23-
<PAGE>
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
April 10, 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.
-24-
<PAGE>
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.
Pro Forma Company
Bank Adjustments (Consolidated)
---- ----------- --------------
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)
(100,000)(5)
765,000 (4)
100,000 (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)
(893,800)(2) 1,429,509
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 $3,737,011
Book value per share $503.75(7) $53.04(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 reflecting the 10-for-1 exchange.
-25-
<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.
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<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
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<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.
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<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.
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<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."
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<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 $74,000 or 12.4% from $596,000 for the
year ended December 31, 1995, to $671,000 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 partially offset by an
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<PAGE>
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 $184,000 or 10.22% from $1,796,000 for the
year ended December 31, 1995, to $1,980,000 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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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>
<CAPTION>
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 82 5.37% 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 13,896 826 5.94% 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 $1,546 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>
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<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:
1996 over 1995 1995 over 1994
----------------- ------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
------ ---- ----- ------ ---- -----
(in thousands)
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
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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 10 132 159 158 317
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 $18 $221 $215 $237 $452
---- --- ---- ---- ---- ----
Increase (decrease) in net interest income $199 $(15) $184 $253 $(123) $130
---- --- ---- ---- ---- ----
---- --- ---- ---- ---- ----
INTEREST EXPENSE. Total interest expense increased $221,000 or 16.68% from
$1,325,000 for the year ended December 31, 1995, to $1,546,000 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
------- ------- -------
------- ------- -------
-37-
<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:
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<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:
-39-
<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
-40-
<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:
-41-
<PAGE>
Assets/Liabilities Subject to After Through Over
Interest Rate Adjustment 1 Year 5 Years 5 Years Total
- ------------------------ ------ ------- ------- -----
(in thousands)
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%
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
-42-
<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.
-43-
<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.
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<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
------- ------- -------
------- ------- -------
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<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.
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<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>
<CAPTION>
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>
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<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>
<CAPTION>
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:
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<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,
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the county seat. The greater Kalispell area has a population of approximately
28,000 and Flathead County's population is approximately 70,000.
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
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<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.
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<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:
Name and Age
(As of 12-31-96) Position in Bank Principal Occupation
-------------------- --------------- --------------------------
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
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<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 fo 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.
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<TABLE>
<CAPTION>
Summary Compensation Table(1)
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.
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<PAGE>
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
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
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<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 April 10, 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 April 10, 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.
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<PAGE>
<TABLE>
<CAPTION>
Company Stock to be
Bank Stock Owned Owned After Acquisition(8)
--------------------------- -----------------------------
Sole Voting Sole and Shared Sole and Shared
and Voting and/or Sole Voting Voting and/or
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
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<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, parvalue $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
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<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
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<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
-61-
<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, 1996
F-1
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31
<TABLE>
<CAPTION>
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>
<CAPTION>
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 1,448,093 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 1,545,558 1,324,822 873,739
---------- ---------- ----------
NET INTEREST INCOME 1,979,792 1,796,220 1,646,448
PROVISION FOR LOAN LOSSES 67,000 36,000 77,000
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,912,792 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 1,047,765 927,143 845,618
INCOME TAX EXPENSE 377,408 331,372 298,500
---------- ---------- ----------
NET INCOME $ 670,357 $ 595,771 $ 547,118
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
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 - - 670,357 - 670,357
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) - - - 2,061 12,061
--------- -------- ---------- ---------- ----------
Balance at December 31, 1996 $ 893,800 $919,562 $2,687,671 $ 1,498 $4,502,531
--------- -------- ---------- ---------- ----------
--------- -------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 670,357 $ 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 (69,608) 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>
<CAPTION>
Held-to-Maturity Securities Available-For-Sale 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 C DEBT 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:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
AVAILABLE-FOR-SALE SECURITIES: Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996
Equity securities $ 151,735 $ - $ - $ 151,735
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
---------- --------- --------- ----------
---------- --------- --------- ----------
</TABLE>
--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 commited 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:
1996 1995 1994
----------- ----------- ----------
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
----------- ----------- ----------
----------- ----------- ----------
The composition of the Federal Home Land Bank of Seattle liability at
year-end follows:
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
---------- ---------- ---------
---------- ---------- ---------
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>
<CAPTION>
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
</TABLE>
*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.
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.
--Continued
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.
--Continued
F-15
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
NOTE P REGULATORY MATTERS, continued
<TABLE>
<CAPTION>
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%
Teir I Capital (to Risk Weighted Assets) $ 4,467 14.54% 4.00%
Teir 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%
Teir I Capital (to Risk Weighted Assets) $ 3,773 13.12% 4.00%
Teir 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%
Teir I Capital (to Risk Weighted Assets) $ 3,093 12.26% 4.00%
Teir 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.
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. 1 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 18th day of April, 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.
Signature Title Date
- --------- ----- ----
/s/ Douglas K. Morton President, Chairman and Chief April 18, 1997
- -------------------------- Executive Officer
Douglas K. Morton
/s/ Donald B. McCarthy Secretary and Treasurer (Principal April 18, 1997
- -------------------------- Financial Officer and Principal
Donald B. McCarthy Accounting Officer)
/s/ Douglas K. Morton Director April 18, 1997
- --------------------------
Richard A. Dasen, by
Douglas K. Morton as
attorney-in-fact
/s/ Douglas K. Morton Director April 18, 1997
- --------------------------
Richard D. Gunlikson, by
Douglas K. Morton as
attorney-in-fact
/s/ Douglas K. Morton Director April 18, 1997
- --------------------------
Charles Lee, by Douglas K.
Morton as attorney-in-fact
/s/ Douglas K. Morton Director April 18, 1997
- --------------------------
Teruko Rogers, by Douglas K.
Morton as attorney-in-fact
/s/ Douglas K. Morton Director April 18, 1997
- --------------------------
Barry Smith, by Douglas K.
Morton as attorney-in-fact
<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
April 14, 1997
<PAGE>
EXHIBIT 99
REVOCABLE PROXY
BANKWEST, NATIONAL ASSOCIATION
SOLICITED BY THE BOARD OF DIRECTORS FOR
THE ANNUAL MEETING OF SHAREHOLDERS
___________, 1997
The undersigned holder of common stock of BankWest, National Association
(the "Bank"), acknowledges receipt of a copy of the Notice of Annual Meeting of
Shareholders dated ____________, 1997, and, revoking any proxy heretofore given,
hereby appoints ___________ and ___________, and each of them, with full power
to each of substitution as attorneys and proxies to appear and vote all shares
of common stock of the Bank registered in the name(s) of the undersigned and
held by the undersigned of record as of _________, 1997, at the Annual Meeting
of Shareholders of the Bank to be held at The Outlaw Inn, 1701 Highway 93 South,
Kalispell, Montana, on ___________, 1997, at 3:00 p.m., and at any postponements
and adjournments thereof, upon the following items as set forth in the Notice of
Annual Meeting and to vote according to their discretion on all other matters
which may be properly presented for action at the meeting. All properly
executed proxies will be voted as indicated.
UNLESS OTHERWISE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE FOLLOWING ITEMS:
(1) To elect as directors the nominees listed below.
_____ FOR ALL nominees listed below (except as marked to the
contrary).
_____ WITHHOLD AUTHORITY to vote for all nominees listed
below.
Instruction: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE A
LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Richard A. Dasen, Richard D. Gunlikson, Charles Lee,
Douglas K. Morton, Teruko Rogers, Barry Smith
(2) To approve a Plan of Consolidation and Consolidation Agreement
pursuant to which the Bank and BankWest Interim Bank, N.A. shall
consolidate with the Bank becoming the wholly owned subsidiary of
BankWest Financial, Inc.
____ FOR ____ AGAINST ____ ABSTAIN
(3) In their discretion, the proxy holders are authorized to vote upon
such other business as may be properly presented at the meeting or
matters incidental to the conduct of the meeting.
____ FOR ____ AGAINST ____ ABSTAIN
THIS PROXY IS SOLICITED BY AND ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE
REVOKED PRIOR TO ITS EXERCISE. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
PROPOSALS 1 AND 2. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED.
IF NO DIRECTION IS MADE IT WILL BE VOTED "FOR" PROPOSALS 1 AND 2.
<PAGE>
WITNESS my hand this ______ day of ____________________, 1997.
NAME AND ADDRESS OF (Please sign exactly as name appears
BANK SHAREHOLDERS(S) hereon. When signing as attorney,
executor, administrator, trustee or
guardian, give full title as such.
If a corporation, please affix
corporate seal. If a partnership,
please sign in partnership name by
authorized persons. If joint tenants,
each joint tenant should sign.)
_____________________________________________
_____________________________________________
Signature of Shareholder(s)
WHETHER OR NOT YOU PLAN TO ATTEND THIS MEETING, PLEASE MARK, SIGN, DATE AND
RETURN THIS PROXY CARD PROMPTLY BY USING THE ENCLOSED POSTAGE-PAID ENVELOPE.
I/WE DO ____ DO NOT ___ EXPECT TO ATTEND THIS MEETING.
