<PAGE>
As filed with the Securities and Exchange Commission on January 6, 1997
Registration No. 333-_________
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
BANKWEST FINANCIAL, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<S> <C> <C>
Montana 81-0513357 6712
- ------------------------------- ------------------- ----------------------------
(State or other jurisdiction of (I.R.S. Employer (Primary Standard Industrial
incorporation or organization) Identification No.) Classification Code Number)
</TABLE>
444 West Idaho
Kalispell, Montana 59904 (406) 758-2265
-----------------------------------------
(Address including ZIP Code and telephone number,
including area code, of registrant's principal executive offices)
Douglas K. Morton, President Copies To:
444 West Idaho Karen L. Witt, Esq.
Kalispell, Montana 59904 Rothgerber, Appel, Powers & Johnson LLP
(406) 758-2265 1200 17th Street, Suite 3000
(Name and address of Denver, Colorado 80202
agent for service) (303) 623-9000
---------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES
TO THE PUBLIC:
The exchange of shares is to take place on or after March 1, 1997, which date
will be after approval is received from the Office of the Comptroller of the
Currency and the Board of Governors of the Federal Reserve System.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. / /
<TABLE>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
-------------------------------
Title of Each Class Proposed Amount of
of Securities to be Amount Being Maximum Offering Proposed Maximum Registration
Registered Registered Price Per Unit(1) Aggregate Offering(1) Fee
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 70,960 shares $52.057 $3,693,964.70 $1,273.78
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act for 1933, as amended,
based on the book value per share of the stock as of December 31, 1996
($520.57), and the ten-for-one exchange ratio.
<PAGE>
BANKWEST FINANCIAL, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(b)
OF REGULATION S-K
<TABLE>
Headings in Prospectus Items of Form S-4
---------------------- -----------------
<S> <C> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus ................. Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus .................................... Proxy Statement and Table of
Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information .......................... Summary of Proxy Statement
(a), (b), (c), (g), (h), and (i) ....................... Summary of Proxy Statement
(d), (e) ............................................... Selected Financial Data (to the
extent applicable)
(f) .................................................... Market Price of and Dividends on
Bank Stock and Company Stock
(j) .................................................... Summary of Proxy Statement and
Comparison Between Company Stock
and Bank Stock
(k) .................................................... Summary of Proxy Statement and
Information Concerning
Consolidation Agreement
4. Terms of The Transaction
(a)(1), (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>
<S> <C> <C>
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>
<S> <C> <C>
(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)(1) and (2) ......................................... Concluding Paragraph of Notice
and Proxy Statement
(a)(3) ................................................. Information Concerning
Consolidation Agreement--Rights
of Dissenting Shareholders
(a)(4) ................................................. Summary of Proxy Statement
(a)(5) ................................................. Principal Holders of Voting
Securities
(a)(6) ................................................. Summary of Proxy Statement;
Information Concerning
Consolidation Agreement;
Description of the Bank
(a)(7)(i) .............................................. Description of the Bank--
Management
(a)(7)(ii) ............................................. Description of the Bank--Executive
Compensation
(a)(7)(iii) ............................................ Description of the Bank--
Indebtedness of and Transactions
with Management
(b) .................................................... Not Applicable
19. Information if Proxies, Consents or Authorizations
are not to be Solicited, or in an Exchange Offer........ Not Applicable
</TABLE>
-iv-
<PAGE>
BANKWEST, NATIONAL ASSOCIATION
444 West Idaho
Kalispell, Montana 59904
Dear Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders of
BankWest, National Association to be held on the ____ day of ______________,
1997, at 4:00 p.m., local time, at The Outlaw Inn, 1701 Highway 93 South,
Kalispell, Montana. Your Notice of the Special Meeting, Prospectus/Proxy
Statement and proxy are enclosed.
At the Special Meeting you will be asked 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,
other than the Flathead Shareholders, as defined below.
On the effective date of the acquisition, each one (1) share of common
stock of the Bank issued and outstanding immediately prior to the effective
date and held by Bank shareholders other than the Flathead Shareholders 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
Flathead Shareholders owning a greater percentage interest in the Company as
he or she owned in the Bank.
The 1,842 shares of Bank common stock held by Flathead Holding Company
of Big Fork, Montana, or by officers and directors of the Bank which may have
purchased such shares from Flathead Holding Company (collectively, the
"Flathead Shareholders") shall receive on the effective date, in lieu of
Company stock, a cash payment in an amount equal to approximately $815.00 per
share of Bank stock owned by them, subject to subsequent adjustment as
described in the Prospectus/Proxy Statement.
If you dissent from this proposal and properly perfect your right of
dissent with respect to the consolidation, you will receive the value of your
Bank stock in cash in compliance with the applicable statutory provisions
under the National Bank Act. To the extent permitted by law, the obligations
of the Bank to pay dissenters will be assumed by the Company.
It is management's opinion that the proposed transaction, 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
-v-
<PAGE>
financial requirements of its customers and the community it serves. It may
also provide some liquidity for shareholders and flexibility in the future if
it is determined to be desirable to acquire other financial institutions or
to enter into certain banking-related activities which the Bank cannot now
legally undertake.
The Bank has requested the opinion of the law firm of Rothgerber, Appel,
Powers & Johnson LLP that the acquisition, if consummated, will be tax-free
to the Bank, the Company and to Bank stockholders who receive only common
stock of the Company. A draft of the tax opinion is a part of the enclosed
Prospectus/Proxy Statement. The acquisition will not be consummated unless
such opinion can be given at closing.
Under federal securities law the Proxy Statement of the Bank is deemed
to be a Prospectus under which the Company offers its stock to you pursuant
to the Consolidation Agreement. This is the reason for the statement in
bold-face type below, which federal securities law requires on all
prospectuses.
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.
-vi-
<PAGE>
BANKWEST, NATIONAL ASSOCIATION
444 West Idaho
Kalispell, Montana 59904
NOTICE
OF
SPECIAL MEETING OF SHAREHOLDERS
to be held __________, 1997
Notice is hereby given that pursuant to the call of its Board of
Directors, a Special Meeting of Shareholders of BankWest, National
Association will be held on _____day, ______________, 1997, at 4:00 p.m.,
local time, at The Outlaw Inn, 1701 Highway 93 South, Kalispell, Montana.
The purposes of the meeting are:
(1) 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 BankWest, National
Association. 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 BankWest, National
Association will consolidate and BankWest, National Association will become
the Continuing Bank. All stock of BankWest, National Association 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
BankWest, National Association, except for the Flathead Shareholders, 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.
(2) 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
-vii-
<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.
- -------------------------------------------------------------------------------
-viii-
<PAGE>
PROSPECTUS
The Date of this Prospectus/Proxy Statement is ______________, 1997
BANKWEST FINANCIAL, INC.
70,960 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 SPECIAL
MEETING OF THE SHAREHOLDERS OF BANKWEST, NATIONAL ASSOCIATION.
This Prospectus covers 70,960 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 Flathead Shareholders, 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 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
_________________
SPECIAL 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 Special 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
Special Meeting. Each share is entitled to one vote on the matters to be
voted on at this Special Meeting. There were 8,938 shares of Bank Stock
outstanding as of December 31, 1996.
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 Special 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 SPECIAL MEETING OF SHAREHOLDERS.................... 7
PROPOSED ACQUISITION.............................................. 7
SELECTED FINANCIAL DATA............................................. 11
INFORMATION CONCERNING CONSOLIDATION AGREEMENT...................... 12
REASONS FOR THE ACQUISITION....................................... 12
DESCRIPTION OF THE CONSOLIDATION AGREEMENT........................ 13
DESCRIPTION OF COMPANY DEBT....................................... 16
RIGHTS OF DISSENTING SHAREHOLDERS................................. 16
EMPLOYEE BENEFIT PLANS............................................ 17
FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT............... 17
OTHER POSSIBLE CONSEQUENCES....................................... 19
MARKET PRICE OF AND DIVIDENDS ON BANK STOCK AND COMPANY STOCK....... 21
HISTORICAL AND PRO FORMA CAPITALIZATION............................. 22
DESCRIPTION OF THE COMPANY.......................................... 23
ORGANIZATION AND OPERATION........................................ 23
REGULATION AND SUPERVISION........................................ 23
MANAGEMENT........................................................ 27
COMPENSATION...................................................... 27
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY.............. 27
PROPERTY.......................................................... 28
SALES OF ADDITIONAL SECURITIES.................................... 28
LEGAL PROCEEDINGS................................................. 28
ANTI-TAKEOVER PROVISIONS.......................................... 28
DESCRIPTION OF BANKWEST INTERIM BANK, N.A. ......................... 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE BANK.................................. 29
GENERAL........................................................... 29
FINANCIAL CONDITION............................................... 29
COMPARISON OF OPERATING RESULTS................................... 30
INTEREST RATE SENSITIVITY AND LIQUIDITY........................... 40
CAPITAL........................................................... 42
IMPACT OF INFLATION............................................... 43
-3-
<PAGE>
DESCRIPTION OF THE BANK............................................. 43
HISTORY........................................................... 43
BUSINESS.......................................................... 43
LENDING........................................................... 44
INVESTMENT PORTFOLIO.............................................. 45
DEPOSITS.......................................................... 47
PROPERTY.......................................................... 48
COMPETITION....................................................... 49
LEGAL PROCEEDINGS................................................. 50
REGULATION AND SUPERVISION........................................ 50
MANAGEMENT........................................................ 51
COMPENSATION OF DIRECTORS......................................... 52
BOARD COMMITTEES AND MEETINGS..................................... 52
EXECUTIVE COMPENSATION............................................ 53
STOCK OPTION PLAN................................................. 53
INDEBTEDNESS OF AND TRANSACTIONS WITH MANAGEMENT AND OTHERS....... 54
INDEMNIFICATION AND LIMITATION OF PERSONAL LIABILITY.............. 54
EMPLOYEES AND EMPLOYEE BENEFITS................................... 54
LEGAL PROCEEDINGS................................................. 55
PRINCIPAL HOLDERS OF VOTING SECURITIES.............................. 55
COMPARISON BETWEEN COMPANY STOCK AND BANK STOCK..................... 57
DIVIDENDS......................................................... 57
VOTING RIGHTS..................................................... 57
PREEMPTIVE AND OTHER RIGHTS....................................... 57
ASSESSMENT........................................................ 58
LIQUIDATION RIGHTS................................................ 58
SHARES ELIGIBLE FOR FUTURE SALE................................... 58
ANTI-TAKEOVER PROVISIONS.......................................... 58
INFORMATION CONCERNING ACCOUNTANTS.................................. 59
OTHER MATTERS....................................................... 59
LEGAL OPINIONS...................................................... 60
INDEX TO FINANCIAL STATEMENTS....................................... 60
-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
"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
percent 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 Shareholders" shall mean (i) Flathead Holding Company of Big
Fork, Montana, or (ii) those officers or directors of the Bank who have
purchased up to 1,842 shares of Bank Stock from Flathead Holding Company
pursuant to the Stock Purchase Agreement dated December 5, 1996, a copy of
which is attached hereto as part of Exhibit A.
"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.
"Special Meeting" shall mean the special meeting of the shareholders of
the Bank Stock to be held _______________, 1997, at The Outlaw Inn, 1701
Highway 93 South, Kalispell, Montana, at 4:00 p.m., local time.
-6-
<PAGE>
PURPOSE OF THE SPECIAL MEETING OF SHAREHOLDERS
The meeting is a Special Meeting of Shareholders of the Bank at which
shareholders will be asked to vote on a major Consolidation Agreement and
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 Special Meeting. See "INFORMATION CONCERNING
CONSOLIDATION AGREEMENT."
PROPOSED ACQUISITION
CONSOLIDATION AGREEMENT. At the Special 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 held by shareholders other than
Flathead Shareholders 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 Flathead Shareholders, will become
shareholders of the Company with a greater percentage ownership interest.
Flathead Shareholders holding 1,842 shares of Bank Stock shall receive on the
Effective Date, in lieu of Company Stock, a cash payment in the amount of
$815.00 per share of Bank Stock owned by them, or $1,501,203.00 in the
aggregate. The purchase price shall be increased by $0.305 per share for each
full calendar day elapsed from and including January 25, 1997, to and
including the Effective Date, and decreased by dividends per share declared
and paid on and after December 5, 1996, and prior to the Effective Date, all
as described in the Stock Purchase Agreement dated December 5, 1996, a copy
of which is attached to the Consolidation Agreement as Exhibit A.
Shareholders other than Flathead 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."
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. Management believes that the Company's
ownership of the Bank will enable the Bank to continue to meet the changing
-7-
<PAGE>
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
$100,000 for organizational expenses of the Company, $120,000 to temporarily
capitalize the Interim Bank, and up to $883,602 to pay the Flathead
Shareholders. Any additional amounts necessary to pay the Flathead
Shareholders 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 declared informationally complete on January ____, 1997. The OCC
application was filed on December 19, 1996. The OCC granted approval to form
the Interim Bank on _____________, 1997, and approved the Consolidation
Agreement on _______________, 1997. Such approval should not be construed as
an endorsement or recommendation of the proposed acquisition. The
Consolidation Agreement is also subject to several other conditions specified
in the Consolidation Agreement. See "INFORMATION CONCERNING CONSOLIDATION
AGREEMENT--DESCRIPTION OF THE CONSOLIDATION AGREEMENT."
RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of the Bank who vote
against the proposal or 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. 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 Flathead
Shareholders and those Bank shareholders who dissent and receive cash for
their Bank Stock) or the Company in connection with the proposed
Consolidation Agreement. The full text of the draft opinion is attached as
EXHIBIT C. For a summary of the opinion, see "INFORMATION CONCERNING
CONSOLIDATION AGREEMENT--FEDERAL TAX CONSEQUENCES OF CONSOLIDATION
AGREEMENT." This opinion will be given prior to and as a condition of
consummation.
BUSINESS OF THE BANK AND THE COMPANY. The Bank is chartered as a
national bank under the laws of the United States of America and conducts a
commercial banking business in Montana. The Company is a corporation,
incorporated on October 4, 1996, under the laws of the State of Montana,
-8-
<PAGE>
which has applied for 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."
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON. As of December
20, 1996, the directors and executive officers of the Bank (seven persons)
beneficially owned or controlled, directly or indirectly, 3,307 shares or 37
percent of outstanding Bank Stock. See "PRINCIPAL HOLDERS OF VOTING
SECURITIES." Each of the executive officers and directors of the Bank has
indicated his intention to vote in favor of the Consolidation Agreement.
Public resale of the Company Stock by certain persons deemed to be
affiliates (control persons) of the Company, such as Mr. Morton and other
directors and executive officers of the Bank, will be restricted pursuant to
certain provisions of Rule 145 promulgated under the Securities Act of 1933.
Stock certificates representing Company Stock issued to such persons will
bear a legend to that effect. No resales will be made pursuant to this
Prospectus/Proxy Statement or the Registration Statement in which it was
filed under federal securities laws. See "PRINCIPAL HOLDERS OF VOTING
SECURITIES."
Affiliates can only publicly sell in any three-month period an amount of
stock representing no more than one percent of all outstanding shares of
Company Stock and can only publicly sell when current public information
about the Company is available. Additionally, public resale by affiliates can
only be made through brokers' transactions or in transactions with market
makers. In certain situations, a notice of public sale on Form 144 will be
required to be filed with the SEC.
CERTAIN HISTORICAL AND PRO FORMA PER SHARE DATA. The following table
shows certain historical per share data as well as pro forma per share data
that assumes that the transaction had occurred prior to the periods
indicated. See also "SELECTED FINANCIAL DATA." 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 transaction will be treated on a pooling of interests
basis for accounting purposes. The table is not necessarily indicative
-9-
<PAGE>
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 per Share of Bank Stock(1)
9 Months Ended
September 30 Year Ended December 31
--------------- ------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
Bank historical(2) $54.44 $52.22 $69.76 $68.39 $57.86
Pro forma combined
7,096 shares outstanding(3) $57.24 $59.88 $78.32 $71.47 $59.60
Book Value per Share of Bank Stock(1)
9 Months Ended
September 30 Year Ended December 31
----------------- ---------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
Bank historical $494.14 $423.70 $440.85 $372.47 $328.09
Pro forma combined
7,096 shares outstanding(3) $369.05 $284.27 $304.91 $194.26 $144.24
- -----------
(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 reflects the purchase of shares from Flathead
Shareholders and estimated acquisition debt of $1,601,230 ($1,501,230
payable to Flathead Shareholders plus $100,000 for organizational
expenses).
(2) Determined by dividing net income by the number of shares of common stock
outstanding at the end of the period.
(3) Reflects purchase of Bank Stock from Flathead Shareholders and assumes no
shareholders of the Bank dissent to the acquisition.
-10-
<PAGE>
SELECTED FINANCIAL DATA
The following table presents summary financial information about the
Bank for the years ended December 31, 1995, 1994 and 1993, and for the
interim periods ending September 30, 1996 and 1995, as well as certain per
share data for each period indicated. The information for the years ended
December 31, 1993, through December 31, 1995, are derived from the Bank's
financial statements which have been audited. Interim unaudited data for the
nine months ended September 30, 1996, and 1995 reflect, in the opinion of the
Bank's management, all adjustments necessary for a fair presentation of such
data. Results for the nine months ended September 30, 1996, are not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
<TABLE>
September 30 December 31
----------------- ---------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of operations
Interest income $ 2,610 $ 2,253 $ 3,121 $ 2,520 $ 2,183
Interest expense 1,151 947 1,325 874 826
------- ------- ------- ------- -------
Net interest income $ 1,459 $ 1,306 $ 1,796 $ 1,646 $ 1,358
Provision for loan losses 49 26 36 77 88
------- ------- ------- ------- -------
Net interest income after
provision for loan losses $ 1,410 $ 1,280 $ 1,760 $ 1,569 $ 1,270
Other income 596 528 734 730 847
Other expenses 1,254 1,165 1,567 1,454 1,341
------- ------- ------- ------- -------
Income before income taxes $ 752 $ 643 $ 927 $ 846 $ 776
Income tax expense 287 197 331 298 313
------- ------- ------- ------- -------
Net income $ 465 $ 446 $ 596 $ 547 $ 463
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Per share information
Net income $ 54.44 $ 52.22 $ 69.76 $ 68.39 $ 57.86
End of period book value $494.14 $423.70 $440.85 $372.47 $328.09
Shares issued and outstanding 8,540 8,540 8,540 8,000 8,000
Balance sheet information
Total assets $44,265 $40,581 $40,274 $34,745 $30,191
Total deposits $37,027 $34,955 $34,441 $30,572 $26,367
Total loans $30,581 $27,417 $28,281 $24,350 $18,864
Allowance for loan losses $ 322 $ 348 $ 357 $ 346 $ 243
Shareholders' equity $ 4,220 $ 3,618 $ 3,765 $ 2,980 $ 2,625
</TABLE>
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<PAGE>
INFORMATION CONCERNING CONSOLIDATION AGREEMENT
At the Special 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 Flathead
Shareholders 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 percent 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 percent 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.
-12-
<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 percent of
the outstanding shares of Bank Stock, and the Bank will then be the Company's
subsidiary. The Bank and 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."
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 percent 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 Flathead 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
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<PAGE>
Stock for ten (10) shares of Company Stock. Flathead Shareholders shall
receive, in lieu of Company Stock, a cash payment in the amount of $815.00
per share of Bank Stock owned by them or $1,501,203.00 in the aggregate. The
purchase price shall be increased by $0.305 per share for each full calendar
day elapsed from and including January 25, 1997, to and including the
Effective Date, and decreased by dividends per share declared and paid on and
after December 5, 1996, and prior to the Effective Date, all as described in
the Stock Purchase Agreement dated December 5, 1996, a copy of which is
attached to the Consolidation Agreement as Exhibit A. 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--
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 _____________, 1997.
Preliminary conditional approval of the consolidation was granted on
______________, 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 ________________, 1997. Such approval should not be construed as an
endorsement or recommendation of the proposed consolidation transaction.
The Consolidation Agreement is also subject to conditions specified
therein. Assuming satisfaction of the other 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
-14-
<PAGE>
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. 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, other than Flathead Shareholders, will become
shareholders of the Company. Bank shareholders other than Flathead
Shareholders upon surrender of their present Bank Stock certificates will be
entitled to receive new certificates evidencing shares of Company Stock.
Until so exchanged, the certificates representing shares of Bank Stock will
represent the right to receive Company Stock into which such shares have been
converted. However, the Company may withhold any dividends declared upon the
Company Stock in respect to shares represented by unexchanged certificates
until such Bank Stock certificates are presented for exchange, at which time
the dividends so withheld on such shares shall be paid without interest.
Flathead Shareholders, upon surrender of their Bank Stock certificates, will
be entitled to receive cash in the amount of $815.00 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
$100,000, temporary capitalization of the Interim Bank at $120,000 and
payments to Flathead Shareholders are estimated at $1,501,230. 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.
-15-
<PAGE>
DESCRIPTION OF COMPANY DEBT
First National Bank in Libby, Libby, Montana, has approved a revolving
line of credit in the amount of $100,000, which will accrue interest at 10.0
percent 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 February 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 percent 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 Bank Stock from
Flathead Shareholders along with a dividend to be declared by the Bank to the
Company. The Company currently anticipates borrowing $770,000 under this loan
and using a Bank dividend in the amount of $865,000 to pay Flathead
Shareholders. 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 3.16 basis points on a 360/360 basis with monthly
adjustments. Interest will be payable quarterly and principal is payable
annually with the balance due and payable seven years from date of inception.
This loan will be secured by all of the outstanding shares of Bank Stock.
Although indebtedness may be incurred for the purchase of Bank Stock
from shareholders who elect to exercise dissenters' rights to receive payment
for their shares, management is not aware of any plan to dissent on the part
of holders of any substantial amount of Bank Stock and estimates that owners
of only a minimum number of the outstanding Bank Stock may dissent. Current
shareholders of the Bank currently plan to purchase the shares from any
dissenters; therefore, indebtedness will not be incurred for the purchases
of Bank Stock from dissenting shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders of the Bank who vote against the proposal or 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 Special Meeting to the presiding officer that he
dissents from the Consolidation Agreement and must vote against the
consolidation Agreement at the Special 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
Special Meeting to the presiding officer of the Special
-16-
<PAGE>
Meeting shall be deemed to constitute a waiver of the right to receive the
value of the shareholder's Bank Stock.
The value of the shares of any dissenting shareholder shall be
ascertained, as of the Effective Date, by appraisal made by a committee of
three persons: (i) one selected by the vote of the holders of the majority of
the Bank Stock, the owners of which are entitled to payment in cash (by
reason of such request for appraisal); (ii) one selected by the directors of
the Continuing Bank; and (iii) one selected by the two so selected. The
valuation agreed upon by any two of the three appraisers shall govern. If the
value so fixed shall not be satisfactory to any dissenting shareholder who
has requested payment, that shareholder may, within five days after being
notified of the appraised value of his shares, appeal to the OCC, which shall
cause a reappraisal to be made which shall be final and binding as to the
value of the shares of the appellant.
If, within ninety days from the Effective Date, for any reason one or
more of the appraisers is not selected as herein provided, or the appraisers
fail to determine the value of such shares, the OCC shall, upon written
request of any interested party, cause an appraisal to be made which shall be
final and binding on all parties. The expenses of the OCC in making the
reappraisal or the appraisal, as the case may be, shall be paid by the
Company. It is anticipated that the value of the shares ascertained shall be
paid by the Company.
The shares of Company Stock which would have been delivered to such
dissenting shareholders had they not requested payment shall be sold at an
advertised public auction or pursuant to such other method of sale approved
by the OCC, and the Company may purchase such shares for cancellation or as
treasury shares. If the shares are sold at public auction at a price greater
than the amount paid to the dissenting shareholders, the excess of such sale
price shall be paid to the dissenting shareholders, pro rata. SHAREHOLDERS
SHOULD CAREFULLY CONSIDER EXHIBIT B AND MAY WISH TO CONSULT WITH THEIR LEGAL
COUNSEL REGARDING THEIR RIGHT TO DISSENT FROM THE TRANSACTION AND TO RECEIVE
THE APPRAISED VALUE OF THEIR SHARES.
EMPLOYEE BENEFIT PLANS
The BankWest 401(K) Profit Sharing Plan, the BankWest Employee Stock
Ownership Plan, the BankWest Bonus Incentive Plan and the BankWest Stock
Option Plan will be continued in substantially their present forms. See
"DESCRIPTION OF THE BANK--EMPLOYEES AND EMPLOYEE BENEFITS" and "--STOCK
OPTION PLAN."
FEDERAL TAX CONSEQUENCES OF CONSOLIDATION AGREEMENT
The Company has asked the firm of Rothgerber, Appel, Powers & Johnson
LLP, special counsel to the Bank and the Company, for its opinion concerning
certain federal income tax aspects of the Consolidation Agreement.
Rothgerber, Appel, Powers & Johnson LLP has provided the Company with a draft
of such an opinion, found at EXHIBIT C, which is summarized below. This
summary covers only the principal terms of the draft opinion and is qualified
in its entirety by the full
-17-
<PAGE>
text of that draft opinion, including certain facts, representations and
assumptions outlined therein. It should not be relied upon without first
consulting the full text.
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.
Flathead Shareholders and dissenting shareholders who receive only cash
do not qualify for nonrecognition. These shareholders are deemed to receive a
distribution in redemption of their shares of Bank Stock, which is taxed as a
sale or exchange (generally capital gain or loss) to shareholders qualifying
under Section 302(b) and as a dividend (ordinary income to the extent of
earnings and profits) to those who do not so qualify. The tests under
Section 302(b) are applied in light of all the facts and circumstances
surrounding each individual shareholder. Since those facts may vary from
shareholder to shareholder, each shareholder is urged to consult his or her
own tax counsel before acting on the proposed transaction.
The basis of the Company Stock will be the same as the basis of the Bank
Stock exchanged therefor, for those shareholders receiving only Company
Stock. I.R.C. Section 358(a). The holding period of Company Stock will
include the period for which the shareholders held the Bank Stock exchanged
therefor, for shareholders who held the Bank Stock as a capital asset.
I.R.C. Section 1223(1).
The Bank and the Company will receive nonrecognition treatment under
Section 1032. The basis of the Bank Stock received by the Company in
exchange for Company Stock will be the same as the basis of such stock in the
hands of the respective Bank shareholders immediately prior to the exchange.
Section 362(a). The basis of the Bank Stock received by the Company in
exchange for cash will be the amount of cash paid for such stock. The holding
period of the Bank Stock to be received by the Company in exchange for
Company Stock will include the periods during which such stock was held by
the respective Bank shareholders before the exchange. Section 1223(2).
THE ABOVE DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF FEDERAL TAXATION
THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER OR TO CERTAIN TYPES OF
SHAREHOLDERS SUBJECT TO SPECIAL TREATMENT UNDER THE FEDERAL TAX LAWS (E.G.,
LIFE INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS AND FOREIGN TAXPAYERS).
ACCORDINGLY, BANK SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO
THE CONSEQUENCES OF THE TRANSACTION TO THEM. FURTHERMORE, COUNSEL'S OPINION
IS NOT BINDING ON THE INTERNAL REVENUE SERVICE.
-18-
<PAGE>
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 percent 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 percent, but less
than 25 percent, 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 Flathead Shareholders, 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 percent of the outstanding shares of Company Stock, or attains
ownership of at least 10 percent, but less than 25 percent, of the
outstanding shares of Company Stock and no other person holds a greater
percentage thereof, such person must promptly file notice of change in bank
control with the FRB. THIS FILING IS THE RESPONSIBILITY OF THE SHAREHOLDER.
RESTRICTIONS ON RESALE OF SECURITIES OFFERED. Affiliates of the Bank and
the Company will be subject to restrictions on any public sales (i.e.,
through a stockbroker, auction or other public means) of Company Stock which
they received as a result of the acquisition. Share certificates issued to
affiliates will bear a legend describing this restriction. Executive
officers, directors and individuals who otherwise control the affairs of the
Bank or the Company will be considered affiliates. Affiliates can only
publicly sell in any three-month period an amount representing no more than
one percent of all outstanding shares of Company Stock and can only sell when
current public information about the Company is available. Additionally,
public resale by the affiliates can only be made through
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brokers' transactions or in transactions with market makers. In certain
situations, a notice of public sale will be required to be filed by the
affiliate with the SEC. See "PRINCIPAL HOLDERS OF VOTING SECURITIES."
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MARKET PRICE OF AND DIVIDENDS ON
BANK STOCK AND COMPANY STOCK
Bank Stock is not publicly traded, and no broker maintains a public market
for Bank Stock. Company Stock also shall not be publicly traded, and no broker
shall maintain a public market for Company Stock. The amounts received in
private trades of Bank Stock are generally not disclosed to Bank management.
The following table sets forth the estimated high and low trade prices
for the Bank Stock at the end of each quarter since the first quarter of
1994, along with the estimated number of trades in such quarter. 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
December 20, 1996, there were 194 shareholders of Bank Stock.
Number
Quarter High Low of Trades
----------- ------- ------- ---------
First 1994 $347.93 $347.93 25
Second 1994 359.46 359.46 1
Third 1994 382.64 382.64 13
Fourth 1994 399.66 399.66 10
First 1995 475.70 475.70 100
Second 1995 509.82 509.82 76
Third 1995 NA NA 0
Fourth 1995 570.45 461.09 82
First 1996 637.00 473.94 363
Second 1996 647.51 621.53 254
Third 1996 647.51 582.39 1,464
Fourth 1996 679.95 679.95 5
Because the Company is newly formed there is no market for the Company
Stock and no information exists with respect to stock performance of Company
Stock. It is anticipated that, to the extent any market develops for Company
Stock, such market will be no more active or widespread than the current
market for Bank Stock.
A limitation exists on the availability of the Bank's undistributed net
assets for the payment of dividends to its shareholders pursuant to the
National Bank Act. The Bank is prevented from declaring and paying any
dividend which would impair capital or which exceeds its net profits then on
hand. In each calendar year since 1993, the Bank has declared dividends of
$5.00 per share.
The ability of the Company to pay dividends is subject to Montana law.
Under Montana law, the Company may pay dividends, as authorized by its Board
of Directors, unless the distribution would make the entity unable to pay its
debts as they come due. Management anticipates that the Company will be able
to pay dividends on Company Stock similar to those paid historically on
shares of Bank Stock and consistent with its financial performance.
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HISTORICAL AND PRO FORMA CAPITALIZATION
The following table sets forth the historical capitalization of the Bank
and the Company as of September 30, 1996, and the pro forma consolidated
capitalization of the Company and the Bank, adjusted as of such date to give
effect to the Consolidation Agreement. The number of shares outstanding
assumes that none of the Bank's shareholders perfected dissenters' rights and
received cash rather than Company Stock. Management is not aware of any plan
by shareholders of Bank Stock to dissent.
<TABLE>
Pro Forma
Bank Adjustments Company
---- ----------- -------
(Consolidated)
<S> <C> <C> <C>
Long-term debt $ 0 $ 770,000 (1) $ 770,000
Shareholders' equity:
Bank Stock, $100 par value
10,000 shares authorized,
8,540 issued & outstanding 854,000 (854,000)(2) 0
Additional paid-in capital 859,400 (859,400)(3) 0
Retained earnings 2,523,880 (865,000)(4)
(100,000)(5) 1,558,880
Company Stock
500,000 shares authorized, 0 (859,400)(3)
66,980 issued & outstanding (854,000)(2) 1,713,400
Net unrealized (depreciation) on
available-for-sale securities, net of
deferred tax credit of $11,051 (17,285) 0 (17,285)
----------- ----------
Total Shareholders' Equity $ 4,219,99 $3,254,995
----------- ----------
----------- ----------
- ------------------------------------------------------------------------------------
Book Value per Share $494.14 $48.60
</TABLE>
- ------------------------
(1) Reflects anticipated debt for payment to Flathead Shareholders.
(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 to Flathead Shareholders.
(5) Reflects the estimated expenses of the acquisition which will be expended
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.
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<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 percent 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 ________________,
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 _____________,
1997.
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 percent 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 percent 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."
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
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<PAGE>
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.
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.
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<PAGE>
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 percent, 50 percent and 100 percent, 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 percent 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 percent, of which at least 4 percent must be in
the form of core capital. The Bank's ratios of Tier 1 and total capital to
risk-weighted assets were 13.6 percent and 14.6 percent at September 30, 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 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
percent 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 percent minimum level. The FDIC regulations require a
financial institution to maintain a minimum ratio of 4 percent to 5 percent,
depending on the condition of the institution. The Bank's leverage ratio was
9.5 percent at September 30, 1996.
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<PAGE>
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
70,960 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."
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 ____________, 1997, and the Organization
Certificate was signed on ___________, 1997. It has
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<PAGE>
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 nine months ended September 30, 1996, and 1995, and for
the years ended December 31, 1995, 1994 and 1993, 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 $5,529,000 or 15.9% from $34,745,000 at December
31, 1994, to $40,274,025 at December 31, 1995, after increasing $4,554,000 or
15.1% from $30,190,555 at December 31, 1993, to December 31, 1994. The Bank's
loan portfolio increased $4,820,000 or 19.9% from $24,214,000 at December 31,
1994, to $29,034,000 at December 31, 1995, 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." This increase was largely funded by increased deposits and
increased long term borrowings from the Federal Home Loan Bank of Seattle.
Deposits increased $3,869,000 or 12.7% from $30,572,000 at December 31, 1994,
to $34,441,000 at December 31, 1995, after increasing $4,204,000 or 15.9%
from $26,368,000 at December 31, 1993, to December 31, 1994. Borrowings
increased $906,000 or 108.9% from $832,000 at December 31, 1994, to
$1,738,000 at December 31, 1995, after decreasing $100,000 or 10.7% from
$932,000 at December 31, 1993, to December 31, 1994.
Total assets increased $3,991,000 or 9.9% from December 31, 1995, to
$44,265,000 at September 30, 1996. The Bank's loan portfolio increased
$1,225,000 or 3.0% from December 31, 1995, to $30,259,000 at September 30,
1996, due to increased business development activities. This increase was
funded from deposit growth and additional Federal Home Loan Bank
borrowings.
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<PAGE>
Deposits increased $2,586,000 or 7.5% from $34,441,000 at December 31, 1995,
to $37,027,000 at September 30, 1996. Federal Home Loan Bank borrowings
increased $1,029,000 or 59.2% from $1,738,000 at December 31, 1995 to
$2,767,000 at September 30, 1996.
Investment securities held to maturity decreased $1,054,000 or 30.6%
from $3,445,000 at December 31, 1994, to $2,391,000 at December 31, 1995.
Investment securities available for sale increased $1,009,000 or 27.3% from
$3,702,000 at December 31, 1994, to $4,711,000 at December 31, 1995. 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.
Investment securities held to maturity increased slightly by $322,000 or
13.5% from December 31, 1995, to $2,712,148 at September 30, 1996.
Investment securities available for sale decreased $538,000 or 11.4% from
December 31, 1995, to $4,173,000 at September 30, 1996. The decrease in the
securities portfolio was used primarily to fund the growth in the loan
portfolio.
Money market investments that consist of overnight federal funds
increased from $0 at December 31, 1994, to $800,000 at December 31, 1995, due
to growth in deposits. Overnight federal funds sold increased $2,300,000 or
287% from $800,000 at December 31, 1995, to $3,100,000 at September 30, 1996,
primarily from deposit growth.
Bank premises increased $221,000 or 16.4% from $1,344,000 at December
31, 1994, to $1,566,000 at December 31, 1995, as a remodel and expansion of
the Bank's facility was completed.
Stockholders' equity increased $785,000 or 26.3% from $2,980,000 at
December 31, 1994, to $3,765,000 at December 31, 1995. Of this increase,
$113,000 or 14.3% is attributed to additional paid-in capital from the
exercise of outstanding options and the remaining $672,000 or 85.6% is due
primarily to earnings retention. Stockholders' equity increased $355,000 or
13.5% from $2,625,000 at December 31, 1993, to December 31, 1994. Retained
earnings increased $551,000 or 36.5% from $1,511,000 at December 31, 1994, to
$2,062,0000 at December 31, 1995.
Stockholders' equity increased $455,000 or 12.1% from $3,765,000 at
December 31, 1995, to $4,220,000 at September 30, 1996, due primarily to
earnings retention. Retained earnings increased $462,000 or 22.4% from
$2,062,000 at December 31, 1995, to $2,524,000 at September 30, 1996.
COMPARISON OF OPERATING RESULTS
NET INCOME. Net income increased $49,000 or 9.0% from $547,000 for the
year ended December 31, 1994, to $596,000 for the year ended December 31,
1995, and increased $84,000 or 18.1% from $463,000 at December 31, 1993, to
December 31, 1994. The increase in net earnings from 1994 to 1995 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 income increased $19,000 or 4.3% from $446,000 for the nine months
ended September 30, 1995, to $465,000 for the nine months ended September 30,
1996. The net earnings increase was due to an increase in other income of
$289,000 after a decrease in net interest income of $68,000.
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<PAGE>
The increase in other income was also partially offset by an increase of
$89,000 in other operating expenses and an increase of $90,000 in income
taxes.
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 $150,000 or 9.1% from $1,646,000 for the
year ended December 31, 1994, to $1,796,220 for the year ended December 31,
1995, and increased $288,000 or 21.2% from $1,358,000 for the year ended
December 31, 1993, to December 31, 1994. 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 and
4.72% for the year ended 1995 and the average yield on a tax equivalent basis
on interest-earning assets increased .62% from 8.30% in 1994 to 8.92% in
1995. The interest rate spread decreased 0.44% from 4.64% in 1994 to 4.20% in
1995.
Net interest income increased $152,000 or 11.65% from $1,305,000 for the
nine months ended September 30, 1995, to $1,457,000 for the nine months ended
September 30, 1996. This increase was due to a $4,452,000 increase in the
average loan portfolio and a $406,000 increase in average money market
investments from the nine months ended September 30, 1995, to the nine months
ended September 30, 1996, offset to a small degree by the effects of a
$91,000 decrease in average outstanding securities.
The Bank's average cost of funds was 4.94% for the nine-month period
ended September 30, 1996, compared to 4.61% for the nine-month period ended
September 30, 1995. The average tax equivalent yield on interest-earning
assets increased from 8.84% for the nine-month period ended September 30,
1995, to 8.98% for the nine-month period ended September 30, 1996. The
average interest rate spread decreased slightly from 4.23% for the nine
months ended September 30, 1995, to 4.04% for the nine months ended September
30, 1996. The average net interest rate margin
-31-
<PAGE>
decreased slightly from 3.84% for the nine months ended September 30, 1995 to
3.76% for the nine months ended September 30, 1996. See "INTEREST RATE
SENSITIVITY AND LIQUIDITY."
The following table provides an analysis of the Bank's net
interest income, net interest spread and net interest margin for
the periods indicated:
-32-
<PAGE>
<TABLE>
<CAPTION>
September 30
---------------------------------------------------
1996 1995
------------------------ ------------------------
Average Yield/ Average Yield/
Balance Income Rate Balance Income Rate
------- ------ ------ ------- ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Earning assets
Loans $30,456 $2,276 9.96% $26,004 $1,935 9.92%
Securities 6,607 278 5.61% 6,698 276 5.49%
Federal funds sold 1,656 55 4.43% 1,250 41 4.37%
------- ------ ---- ------- ------ ----
Total earnings assets $38,719 $2,609 8.98% $33,952 $2,252 8.84%
Cash and due from banks 1,888 1,747
Premises and equipment 1,752 1,542
Other assets, net 409 381
Less: Unrealized loss on securities (30) (125)
Less: Allowance for loan losses (336) (354)
------- -------
Total assets $42,222 $37,143
------- -------
------- -------
Liabilities and shareholders' equity
Interest-bearing demand deposit $ 3,312 $ 57 2.29% $ 3,131 $ 54 2.30%
Money market deposits 4,285 111 3.45% 4,647 125 3.59%
Savings deposits 3,333 75 3.00% 3,828 86 3.00%
Time deposits 13,965 625 6.00% 11,206 483 5.75%
Federal funds purchased 61 3 6.56% 177 10 7.53%
Time deposits 4,759 227 6.36% 2,838 125 5.87%
Long-term debt 1,361 54 5.29% 1,581 64 5.40%
------- ------ ---- ------- ------ ----
Total interest-
bearing liabilities $31,076 $1,152 4.94% $27,408 $ 947 4.61%
Noninterest-bearing deposits 6,853 6,282
Other liabilities 300 198
Shareholders' equity 3,993 3,255
------- -------
Total liabilities and
shareholders' equity $42,222 $37,143
------- -------
------- -------
Net interest rate spread 4.04% 4.23%
Net interest income/net
interest margin 1,457 3.76% 1,305 3.84%
<CAPTION>
December 31
------------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
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 $26,686 $2,664 9.98% $22,144 $2,100 9.48% $17,180 $1,705 9.92%
Securities 6,752 374 5.54% 7,664 392 5.11% 8,249 447 5.42%
Federal funds sold 1,526 82 5.37% 556 28 5.40% 1,016 31 3.05%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total earnings assets $34,964 $3,120 8.92% $30,364 $2,520 8.30% $26,445 $2,183 8.25%
Cash and due from banks 1,773 1,748 1,545
Premises and equipment 1,553 1,146 1,147
Other assets, net 381 330 301
Less: Unrealized loss on securities (104) (93) 0
Less: Allowance for loan losses (352) (297) (216)
------- ------- -------
Total assets $38,215 $33,198 $29,222
------- ------- -------
------- ------- -------
Liabilities and shareholders' equity
Interest-bearing demand deposit 3,146 73 2.32% 3,299 74 2.24% 3,125 80 2.56%
Money market deposits 4,531 162 3.58% 5,516 172 3.12% 5,613 182 3.24%
Savings deposits 3,781 113 2.99% 3,888 116 2.98% 2,766 83 3.00%
Time deposits 11,821 694 5.87% 8,320 377 4.53% 7,513 366 4.87%
Federal funds purchased 132 10 7.58% 336 14 4.17% 55 1 1.82%
Time deposits 3,062 184 6.01% 1,645 72 4.38% 1,577 74 4.69%
Long-term debt 1,624 89 5.47% 878 48 5.47% 748 37 4.95%
------- ------ ---- ------- ------ ---- ------- ------ ----
Total interest-
bearing liabilities $28,097 $1,325 4.72% $23,882 $ 873 3.66% $21,397 $ 823 3.85%
Noninterest-bearing deposits 6,489 6,346 5,261
Other liabilities 259 171 128
Shareholders' equity 3,370 2,799 2,436
------- ------- -------
Total liabilities and
shareholders' equity $38,215 $33,198 $29,222
------- ------- -------
------- ------- -------
Net interest rate spread 4.20% 4.64% 4.48%
Net interest income/net
interest margin 1,795 5.13% 1,647 5.42% 1,360 5.14%
</TABLE>
-33-
<PAGE>
INTEREST INCOME. Total interest income increased $601,000 or 23.8% from
$2,520,000 for the year ended December 31, 1994, to $3,121,000 for the year
ended December 31, 1995, and increased $337,000 or 15.4% from $2,183,000 at
December 31, 1993, to December 31, 1994. 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
$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.
Total interest income increased $357,000 or 15.88% from $2,252,000 for
the nine months ended September 30, 1995, to $2,609,000 for the nine months
ended September 30, 1996. Interest and fees on loans increased $341,000 or
17.6% from $1,935,000 for the nine months ended September 30, 1995, to
$2,276,000 for the nine months ended September 30, 1996. The increase in
interest income was primarily due to an increase of $4,452,000 or 17.12%
in average loans outstanding from $26,004,000 for the nine months ended
September 30, 1995, to $30,456,000 for the nine months ended September 30,
1996. This was offset in part by a decrease in average investment securities
of $91,000 or 1.4% from $6,698,000 for the nine months ended September 30,
1995, to $6,607,000 for the nine months ended September 30, 1996. Interest
income on investments increased $2,000 to $278,000 for the nine-month period
ending September 30, 1996 as a result of a slightly higher yield received on
the investments.
Following is an analysis of volume and rate changes on net interest
income and expense for the periods indicated:
<TABLE>
1995 over 1994 1994 over 1993
--------------------- ----------------------
Yield/ Yield/
Volume Rate Total Volume Rate Total
------ ------ ----- ------ ------ -----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest income:
Loans $470 $ 77 $547 $365 $(155) $210
Investment securities (51) 32 (19) (40) (15) (55)
Federal funds sold 49 5 54 (14) 11 (3)
---- ----- ---- ---- ----- ----
Total $468 $ 114 $582 $311 $(159) $152
-34-
<PAGE>
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in interest expenses:
Demand deposits, interest bearing (3) 2 (1) 5 (10) (5)
Money market deposits (29) 19 (10) (7) (3) (10)
Savings deposits (3) 0 (3) 33 0 33
Time deposits 158 158 316 40 (29) 11
Federal funds sold (8) 5 (3) 5 7 12
Time deposits over $100,000 62 50 112 3 (5) (2)
Long-term borrowings 38 3 41 14 (3) 11
---- ----- ---- ---- ----- ----
Total $215 $ 237 $452 $ 93 $ (43) $ 50
Increase (decrease) in net interest income $253 $(123) $130 $218 $(116) $102
---- ----- ---- ---- ----- ----
---- ----- ---- ---- ----- ----
</TABLE>
INTEREST EXPENSE. Total interest expense increased $452,000 or 51.8%
from $873,000 for the year ended December 31, 1994, to $1,325,000 for the
year ended December 31, 1995, and increased $50,000 or 6.1% from $823,000 for
the year ended December 31, 1993, to $873,000 for the year ended December 31,
1994. 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 increase in the average rate
paid was due 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.
Total interest expense increased $205,000 or 21.6% from $947,000 for the
nine months ended September 30, 1995, to $1,152,000 for the nine months ended
September 30, 1996. This increase was due to increases in both the average
volume of interest-bearing liabilities and the average rate paid. Average
interest-bearing deposits increased $4,004,000 or 15.6% from $25,650,000
for the nine months ended September 30, 1995, compared to $29,654,000 for the
nine months ended September 30, 1996, and the average rates paid on
interest-bearing liabilities increased for the comparable nine month periods.
The following table presents average balances on interest-bearing
deposits and other items for the periods indicated:
-35-
<PAGE>
Nine Months Ended Year Ended
September 30 December 31
----------------- -----------------
1996 1995 1995 1994
------- ------- ------- -------
(in thousands)
Cash and due from banks $ 1,888 $ 1,747 $ 1,773 $ 1,748
Federal funds sold 1,656 1,250 1,526 556
Securities 6,607 6,698 6,752 7,664
Loans 30,456 26,004 26,686 22,144
Other assets 1,615 1,444 1,478 1,086
------- ------- ------- -------
Total assets $42,222 $37,143 $38,215 $33,198
------- ------- ------- -------
------- ------- ------- -------
Demand deposits $ 3,312 $ 3,131 $ 3,146 $ 3,299
Money market deposits 4,285 4,647 4,531 5,516
Savings deposits 3,333 3,828 3,781 3,888
Time deposits 18,724 14,044 14,883 9,965
Federal funds purchased 61 177 132 336
Long-term debt 1,361 1,581 1,624 878
Other liabilities 7,153 6,480 6,748 6,517
------- ------- ------- -------
Total liabilities $38,229 $33,888 $34,845 $30,399
Shareholders' equity 3,993 3,255 3,370 2,799
------- ------- ------- -------
Total liabilities and
shareholders' equity $42,222 $37,143 $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 $36,000 in 1995, $77,000 in 1994, and
$88,000 in 1993. As of December 31, 1995, the allowance for loan losses was
$357,000 or 1.2% of total loans, compared to $346,000 or 1.4% of total loans
as of December 31, 1994, and $243,000 or 1.3% of total loans as of December
31, 1993.
The provision for loan losses was $49,000 for the nine months ended
September 30, 1996, compared to $26,000 for the comparable period in 1995. At
September 30, 1996, the allowance for
-36-
<PAGE>
loan losses was $322,000 or 1.1% of total loans, compared to $348,000 or 1.3%
of total loans at September 30, 1995.
The following table provides an analysis of the Bank's allowance for
loan losses as of the dates indicated:
September 30 December 31
-------------- ---------------
1996 1995 1995 1994
----- ----- ----- ------
(in thousands)
Balance at beginning of period $ 357 $ 345 $ 345 $ 243
Charge-offs:
Commercial, financial and agricultural 46 0 0 0
Real estate 0 0 0 0
Installment loans to individuals 44 32 34 0
----- ----- ----- ------
Total charge-offs $ 90 $ 32 $ 34 $ 0
Recoveries:
Commercial, financial and agricultural 0 0 0 9
Real estate 0 0 0 0
Installment loans to individuals 6 9 10 16
----- ----- ----- ------
Total recoveries $ 6 $ 9 $ 10 $ 25
Net charge-offs 84 23 24 (25)
Additional charge to operations 49 26 36 77
----- ----- ----- ------
Balance at end of period $ 322 $ 348 $ 357 $ 345
----- ----- ----- ------
----- ----- ----- ------
Ratio of net charge-offs during period to
average loans outstanding during period 0.28% 0.09% 0.09% (0.11)%
----- ----- ----- ------
----- ----- ----- ------
For both 1994 and 1995, management's estimates of loss potential were
low; however, the Bank had a significantly lower reserve to loan ratio than
peer banks. For 1995 the Bank had a ratio of 1.32 percent while the peer
group's ratio was 1.59 percent. In 1994 the Bank had a ratio of 1.38 percent
compared to the peer ratio of 1.66 percent. In addition, the Bank was
experiencing a high growth rate in the loan portfolio. In 1995 loans grew 20
percent and in 1994 exceeded 28 percent. The changes to income to fund the
reserve for losses was weighted very heavily on these factors.
Management believes the $322,000 reserve for loan losses at September
30, 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.
-37-
<PAGE>
The Bank places loans on non-accrual status when principal or interest
is past due 120 days or more provided that the Bank's Senior Loan Committee
may choose not to account for any such loan on a non-accrual basis if the
delinquency is technical in nature and there is a clear understanding of when
payment will be made. Loans for which payments are less than 90 days past due
are placed on non-accrual status when there exists serious doubt as to
collectibility. At September 30, 1996, the Bank had non-accrual loans of
$7,000 and $12,000 of accruing loans past due 90 days, compared to
non-accrual loans of $19,000 and $40,000 of accruing loans past due 90 days
at September 30, 1995.
The following table summarizes the composition of the Bank's
non-performing assets as of the dates indicated:
<TABLE>
September 30 December 31
-------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans $ 7 $19 $ 0 $ 8 $ 8
Accruing loans past due 90 days or more 12 40 59 18 10
Restructured loans (in compliance
with modified terms) 0 0 0 0 0
--- --- --- --- ---
Total nonperforming loans $19 $59 $59 $26 $18
Other real estate owned 0 0 0 0 0
--- --- --- --- ---
Total nonperforming assets $19 $59 $59 $26 $18
--- --- --- --- ---
--- --- --- --- ---
Nonperforming loans to total loans 0.06% 0.22% 0.20% 0.11% 0.09%
Allowance for loan losses to
nonperforming loans 1695.00% 590.00% 605.00% 1326.00% 1350.00%
Nonperforming assets to total assets 0.05% 0.16% 0.15% 0.07% 0.06%
</TABLE>
The amount of gross interest income that would have been recorded for
the nine months ending September 30, 1996, and September 30, 1995, 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 September 30, 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.
-38-
<PAGE>
OTHER OPERATING INCOME. Other operating income, including securities
gains or losses, increased $8,000 or 6.2% from $129,000 in 1994 to $137,000
in 1995, and increased $16,000 or 14.2% from $113,000 in 1993 to $129,000 in
1994. Service charges on deposit accounts increased $15,000 or 5.6% from
$269,000 in 1994 to $284,000 in 1995, principally due to a $20,000 increase
in overdraft charges offset by a $5,000 decrease in demand account service
fees. Loan fees decreased $23,000 or 7.4% from $332,000 in 1994 to $309,000
in 1995 primarily due to the retention of real estate loan servicing in 1995.
Servicing rights were sold off in 1994 and prior years. Other income
increased $8,000 or 6.2% from $129,000 in 1994 to $137,000 in 1995. In 1994
there was a loss on sale of securities of $2,587 compared to a gain of $60 in
1995. Total other operating income, including security transactions,
represented 19.0% of total income in 1995 compared to 22.5% of total income
in 1994.
Other operating income, including securities gains or losses, increased
$30,000 or 30.3% from $99,000 for the nine months ended September 30, 1995,
to $129,000 for the nine months ended September 30, 1996. Service charges
on deposit accounts increased $12,000 or 5.8% from $208,000 for the nine
months ended September 30, 1995, to $220,000 for the nine months ended
September 30, 1996. For the nine months ended September 30, 1995, there was
a gain on the sale of securities of $60 compared to a loss on the sale of
securities of $127 for the nine months ended September 30, 1996. Total
other operating income, including security transactions, represented 18.6%
of total income for the nine months ended September 30, 1996, and 19.0% of
the total income for the nine months ended September 30, 1995.
OTHER OPERATING EXPENSE. Other operating expenses increased $500 or 0.2%
from $373,200 in 1994 to $373,800 in 1995, and increased $35,900 or 10.6%
from $337,300 in 1993 to 1994. Salaries and related expenses increased
$74,000 or 8.3% from $887,000 in 1994 to $961,000 in 1995, due primarily to
salary increases of $60,000 for a combination of staff additions and annual
merit and incentive compensation increases. Occupancy expense 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. Purchases of new
furniture and equipment of $330,000 in 1995 resulted in an $18,000 or 14.9%
increase in depreciation expense from 1994 to 1995. Telephone expense
increased $6,350 or 60.6% from 1994 to 1995. Offsetting these increases was a
$25,000 or 41.5% decrease in FDIC expense from $60,000 in 1994 to $35,000 in
1995. This decrease was due to reductions on the FDIC premiums that are
assessed on outstanding deposits. The reduced FDIC premiums resulted in a
refund of $19,000 for the second and third quarters of 1995 and reduced
premiums for the fourth quarter of 1995.
Other operating expense increased $51,000 or 18.0% from $283,000 for the
nine months ended September 30, 1995, to $334,000 for the nine months ended
September 30, 1996. Salaries and related expenses increased $20,000 or 2.8%
from $714,000 for the nine months ended September 30, 1995, to $734,000 for
the nine months ended September 30, 1996, due primarily to salary increases
for annual merit and incentive compensation. Occupancy expense increased
$18,000 or 10.7% from $168,000 for the nine months ended September 30, 1995,
to $186,000 for the nine months ended September 30, 1996. This increase was
due to the Bank's facilities expansion and related costs. Professional
fees increased $4,000 or 23.8% from $21,000 for the nine months ended
September 30, 1995, to $26,000 for the nine months ended September 30, 1996,
primarily as a result of increased legal fees. Director fees increased
$12,000 or 29.3% from $41,000 for the nine months ended September 30, 1995,
to $53,000 for the nine months ended September 30, 1996. Offsetting these
-39-
<PAGE>
increases was a decrease of $37,000 or 68.5% in regulatory fees from $54,000
for the nine months ended September 30, 1995, to $17,000 for the nine months
ended September 30, 1996. Of this amount, $33,000 was due to a reduction in
FDIC premiums, which 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 September 30, 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:
-40-
<PAGE>
ASSETS/LIABILITIES SUBJECT TO
INTEREST RATE ADJUSTMENT
After 1 Year
Within through Over 5
1 Year 5 Years Years Total
------- ------------ ------- -------
(in thousands)
Loans
Fixed rate by maturity $ 8,344 $11,851 $ 2,620 $22,815
Floating rate by interval 7,759 -- -- 7,759
Securities
Fixed rate by maturity 379 4,764 1,414 6,557
Floating rate by interval -- -- -- --
Federal funds sold 3,100 -- -- 3,100
------- ------- ------- -------
Total interest-earning assets $19,582 $16,615 $ 4,034 $40,231
------- ------- ------- -------
------- ------- ------- -------
Money market accounts $ 4,205 $ -- $ -- $ 4,205
Interest-bearing demand deposits 3,073 -- -- 3,073
Savings accounts 3,546 -- -- 3,546
Time deposits $100M and over 3,601 1,164 -- 4,765
Time deposits under $100M 9,953 3,850 -- 13,803
------- ------- ------- -------
Total interest-bearing liabilities $24,378 $ 5,014 $ -- $29,392
------- ------- ------- -------
------- ------- ------- -------
Net position (interest sensitivity
gap) $(4,796) $11,601 $ 4,034
Cumulative interest sensitivity
gap (4,796) 6,805 10,839
Ratio of cumulative gap to
total assets (10.83%) 15.37% 24.49%
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
-41-
<PAGE>
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 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 the
first nine months of 1996 and 1995, as well as during 1995 and 1994, was from
the net decrease in the investment portfolios and the net increases in
deposits. Total deposits equaled $37,027,000, $34,955,000, $34,441,000,
$30,572,000 and $26,368,000 as of September 30, 1996, September 30, 1995,
December 31, 1995, December 31, 1994, and December 31, 1993, respectively.
Total securities for the periods ended September 30, 1996, September 30,
1995, December 31, 1995, December 31, 1994 and December 31, 1993, were
$6,885,000, $6,690,000, $7,102,000, $7,147,000 and $8,324,000 respectively.
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 $455,000 or 12.1% from $3,765,000 at
December 31, 1995, to $4,220,000 at September 30, 1996. Stockholders' equity
increased $785,000 or 26.3% from $2,980,000 at December 31, 1994, to
$3,765,000 at December 31, 1995, and increased $355,000 or 13.5% from
$2,625,000 at December 31, 1993, to December 31, 1994. 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."
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<PAGE>
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.
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 percent since organization and in
more recent years has slowed to 15 percent. The Bank's return on average
assets over the past eight years has ranged from 0.71 percent to 1.63 percent
and has exceeded 1 percent for six of these years. In the three most recent
years, the return on average assets has been approximately 1.60 percent.
Assets in the last five years have grown from $21,138,000 at December
31, 1991, to $44,265,000 at September 30, 1996. For the nine months ended
September 30, 1996, the Bank's net income after taxes was $465,000, compared
to $446,000 for the nine months ended September 30, 1995. On September 30,
1996, deposit liabilities were $37,027,000 and net loans were $30,259,000
compared to $34,955,000 and $27,068,000, respectively, at September 30, 1995.
Net interest income for the nine months ended September 30, 1996, was
$1,459,000 compared to $1,307,000 at September 30, 1995. As of September 30,
1996, loans past due 90 days or more totaled $12,000, not including
non-accrual loans of $7,000.
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
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<PAGE>
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.
For the most part, the Bank's growth can be attributed to a strong local
economy, good product mix, superior service and a consolidation in operations
of 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. 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 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 September 30, 1996, these categories
accounted for approximately 57 percent, 6 percent, 2 percent and 35 percent,
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:
September 30 December 31
----------------- -----------------
1996 1995 1995 1994
------- ------- ------- -------
(in thousands)
Commercial, financial and agricultural $17,438 $13,791 $15,145 $11,707
Real estate--construction 1,683 1,913 2,205 2,001
Real estate--mortgage 648 889 1,140 243
Installment loans to individuals 10,812 10,824 10,901 10,609
------- ------- ------- -------
Total loans $30,581 $27,417 $29,391 $24,560
------- ------- ------- -------
------- ------- ------- -------
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<PAGE>
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 84% versus 79% at
December 31, 1994.
Loan balances at September 30, 1996, reflected an increase of $3,164,000
or 12% from the period ending September 30, 1995. The higher growth rate
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 September 30, 1996, approximately 57% or $17,438,000 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 8% or
$2,331,000 of the total loan portfolio of $30,581,000 at September 30, 1996,
was secured by 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
$10,812,000 at September 30, 1996. These loans represent a diverse group of
borrowers and include automobile loans, personal loans, home equity lines of
credit and overdraft protection.
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
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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:
September 30, 1996 September 30, 1995
------------------- -------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
(in thousands)
Securities held to maturity $ -- $ -- $ -- $ --
U.S. Treasury
U.S. agencies 1,618 1,592 1,843 1,819
States and political 25 25 977 982
Other -- -- -- --
------ ------ ------ ------
Total investment securities-HTM $1,643 $1,617 $2,820 $2,801
------ ------ ------ ------
------ ------ ------ ------
Securities available for sale
U.S. Treasury $ 500 $ 500 $ 249 $ 250
U.S. agencies 3,584 3,553 3,209 3,158
Other 1,187 1,189 467 463
------ ------ ------ ------
Total investment securities--AFS $5,271 $5,242 $3,925 $3,871
------ ------ ------ ------
------ ------ ------ ------
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<PAGE>
December 31, 1995 December 31, 1994
------------------ ------------------
Amortized Market Amortized Market
Cost Value Cost Value
--------- ------ --------- ------
(in thousands)
Securities held to maturity $ -- $ -- $ -- $ --
U.S. Treasury
U.S. agencies 1,807 1,797 1,933 1,799
States and political 271 271 1,219 1,172
Other -- -- -- --
------ ------ ------ ------
Total investment securities-HTM $2,078 $2,068 $3,152 $2,971
------ ------ ------ ------
------ ------ ------ ------
Securities available for sale
U.S. Treasury $ 250 $ 250 $ 248 $ 244
U.S. agencies 3,365 3,345 2,968 2,766
Other 1,427 1,429 993 985
------ ------ ------ ------
Total investment securities--AFS $5,042 $5,024 $4,209 $3,995
------ ------ ------ ------
------ ------ ------ ------
The portfolio includes no obligation of a single state or political
subdivision issuer with an aggregate book value in excess of 10 percent of
shareholders' equity other than a bond issued by Steelton Highspire
Pennsylvania School District. This bond matures on March 1, 1998, and as of
September 30, 1996, had a book value of $470,000 and a market value of
$475,371. 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:
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<PAGE>
<TABLE>
Nine Months Ended September 30 Year Ended December 31
---------------------------------- ----------------------------------------------------
1996 1995 1995 1994 1993
---------------- ---------------- ---------------- ---------------- ----------------
Average Average Average Average Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 6,853 0% $ 6,282 0% $ 6,489 0% $6,346 0% $5,389 0%
Interest-bearing demand deposits 3,312 2.29% 3,131 2.30% 3,146 2.32% 3,299 2.24% 3,125 2.56%
Money market deposits 4,285 3.45% 4,647 3.59% 4,531 3.58% 5,516 3.12% 5,613 3.24%
Other savings deposits 3,333 3.00% 3,828 3.00% 3,781 2.99% 3,888 2.98% 2,766 3.00%
Time deposits 18,724 6.09% 14,044 5.77% 14,883 5.90% 9,965 4.51% 9,090 4.84%
</TABLE>
The following chart shows certificates of deposits in amounts of $100,000
or more as of the dates indicated:
September 30 December 31
---------------- -----------------
1996 1995 1995 1994
------ ------ ------ -------
(in thousands)
Time remaining until maturity
Less than 3 months $1,402 $1,064 $1,430 $ 802
3 months to 12 months 2,199 1,925 1,575 850
Over 1 year through 5 years 1,164 842 847 325
Over 5 years 0 0 0 0
------ ------ ------ -------
Total $4,765 $3,831 $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 $4,204,000 or 15.9% from $26,368,000 in
1993 to $30,572,000 in 1994. 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.
Total deposits increased $2,072,000 or 6% from $34,955,000 for the nine
months ended September 30, 1995, to $37,027,000 for the nine months ended
September 30, 1996. At September 30, 1996, total deposits were comprised of
approximately 28.9% demand deposits, 20.9% savings deposits and 50.2% 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.
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<PAGE>
The Bank's facility contains 4 teller windows, 4 drive-up lanes and an
ATM. The Bank also has three ATM locations 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 machine. Management anticipates that the Bank will increase the
number of ATMs in its service area to further serve its customers. The Bank
has no other leased facilities or equipment.
COMPETITION
The primary service area of the Bank is Flathead County in northwest
Montana. Flathead County covers 5,140 square miles and includes the cities of
Kalispell, Whitefish, Columbia Falls, Evergreen, Bigfork and Lakeside. The
area is a mixture of timber and agricultural areas with small businesses
related to timber, agriculture, tourism and manufacturing. The Bank is
located in Kalispell, the county seat. The greater Kalispell area has a
population of approximately 28,000 and Flathead County's population is
approximately 70,000.
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 asset and deposit size as
of December 31, 1995:
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<PAGE>
Total Deposits Total Assets
Name of Institution (000s omitted) (000s omitted)
------------------- -------------- --------------
American Bank $ 2,542 $ 4,341
BN Park Credit Union 12,676 14,635
First Citizens Bank 26,645 29,590
First Interstate Bank* 189,796 274,843
First National Bank of Whitefish 22,945 32,268
First Security Bank 34,111 37,963
Flathead Bank 41,065 47,480
Flathead Govt Employee Credit Union 6,253 7,070
Glacier Bank, FSB* 159,045 327,687
Mountain Bank 53,908 62,651
Norwest Bank 112,804 119,073
Security Bank, FSB 7,125 7,924
Valley Bank 79,233 97,723
Whitefish Credit Union 127,561 145,177
*Includes totals for some branches which are not in the Bank's trade area.
The Bank's total deposits and total assets at December 31, 1995, were
$34,441,000 and $40,292,000, respectively. 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
dividneds 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 percent, of which at least 4 percent 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 13.6
percent and 14.6 percent at September 30, 1996, and 13.1 percent and 14.3 at
September 30, 1995. At December 31, 1995, these ratios were 13.12 percent and
14.36 percent, thus meeting the classification of a "well capitalized" bank.
The Bank's leverage-based capital ratio was 9.5 percent as of September 30,
1996, 9.2 percent as of September 30, 1995, and 9.11 percent 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 Pres. of wholesale beverage
distributor
Donald McCarthy, 41 Senior Vice President Banker
and Cashier/CFO
Douglas Morton, 52 President and Chairman Banker
Teruko Rogers, 58 Director Business mgr. of automobile
dealership
Barry Smith, 42 Director President of logging company
All of the directors listed above will hold office until the next annual
meeting of shareholders, or until their successors are duly elected and
qualified. All of the officers listed will hold office until
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<PAGE>
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, 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 Kalispell, Montana Holding/Management Company.
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.
DONALD MCCARTHY has been 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.
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
Business Manager of Tannehill Auto Center/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.
COMPENSATION OF DIRECTORS
Directors receive a monthly retainer of $1,000.
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 percent or more of the Company's Board meetings and
meetings of Board committees on which they served.
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<PAGE>
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, 1995, 1994 and 1993, by Mr. Morton, President and
Chairman. No executive officer's compensation exceeded $100,000 during the
year ended December 31, 1995. No restricted stock awards, long-term
incentive plan payouts or stock appreciation rights ("SARs") were granted to
Mr. Morton in such years.
Summary Compensation Table(1)
Annual Compensation Long-Term Compensation
------------------- ----------------------
Securities Underlying
Name and Principal Position Year Salary(2) Bonus Stock Options
- --------------------------- ---- --------- ----- ---------------------
Douglas K. Morton 1995 $65,685 $ 7,822 0
Chairman of the Board and 1994 63,600 10,704 0
President 1993 57,600 8,890 0
- -----------------------------
(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
percent 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
-53-
<PAGE>
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 1995. The following
table shows certain information regarding the exercise of options during the
year ended December 31, 1995, and unexercised options held by Mr. Morton as
of December 31, 1995.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
Number of Shares Value of Unexercised
Value Underlying Options at In-the-Money Options at
Number of Realized Fiscal Year-End(#) Fiscal Year-End($)
Shares Aquired Upon --------------------------- ---------------------------
Name on Exercise Exercise(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Douglas K. Morton 0 0 398 0 $107,225.18(1) $0
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. These options were
subsequently exercised in November 1996.
(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. Mr. Morton expects
to exercise these options early in 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 September 30, 1996, the Bank's directors and executive
officers were indebted to the Bank in the aggregate amount of $791,000, 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.
-54-
<PAGE>
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
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 December 20, 1996, there were 8,938 shares of Bank Stock
outstanding, held of record by 194 shareholders. Only shareholders of
record as of ____________, 1997, shall be entitled to vote at the Special
Meeting and each share is entitled to one vote.
After the Effective Date, there will be approximately 70,960 shares of
Company Stock outstanding held by 193 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 December 20, 1996, 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 percent
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.
-55-
<PAGE>
<TABLE>
Company Stock to be
Bank Stock Owned Owned After Acquisition
----------------------------- ------------------------------
Sole Voting Sole and Shared Sole Voting Sole and Shared
and Voting and/or and Voting and/or
Investment Investment Investment Investment
Powers Powers Powers Powers
----------- --------------- ----------- ----------------
Name and Address Number Number Number Number
of Shareholder (Percent) (Percent) (Percent) (Percent)
- ---------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Richard Dasen 323 323 3,230 3,230
400 West Valley Drive 3.6% 3.6% 4.6% 4.6%
Kalispell, MT 59901
Richard Gunlikson 160 263(1) 1,600 2,630
22 Second Avenue W #3300 1.8% 2.9% 2.3% 3.7%
Kalispell, MT 59901
Charles Lee 325 345(2) 3,250 3,450
Six Meridian Road 3.6% 3.9% 4.6% 4.9%
Kalispell, MT 59901
Donald McCarthy 51 54(3) 510 540
One Walker Lane 0.6% 0.6% 0.7% 0.8%
Lakeside, MT 59922
Douglas Morton 1,073 1,720(4) 10,730 17,200
203 Somerset Drive 12.0% 19.2% 15.1% 24.2%
Kalispell, MT 59901
Teruko Rogers 10 353(5) 100 3,530
119 North Haven Drive 0.1% 3.9% 0.1% 5.0%
Kalispell, MT 59901
Barry Smith 127 249(6) 1,270 2,490
775 Kelly Lane 1.4% 2.8% 1.8% 3.5%
Missoula, MT 59901
Flathead Holding Company 1,793 1,793 0 0
of Bigfork 20.1% 20.1% 0% 0%
PO Box 308
Bigfork, MT 59911
Executive officers and 2,069 3,307 20,690 33,070
directors as a group 23.1% 36.9% 29.2% 46.7%
(7 persons)
</TABLE>
- -----------
(1) Includes 103 shares held by members of Mr. Gunlikson's family.
(2) Includes 20 shares held by Mr. Lee's wife and 25 shares held by Chuck
Lee Trucking, Inc., of which Mr. Lee is owner.
(3) 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.
(4) Includes 647 shares held by members of Mr. Morton's family and excludes
stock options for 142 shares of Company Stock which are currently
exercisable.
(5) Includes 343 shares held jointly with a family member.
(6) Includes 122 shares held by members of Mr. Smith's family.
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
-56-
<PAGE>
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 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 70,960
shares of Company Stock will be issued and outstanding. The Bank is
authorized to issue 10,000 shares of common stock, par value $100, of which
8,938 shares were issued and outstanding on December 31, 1996.
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 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.
-57-
<PAGE>
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 Flathead Shareholders 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 8,938 shares are
issued and outstanding, Bank management could issue up to 1,062 additional
shares of Bank Stock without prior approval of the shareholders. Currently
those 1,062 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 70,960 shares of Company Stock
may be issued pursuant to the Consolidation Agreement, the Company's Board of
Directors may later issue up to 429,040 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.
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.
-58-
<PAGE>
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 70,960 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, 1995, and for each of
the years in the three-year period ended December 31, 1995, have been
included herein in reliance upon the report 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 Special 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
-59-
<PAGE>
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
----
Accountant's Compilation Report F-1
Report of Certified Public Accountant F-2
Financial Statements
Statements of Financial Condition F-3
Statements of Income F-4
Statements of Shareholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
-60-
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
To the Board of Directors
BankWest National Association
Kalispell, Montana
We have compiled the accompanying statement of financial condition of
BankWest National Association as of September 30, 1996, and the related
statements of income, shareholders' equity, and cash flows for the nine
months then ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying September 30, 1996 financial statements and,
accordingly, do not express an opinion or any other form of assurance on them.
Management has elected to omit substantially all of the disclosures required
by generally accepted accounting principles. If the omitted disclosures were
included in the financial statements, they might influence the user's
conclusions about the Company's financial position, results of operation, and
cash flows. Accordingly, these financial statements are not designed for
those who are not informed about such matters.
The financial statements for the years ended December 31, 1995, 1994 and
1993, were audited by us, and we expressed an unqualified opinion on them in
our report dated September 6, 1996 (see next page), but we have not
performed any auditing procedures since that date.
Missoula, Montana
November 11, 1996
F-1
<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, 1995, 1994 and 1993, and the
related statements of income, shareholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company'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, 1995, 1994 and 1993, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Missoula, Montana
September 6, 1996
F-2
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF FINANCIAL CONDITION
(See Accountants' Reports)
<TABLE>
(Audited)
(Compiled) December 31
September 30 -----------------------------------------
ASSETS 1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash and due from banks $ 2,056,980 $ 1,353,150 $ 1,676,237 $ 1,256,080
Federal funds sold 3,100,000 800,000 - 300,000
Securities available for sale 4,173,258 4,711,057 3,701,687 4,387,222
Securities held to maturity 2,712,148 2,390,746 3,445,209 3,937,266
Loans held for sale 620,450 1,109,732 210,470 254,817
Loans receivable, net of allowance for loan
losses of $321,841 at September 30, 1996,
$357,395 in 1995, $345,663 in 1994 and
$243,332 in 1993 29,638,563 27,923,805 24,003,889 18,621,050
Accrued interest receivable 314,875 314,820 318,209 235,414
Premises and equipment 1,560,968 1,566,333 1,344,702 1,139,549
Repossessed assets 31,046 38,723 - -
Prepaid expenses 30,136 15,633 14,890 18,325
Other assets 26,979 50,026 29,283 40,832
----------- ----------- ----------- -----------
Total assets $44,265,403 $40,274,025 $34,744,576 $30,190,555
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Demand deposits $10,676,843 $ 9,421,646 $ 9,612,403 $ 8,749,579
Savings deposits 7,751,496 7,534,283 9,545,303 8,654,732
Time deposits 18,598,702 17,484,949 11,414,151 8,963,530
----------- ----------- ----------- -----------
Total deposits 37,027,041 34,440,878 30,571,857 26,367,841
Federal funds purchased - - 200,000 -
Dividends and interest payable 170,829 211,539 137,642 104,034
Accrued expenses and
other liabilities 80,448 118,350 23,467 161,857
Long-term debt 2,767,090 1,738,417 831,880 932,092
----------- ----------- ----------- -----------
Total liabilities 40,045,408 36,509,184 31,764,846 27,565,824
----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $100 par value; 10,000
shares authorized; 8,540, 8,540, 8,000
and 8,000 shares issued and outstanding
at September 30, 1996 and December 31,
1995, 1994 and 1993, respectively 854,000 854,000 800,000 800,000
Additional paid-in capital 859,400 859,400 800,000 800,000
Retained earnings 2,523,880 2,062,004 1,510,508 1,003,390
Net unrealized appreciation (depreciation)
on available-for-sale securities, net of
deferred tax credit (asset) of $11,051 at
September 30, 1996, and $6,752 in 1995,
$83,612 in 1994 and $(13,853) in 1993 (17,285) (10,563) (130,778) 21,341
----------- ----------- ----------- -----------
Total shareholders' equity 4,219,995 3,764,841 2,979,730 2,624,731
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity $44,265,403 $40,274,025 $34,744,576 $30,190,555
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF INCOME
FOR THE PERIODS ENDED
(See Accountants' Reports)
<TABLE>
12 Months
9 Months ---------------------------------------
------------ (Audited)
(Compiled) December 31
September 30 ---------------------------------------
1996 1995 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans receivable $ 2,276,403 $ 2,664,425 $ 2,100,422 $ 1,705,116
Securities available for sale 203,916 224,516 193,135 222,354
Securities held to maturity 57,355 129,538 179,784 197,182
Federal funds sold 55,006 82,881 27,784 30,825
Deposits with banks 17,112 19,682 19,062 27,816
----------- ----------- ----------- -----------
Total interest income 2,609,792 3,121,042 2,520,187 2,183,293
----------- ----------- ----------- -----------
INTEREST EXPENSE
Deposits 1,094,917 1,225,910 812,001 787,601
Federal funds purchased 2,567 9,802 13,526 1,152
Other borrowed funds 53,562 89,110 48,212 37,025
----------- ----------- ----------- -----------
Total interest expense 1,151,046 1,324,822 873,739 825,778
----------- ----------- ----------- -----------
NET INTEREST INCOME 1,458,746 1,796,220 1,646,448 1,357,515
PROVISION FOR LOAN LOSSES 49,000 36,000 77,000 88,000
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 1,409,746 1,760,220 1,569,448 1,269,515
----------- ----------- ----------- -----------
NONINTEREST INCOME
Service charges 219,537 283,521 268,620 242,479
Loan servicing fees 248,163 308,993 331,640 510,552
Net realized gains (losses) on sales of
available-for-sale securities (127) 60 (2,587) (8,812)
Net gains (losses) from sale of fixed assets - 4,395 4,305 (10,617)
Other income 128,635 137,061 128,510 113,459
----------- ----------- ----------- -----------
Total other income 596,208 734,030 730,488 847,061
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries and employee benefits 734,203 960,701 887,060 806,555
Occupancy expense 185,775 232,600 194,025 196,829
Other expense 333,840 373,806 373,233 337,305
----------- ----------- ----------- -----------
Total other expenses 1,253,818 1,567,107 1,454,318 1,340,689
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES 752,136 927,143 845,618 775,887
INCOME TAX EXPENSE 287,251 331,372 298,500 313,000
----------- ----------- ----------- -----------
NET INCOME $ 464,885 $ 595,771 $ 547,118 $ 462,887
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF INCOME
FOR THE PERIODS ENDED
(See Accountants' Reports)
<TABLE>
Net Unrealized
Appreciation
Additional (Depreciation) on Total
Common Paid-in Retained Available-for-Sale Shareholders'
Stock Capital Earnings Securities Equity
--------- ---------- ------------ ------------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 800,000 $ 800,000 $ 580,503 $ 15,442 $ 2,195,945
Net income for 1993 - - 462,887 - 462,887
Cash dividends paid - - (40,000) - (40,000)
Net changes in unrealized appreciation
on available-for-sale securities, net of
taxes $(13,853) - - - 5,899 5,899
---------- --------- ------------ ---------- ------------
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 59,000 - - 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, January 1 to September 30,
1996 (Compiled) - - 464,885 - 464,885
Net changes in unrealized depreciation
on available-for-sale securities, net of
taxes of $11,051 (Compiled) - - - (6,722) (6,722)
Prior period adjustment - - (3,009) - (3,009)
---------- --------- ------------ ---------- ------------
Balance at September 30, 1996 (Compiled) $ 854,000 $ 859,400 $ 2,523,880 $ (17,285) $ 4,219,995)
---------- --------- ------------ ---------- ------------
---------- --------- ------------ ---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BANKWEST NATIONAL ASSOCIATION
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDED
(See Accountants' Reports)
<TABLE>
12 Months
9 Months ---------------------------------------
------------ (Audited)
(Compiled) December 31
September 30 ---------------------------------------
1996 1995 1994 1993
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 464,885 $ 595,771 $ 547,118 $ 462,887
----------- ----------- ----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 111,700 138,455 120,660 121,436
Provision for loan losses 49,000 30,000 77,000 84,000
Net increase (decrease) in loans held for sale 489,282 (899,262) 44,347 205,438
Net realized gains on available-for-sale
securities (6,722) 120,215 (152,119) (3,974)
(Increase) decrease in accrued interest receivable (55) 3,389 (82,795) (39,062)
Increase in accrued expense and other liabilities (93,115) 168,037 (101,347) (52,630)
(Increase) decrease in other assets 27,715 (61,041) 11,549 (23,775)
----------- ----------- ----------- -----------
Total adjustments 577,805 (500,207) (82,705) 291,433
----------- ----------- ----------- -----------
Net cash provided by operating activities 1,042,690 95,564 464,413 754,320
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold (2,300,000) (800,000) 300,000 2,680,000
Proceeds and maturities from available-for-sale
securities 537,799 300,089 2,052,868 3,715,488
Purchases of available-for-sale securities - (1,309,459) (1,367,333) (1,615,236)
Proceeds from held-to-maturity securities - 1,054,463 492,057 550,195
Purchases of held-to-maturity securities (321,402) - - (4,487,461)
Net increase (decrease) in loans (1,763,758) (3,949,916) (5,459,839) (4,732,014)
Net purchases of premises and equipment (106,335) (360,086) (325,813) (79,891)
----------- ----------- ----------- -----------
Net cash used in investing activities (3,953,696) (5,064,909) (4,308,060) (3,968,919)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in non-interest bearing
demand, savings, and deposit accounts 1,472,410 (2,201,777) 1,753,395 2,079,808
Net increase in time deposits 1,113,753 6,070,798 2,450,621 66,677
Net increase (decrease) in federal funds purchased - (200,000) 200,000 -
Issuance of common stock - 113,400 - -
Net proceeds (payment) of long-term debt 1,028,673 906,537 (100,212) 802,201
Dividends paid - (42,700) (40,000) (40,000)
----------- ----------- ----------- -----------
Net cash provided by financing activities 3,614,836 4,646,258 4,263,804 2,908,686
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 703,830 (323,087) 420,157 (305,913)
CASH AND DUE FROM BANKS
Beginning of period 1,353,150 1,676,237 1,256,080 1,561,993
----------- ----------- ----------- -----------
CASH AND DUE FROM BANKS
End of period $ 2,056,980 $ 1,353,150 $ 1,676,237 $ 1,256,080
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
TAXES PAID $ 377,353 $ 338,430 $ 345,992 $ 348,258
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
INTEREST PAID $ 1,149,056 $ 1,253,626 $ 840,130 $ 842,653
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS. The Company 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.
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.
--Continued
F-7
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 derivative 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.
SHORT-TERM BORROWINGS. The carrying amounts of federal funds
purchased 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.
ACCRUED INTEREST. The carrying amounts of accrued interest
approximate their fair values.
USE OF ESTIMATES. The preparation of financial statements in
conformtiy 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.
--Continued
F-8
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE B DEBT AND EQUITY SECURITIES
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>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES:
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
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1993
Equity securities $ 896,724 $31,247 $ - $ 927,971
U.S. government and agency
securities 3,455,304 21,026 17,079 3,459,251
State and municipal securities - - - -
---------- ------- -------- ----------
$4,352,028 $52,273 $ 17,079 $4,387,222
---------- ------- -------- ----------
---------- ------- -------- ----------
HELD-TO-MATURITY SECURITIES:
December 31, 1995
U.S. government and agency
securities $1,807,196 $ 3,444 $ 13,862 $1,796,778
State and municipal securities 270,650 534 589 270,705
Other securities 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
Other securities 296,300 - - 296,300
---------- ------- -------- ----------
$3,445,209 $ - $175,272 $3,269,937
---------- ------- -------- ----------
---------- ------- -------- ----------
December 31, 1993
U.S. government and agency
securities $1,664,821 $ 2,794 $ 9,312 $1,658,303
State and municipal securities 1,998,545 30,058 - 2,028,603
Other securities 273,900 - - 273,900
---------- ------- -------- ----------
$3,937,266 $32,852 $ 9,312 $3,960,806
---------- ------- -------- ----------
---------- ------- -------- ----------
</TABLE>
-Continued
F-9
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Report)
NOTE B DEBT AND EQUITY SECURITIES, continued
Gross realized gains and gross realized losses on sales of
available-for-sale securities were $163 and $103, respectively, in
1995, $3,453 and $6,040, respectively, in 1994, and $5,774 and
$14,586, respectively, in 1993.
The scheduled maturities of securities held-to-maturity and
securities (other than "other securities") available-for-sale at
December 31, 1995, were as follows:
<TABLE>
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 $ 378,435 $ 379,094 $1,583,454 $1,580,637
Due from one to five years 1,584,072 1,571,918 3,144,918 3,130,420
Due from five to ten years 83,375 84,192 - -
Due after ten years 31,962 32,275 - -
---------- ---------- ---------- ----------
$2,077,844 $2,067,479 $4,728,372 $4,711,057
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</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 $475,371 at
December 31, 1995, $0 at December 31, 1994 and $0 at December 31,
1993, were pledged to secure public deposits and for other purposes
required or permitted by law.
NOTE C LOANS RECEIVABLE
The components of loans in the statements of financial condition were
as follows:
1995 1994 1993
----------- ----------- -----------
Commercial $15,144,776 $11,707,010 $ 9,263,996
Consumer 10,480,297 10,252,396 7,831,354
Real estate construction 2,204,915 2,000,614 1,428,210
Credit card 377,633 314,475 268,363
Overdrafts 43,760 42,384 37,542
Contracts 29,819 32,673 34,917
----------- ----------- -----------
Subtotal 28,281,200 24,349,552 18,864,382
Allowance for loan losses (357,395) (345,663) (243,332)
----------- ----------- -----------
$27,923,805 $18,621,050 $24,003,889
----------- ----------- -----------
----------- ----------- -----------
-Continued
F-10
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE C LOANS RECEIVABLE
An analysis of the change in the allowance for loan losses follows:
1995 1994 1993
--------- --------- ---------
Balance at January 1 $ 345,663 $ 243,332 $ 160,776
Loans charged off (30,308) (300) (16,212)
Recoveries 9,413 25,936 14,182
--------- --------- ---------
Net loans charged off (20,895) 25,636 (2,030)
Provisions for loan losses 30,000 77,000 84,000
Net change in credit card reserve 2,627 (305) 586
--------- --------- ---------
Balance at December 31 $ 357,395 $ 345,663 $ 243,332
--------- --------- ---------
--------- --------- ---------
Impairment of loans having recorded investments of $72,144 at
December 31, 1995, and $15,943 at December 31, 1994 and $8,095 at
December 31, 1993 has been recognized in conformity with FASB
Statement No. 114, as amended by FASB Statement No. 118. The average
recorded investment in impaired loans during 1995, 1994 and 1993 was
$9,650, $8,023 and $6,112, respectively. The total allowance for loan
losses related to these loans was $25,907, $7,991 and $0 on December 31,
1995, 1994 and 1993, respectively. Interest income on impaired loans
of $962, $467 and $463 was recognized for cash payments received in
1995, 1994 and 1993, respectively.
The Bank is not committed to lend additional funds to debtors whose
loans have been modified.
NOTE D PREMISES AND EQUIPMENT
Components of properties and equipment included in the statements of
financial condition at December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993
----------- ----------- -----------
Land $ 297,225 $ 297,225 $ 230,595
Bank premises 1,120,387 741,176 761,176
Furniture 301,152 171,270 167,576
Equipment 434,851 386,092 354,200
Construction in progress - 225,224 -
----------- ----------- -----------
Total cost 2,153,615 1,820,987 1,513,547
Less accumulated depreciation 587,282 476,285 373,998
----------- ----------- -----------
Net book value $ 1,566,333 $ 1,344,702 $ 1,139,549
----------- ----------- -----------
----------- ----------- -----------
-Continued
F-11
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Compilation)
NOTE E 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 $9,323,925, $5,258,280 and
$3,004,921 at December 31, 1995, 1994 and 1993, respectively.
Custodial escrow balances maintained in connection with the foregoing
loan servicing, and included in demand deposits, were approximately
$34,703, $15,319 and $58,896 at December 31, 1995, 1994 and 1993,
respectively.
NOTE F DEPOSITS
The aggregate amount of short-term jumbo CDs, each with a minimum
denomination of $100,000 was approximately $3,006,181, $1,652,193 and
$1,380,629 in 1995, 1994 and 1993, respectively.
At December 31, 1995, the scheduled maturities of CDs are as follows:
1996 $ 9,862,289
1997 5,351,139
1998 1,932,248
1999 55,409
2000 and thereafter 283,864
-----------
$17,484,949
-----------
-----------
NOTE G LONG-TERM DEBT
Long-term debt consisted of the following at year-end:
1995 1994 1993
----------- --------- ---------
Federal Home Loan Bank at Seattle $ 1,658,222 $ 738,222 $ 818,222
8% note, Glen Graham 29,567 33,179 36,548
8% note, FT O'Boyle 44,876 52,820 60,219
8% note, Terry O'Boyle 5,752 7,659 13,932
Kalispell Development Corporation - - 3,171
----------- --------- ---------
Total Bank $ 1,738,417 $ 831,880 $ 932,092
----------- --------- ---------
----------- --------- ---------
The 8% notes are secured by real property and are payable as follows:
Monthly Payments
Payment Due Through
------- -----------
Glen Graham $485 May 2017
FT O'Boyle $999 February 2017
Terry O'Boyle $192 February 2017
-Continued
F-12
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE G LONG-TERM DEBT, continued
The composition of the Federal Home Land Bank of Seattle liability
at year-end follows:
<TABLE>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Fixed at 5.32%; matures April 1998 $ 470,000 $ 470,000 $ 470,000
Amortized at 4.73%; matures April 1998 188,222 268,222 348,222
Adjustable at 5.87%; matures February 1996 1,000,000 - -
---------- --------- ---------
$1,658,222 $ 738,222 $ 818,222
---------- --------- ---------
---------- --------- ---------
</TABLE>
NOTE H 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.
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 counterparty. 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.
F-13
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE H FINANCIAL INSTRUMENTS, continued
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 1995, 1994 or 1993.
The estimated fair values of the Bank's financial instruments
were as follows at:
<TABLE>
December 31, 1995 December 31, 1994 December 31, 1993
----------------------- ------------------------ ------------------------
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 $ 2,153,150 $2,153,150 $ 1,676,237 $1,676,237 $ 1,556,080 $1,556,080
Securities available
for sale 4,771,057 4,711,037 3,701,687 3,701,687 4,387,222 4,397,222
Securities held to
maturity 2,390,746 2,380,383 3,445,209 3,269,937 3,937,266 3,960,806
Loans receivable 27,932,805 * 24,003,889 * 18,621,050 *
Accrued interest
receivable 314,820 314,820 318,209 318,209 235,414 235,414
Loans held for sale 1,109,732 * 210,470 * 254,817 *
Financial liabilities:
Deposit liabilities 34,440,878 * 30,571,857 * 26,367,841 *
Short-term borrowings - - 200,000 200,000 - -
Long-term debt 1,738,417 1,738,417 831,880 831,880 932,092 932,092
Off-balance sheet
liabilities:
Letters of credit 125,500 152,698 257,903
</TABLE>
*Information is not available.
A summary of the notional amounts of the Bank's financial instruments
with off-balance-sheet risk at December 31, 1995 follows:
Notional
Amount
----------
Commitments to extend credit $4,446,915
Credit card arrangements 1,203,041
Letters of credit 125,500
----------
$5,775,456
----------
----------
NOTE I 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 special bad debt deduction based on a percentage of taxable
income (presently 8 percent) or on specified experience formulas. The
Bank used the percentage-of-taxable-income method in 1993, 1994 and
1995.
The provision for income taxes consisted of the following for the years
ended December 31:
1995 1994 1993
--------- -------- --------
Current tax provision:
Federal $ 291,620 $256,000 $252,500
State 68,445 60,000 60,500
--------- -------- --------
360,005 316,000 313,000
Deferred taxes (28,693) (17,500) 18,000
--------- -------- --------
$ 331,372 $298,500 $331,000
--------- -------- --------
--------- -------- --------
--Continued
F-14
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE I INCOME TAXES, continued
Deferred tax assets and liabilities included in other assets/liabilities
at December 31 consist of the following:
1995 1994 1993
-------- -------- --------
Deferred tax assets:
Allowance for loan losses $136,190 $ 92,293 $ 65,259
Net unrealized depreciation in
availabe-for-sale securities 6,753 80,154 -
-------- -------- --------
142,943 172,447 65,259
-------- -------- --------
Deferred tax liabilities:
Accumulated depreciation 35,927 31,544 34,450
Net unrealized appreciation on
available-for-sale securities - - 13,645
Other 60,151 49,330 36,890
-------- -------- --------
96,078 80,874 84,985
-------- -------- --------
Net deferred tax asset (liability) $ 46,865 $ 91,573 $(19,726)
-------- -------- --------
-------- -------- --------
NOTE J 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, 1995 was
$219,704. During 1995, new loans to such related parties amounted to
$174,344.
NOTE K 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.
NOTE L RESTRICTIONS ON RETAINED EARNINGS
BankWest 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 $1,597,000 of
retained earnings is available for dividends without prior regulatory
approval.
NOTE M 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.
--Continued
F-15
<PAGE>
BANKWEST NATIONAL ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
(See Accountants' Reports)
NOTE M REGULATORY MATTERS, continued
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, 1995, that the Bank meets all capital adequacy requirements
to which it is subject.
As of December 31, 1995, 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 $357,395, $345,662 and $243,332 were deducted from
capital for interest-rate risk in 1995, 1994 and 1993, respectively.
Actual Minimum Ratio
(In Thousands) Capital
------------------ Adequacy
Amount Ratio Purpose
------ ------ -------------
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%
As of December 31, 1993:
Total Capital (to Risk
Weighted Assets) $2,848 13.59% 8.00%
Teir I Capital (to Risk
Weighted Assets) $2,605 12.53% 4.00%
Teir I Capital (to Total
Assets) $2,605 8.36% 3.00%
NOTE N STOCK OPTIONS
Several employees and former employees of the Company have stock
options in BankWest. The following schedule details the total options
exercised during the period under audit and the total outstanding at
December 31, 1995:
Options outstanding, Beginning of period 1,800
Shares exercised, August 1995 at $210 per share (540)
-----
Total options outstanding at December 31, 1995 1,260
-----
-----
All of the options listed above are priced at $210 per share and expire
in February 1999.
--Concluded
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EXHIBIT A
PLAN OF CONSOLIDATION
AND CONSOLIDATION AGREEMENT
THIS PLAN OF CONSOLIDATION AND CONSOLIDATION AGREEMENT (the "Agreement")
is executed this 10th day of December, 1996, by and between BANKWEST,
NATIONAL ASSOCIATION, Kalispell, Montana, BANKWEST INTERIM BANK, N.A. (In
Organization), Kalispell, Montana, and BANKWEST FINANCIAL, INC., a Montana
corporation.
WHEREAS, the Boards of Directors of BankWest, National Association,
BankWest Interim Bank, N.A. and BankWest Financial, Inc. have each approved
and authorized the terms and provisions of this Agreement;
NOW, THEREFORE, in consideration of these premises and the covenants
contained herein, the parties hereto enter into this Agreement and prescribe
the terms and conditions of the consolidation and the manner of carrying it
into effect as follows:
ARTICLE I.
DEFINITIONS
1.1. "PROXY MATERIALS" shall mean the materials to be distributed to
Shareholders prior to the Shareholders Meeting which describe the Agreement.
1.2. "SHAREHOLDERS MEETING" shall mean the meeting of Shareholders
called for the purpose of approving and ratifying the terms and conditions of
the Agreement and the Consolidation.
1.3. "SHAREHOLDER" shall mean a holder of shares of Bank Stock of record
as of the Effective Date.
1.4. "DISSENT" shall mean a properly perfected right of dissent and
appraisal under federal law.
1.5. "BANK STOCK" shall mean shares of the $100.00 par value common
stock of the Bank, of which 10,000 shares are authorized and 8,938 shares are
issued and outstanding as of the date of this Agreement.
1.6. "BANK" shall mean BankWest, National Association, a national bank
organized under the laws of the United States of America, having its
principal office in Kalispell, Montana.
1.7. "COMPANY STOCK" shall mean shares of the common stock of the
Company, of which 500,000 shares are authorized and no shares are issued and
outstanding as of the date of this Agreement.
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1.8. "COMPANY" shall mean BankWest Financial, Inc. a corporation duly
organized under the laws of the State of Montana and having its registered
office in Kalispell, Montana.
1.9. "CONSOLIDATION" shall mean the business combination of the Interim
Bank with the Bank, as described more fully herein, pursuant to which the
Continuing Bank shall carry on its business under the charter of the Bank.
1.10. "CONTINUING BANK" shall mean the banking institution which results
from the Consolidation, which shall operate under the charter of the Bank and
the name of "BankWest, National Association."
1.11. "EFFECTIVE DATE" shall mean the date of consummation of the
Consolidation as specified in the certificate to be issued by the Office of
the Comptroller of the Currency, under the seal of his office, approving the
Consolidation.
1.12. "INTERIM BANK STOCK" shall mean shares of the common stock of the
Interim Bank.
1.13. "INTERIM BANK" shall mean BankWest Interim Bank, N.A. (In
Organization), a national bank being organized under the laws of the United
States, having its principal office in Kalispell, Montana. Immediately prior
to the Effective Date of the Consolidation, all of the outstanding shares of
Interim Bank Stock shall be owned by the Company.
ARTICLE II.
CONSOLIDATION
2.1. CHARTER. Upon the Effective Date, the Bank shall consolidate with
the Interim Bank and shall operate as the Continuing Bank under the Charter
and Articles of Association of the Bank, pursuant to the provisions of, and
with the effect provided in, the Act of Congress of November 7, 1918, as last
amended (12 U.S.C. Section 215). The name of the Continuing Bank shall be
"BankWest, National Association." The business of the Continuing Bank shall
be that of a national bank, its Articles of Association shall be the Articles
of the Bank, and its office shall be the office of the Bank.
2.2. ASSETS. Upon the Effective Date, the corporate existence of the
Bank and the Interim Bank shall be consolidated into and continued in the
Bank, and the Continuing Bank shall be deemed to be the same corporation as
the Bank. All rights, franchises and interests of the Bank and the Interim
Bank, respectively, in and to every type of property (real, personal and
mixed) and choses-in-action shall be transferred to and vested in the
Continuing Bank by virtue of such Consolidation without any deed or other
transfer.
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2.3. LIABILITIES. Upon the Effective Date, the Continuing Bank shall be
liable for all liabilities of the Bank and the Interim Bank, and all
deposits, debts, liabilities, obligations and contracts of the Bank and of
the Interim Bank, respectively matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not reflected or reserved
against on balance sheets, books of account or records of the Bank or the
Interim Bank, as the case may be, shall be those of the Continuing Bank and
shall not be released or impaired by the Consolidation. All rights of
creditors and other obligees and all liens on property of either the Bank or
the Interim Bank shall be preserved unimpaired.
2.4. BOARD OF DIRECTORS. Upon the Effective Date, the Board of
Directors of the Continuing Bank shall consist of all the persons who are
directors of the Bank immediately prior to the Effective Date.
2.5. CAPITAL. Upon the Effective Date, the capital and surplus of the
Interim Bank shall be returned to the Company in cancellation of all of the
shares of Interim Bank Stock issued therefor. Upon the Effective Date, the
capital and surplus of the Continuing Bank shall consist of the capital and
surplus of the Bank immediately prior to the Consolidation.
2.6. DIVIDEND. Upon the Effective Date, and subject to any limitations
imposed by national banking laws, the Continuing Bank shall declare and pay a
dividend to the Company in an amount equal to (i) all interest accrued on
debt incurred to capitalize the Interim Bank and (ii) any debt incurred to
organize the Company.
ARTICLE III.
BANK SHAREHOLDERS
3.1. SHAREHOLDERS WHO ARE TO RECEIVE CASH PAYMENT. Flathead Holding
Company of Big Fork, Montana ("Flathead"), or those directors of the Company
which shall have purchased shares of Bank Stock from Flathead pursuant to a
Stock Purchase Agreement dated December 5, 1996, a copy of which is attached
hereto as EXHIBIT A, shall receive on the Effective Date a cash payment in an
amount equal to $815.00 per share of Bank Stock owned by them on the
Effective Date (the "Purchase Price") and represented by certificates for
Bank Stock surrendered to the Company on the Effective Date. The Purchase
Price shall be adjusted pursuant to Section 2 of the Stock Purchase
Agreement. The Company shall purchase no more than 2,001 shares of Bank
Stock for cash pursuant to this Section 3.1.
3.2. SHAREHOLDERS WHO ARE TO RECEIVE COMPANY STOCK. All Shareholders
other than those described in Section 3.1 hereto, or who may Dissent to the
Consolidation as provided in Section 3.3 hereto, shall receive ten (10)
shares of Company Stock for each one (1) share of Bank Stock owned by him or
her on the Effective Date.
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Upon the Effective Date, each share of Bank Stock held of record by a
Shareholder (other than those Shareholders described in Sections 3.1 and 3.3
hereto) shall, IPSO FACTO, and without any action on the part of such
Shareholder, become and be converted into ten (10) shares of Company Stock
and outstanding certificates representing shares of Bank Stock shall
thereafter represent shares of Company Stock. Each such Shareholder, upon
surrender in proper form to the Continuing Bank for cancellation of one or
more stock certificates which prior to the Effective Date represented shares
of Bank Stock (the "Old Certificates"), shall be entitled to receive as
evidence of the shares so converted one or more stock certificates bearing
the name of the Company as issuer (the "New Certificates") and representing
ten (10) shares of Company Stock for each one (1) share of Bank Stock
represented by the Old Certificates. Until so surrendered, each Old
Certificate shall be deemed, for all corporate purposes, to evidence the
ownership of the number of shares of Company Stock which the holder thereof
would be entitled to receive upon its surrender, except that the Company may
withhold, from the holder of shares represented by such Old Certificate,
distribution of any or all dividends declared by the Company on such shares
of Company Stock until such time as the Old Certificates shall be surrendered
in exchange for New Certificates. Upon surrender, dividends so withheld by
the Company with respect to shares of Company Stock shall be delivered
without interest thereon to the shareholder to whom such New Certificates are
issued.
3.3. DISSENT. Any Shareholder who has voted against the Consolidation
at the Shareholders Meeting, or has given notice in writing at or prior to
such meeting to the presiding officer that such Shareholder dissents from the
Consolidation, shall be entitled to receive the value of the shares of Bank
Stock so held by him (if and when the Consolidation is consummated), upon
written request made to the Continuing Bank, accompanied by the surrender of
his stock certificates, at any time before thirty (30) days after the
Effective Date.
3.3.1. The value of the shares of Bank Stock as to which proper
Dissent is made shall be ascertained, as of the Effective Date, by an
appraisal made by a committee of three persons, selected as follows: (i) one
selected by the vote of the Shareholders holding a majority of 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, such Shareholder may, within five (5) days after being notified of
the appraised value of such shares of Bank Stock, appeal to the Comptroller
of the Currency, who shall cause a reappraisal to be made which shall be
final and binding as to the value of the shares of the appellant.
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3.3.2. If, within ninety (90) 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 of Bank Stock, the
Comptroller of the Currency 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 Comptroller of the Currency in making the
reappraisal or the appraisal, as the case may be, shall be paid by the
Company. The value of the shares ascertained shall be promptly paid by the
Company.
3.4. OPTIONS. Any options or rights to purchase shares of Bank Stock
outstanding upon the Effective Date shall become and be converted into
options or rights to purchase shares of Company Stock. Upon the Effective
Date, the obligations of the Bank with respect thereto shall be assumed by
the Company with the same terms and conditions. Each option or right to
acquire one (1) share of Bank Stock shall become and be converted into an
option or right to acquire ten (10) shares of Company Stock.
ARTICLE IV.
STOCK
4.1. COMPANY STOCK. For the shares of Bank Stock held by Shareholders
(other than those Shareholders described in Sections 3.1 and 3.3 hereto),
there shall be allocated, and such Shareholders shall be entitled to receive,
shares of Company Stock at the rate of ten (10) shares of Company Stock for
each one (1) share of Bank Stock, as further described in Section 3.2 hereto.
4.2. CONTINUING BANK STOCK. Upon the Effective Date, the Continuing
Bank shall issue to the Company a stock certificate(s) equal to the number of
shares of Bank Stock outstanding immediately prior to the Effective Date.
4.3. RESALE OF SHARES HELD BY DISSENTING SHAREHOLDERS. The shares of
Company Stock which would have been issued with respect to shares of Bank
Stock as to which proper Dissent was made, as provided in Section 3.3 hereto,
may be sold at an advertised public auction or pursuant to such other method
of sale which may be approved by the Comptroller of the Currency, or 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
dissenting Shareholders, the excess of such sale price shall be paid to the
dissenting Shareholders, pro rata.
ARTICLE V.
CONDITIONS AND TERMINATION
5.1. CONDITIONS. Effectuation of the Consolidation as herein provided
for is conditioned upon:
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5.1.1. Ratification and confirmation of the Agreement by a vote of
two-thirds (2/3rds) of the outstanding shares of Bank Stock and by a vote of
two-thirds (2/3rds) of the outstanding shares of the Interim Bank Stock as
required by law and their respective Articles of Association; and
5.1.2. Procurement of all other consents and approvals and
satisfaction of all other requirements prescribed by law which are necessary
for consummation of the Consolidation, including, but not limited to,
approval of the Consolidation by the Comptroller of the Currency and the
Federal Reserve Board, and the Proxy Statement-Prospectus containing the
Proxy Materials relating to the Shareholders Meeting being declared effective
by the Securities and Exchange Commission.
5.2. TERMINATION. This Agreement may be terminated by either the Bank
or the Interim Bank by written notice delivered to the other of them,
authorized and approved by resolution adopted by the Board of Directors of
the one of them giving notice, if:
5.2.1. The number of shares of Bank Stock or Interim Bank Stock
voted against the Consolidation, or in respect of which written notice is
given purporting to dissent from the Consolidation, shall make consummation
of the Consolidation unwise in the opinion of either the Board of Directors
of the Bank or the Board of Directors of the Interim Bank; or
5.2.2. Any action, suit, proceeding or claim has been instituted,
made or threatened relating to the proposed Consolidation which shall make
consummation of the Consolidation inadvisable in the opinion of either the
Board of Directors of the Bank or the Board of Directors of the Interim Bank;
or
5.2.3. Any action, consent or approval, governmental or otherwise,
which is, or in the opinion of counsel for the Bank may be, necessary to
permit or enable the Continuing Bank, upon and after the Consolidation, to
conduct all or any part of the business and activities of the Bank up to the
time of Consolidation, in the manner in which such activities and business
are then conducted, shall not have been obtained; or
5.2.4. There shall not have been obtained a ruling from the
Internal Revenue Service, or an opinion of counsel, satisfactory in form and
substance to the Bank, to the effect that under the Internal Revenue Code of
1986, neither gain nor loss will be recognized for federal income tax
purposes by the Bank, the Interim Bank, the Company or Shareholders who
receive Company Stock by reason of the transactions contemplated herein, and
as to such further matters relating to the tax consequences of the
transactions contemplated hereby, as the Bank or its counsel may deem
advisable; or
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5.2.5. For any other reason consummation of the Consolidation is
inadvisable in the opinion of the Boards of Directors of either the Bank or
the Interim Bank.
5.3. RELEASE. Upon termination by written notice as provided in
Section 7.3, this Agreement shall be void and of no further effect, and there
shall be no liability by reason of this Agreement or the termination thereof
on the part of either Bank, the Interim Bank, the Company or the directors,
officers, employees, agents or shareholders or any of them, and all such
parties shall be released from all such liability.
ARTICLE VI.
MISCELLANEOUS
6.1. EXPENSES. Except for amounts necessary for payments to dissenters
pursuant to Section 3.3 hereof, and for the costs of the Interim Bank's
capitalization (which will be paid by Company), the Bank, Interim Bank, the
Company and the shareholders of each entity will pay their own expenses, if
any, incurred in connection with the Consolidation.
6.2. WAIVERS AND AMENDMENTS. Any term or condition of this Agreement
may be waived at any time by a party entitled to the benefit thereof if such
waiver is in writing and, when applicable, if authorized by the Board of
Directors of such party. This Agreement may be amended at any time if such
amendment is in writing and is approved by the Board of Directors of each of
the parties hereto.
6.3. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto, with respect to this Agreement and any related
transactions, and supersedes all prior arrangements or understandings,
whether oral or written, among the parties with respect thereto.
6.4. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument but all
such counterparts together shall constitute but one agreement.
6.5. COOPERATION. The parties to this Agreement are aware that
consummation of this transaction may require the execution of additional
documents, including but not limited to having the Interim Bank become a
party to the Agreement upon its formation, and cooperation in other matters
regarding obtaining the necessary approvals. All parties shall proceed
expeditiously and cooperate fully in the procurement of such approvals, and
in the performance of such other actions and the satisfaction of such other
requirements as may be necessary or expedient for the consummation of the
Consolidation. Such additional documents as may be required shall be
consistent with this Agreement and shall contain only such
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additional terms and conditions as are requested or required by regulatory
authorities.
6.6. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Montana except to the extent that
federal law may preempt any of the terms, conditions or provisions hereof, in
which event federal law will govern the terms of this Agreement.
6.7. NOTICES. All notices which are required to be given or may be
given to the parties pursuant to the terms of the Agreement shall be
sufficient in all respects if given by prepaid telex or telegram or in
writing and delivered personally or by prepaid express mail or courier as
follows:
Interim Bank, Bank
and Company: Douglas K. Morton
Chairman, President and
Chief Executive Officer
BankWest, National Association
444 West Idaho
Kalispell, Montana 59901-3945
Shareholder: Address last shown on stock transfer
books of Bank
IN WITNESS WHEREOF, the Bank, the Interim Bank and the Company have
caused this Agreement to be executed in counterparts by their duly authorized
officers and their corporate seals to be hereunto affixed as of the date
first above written, and directors constituting a majority of the Board of
Directors of each such entity have hereunto subscribed their names.
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EXHIBIT A TO THE CONSOLIDATION AGREEMENT
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into this 5th day
of December, 1996, between BANKWEST FINANCIAL, INC., a Montana corporation
("BankWest"), which will apply to become a one bank holding company through
the acquisition by merger of 100 percent of the stock of BANKWEST, N.A.,
Kalispell, Montana ("Bank"), the individuals identified on the attached
Schedule 1 (the "Individual Purchasers") and FLATHEAD HOLDING COMPANY OF
BIGFORK, MONTANA, a Montana corporation and registered bank holding company
("Flathead").
RECITALS
A. BankWest was organized by the directors of the Bank to acquire 100
percent of the stock of the Bank by means of an interim bank merger,
and BankWest wishes to acquire by cash purchase the shares of the Bank
owned by Flathead.
B. Flathead owns or will own by closing, 1,793 shares to 2,001 shares of
common stock of the Bank and wishes to sell to BankWest the shares of
the Bank which it owns.
In consideration of the mutual promises, covenants and agreements contained
herein, the parties agree as follows:
1. PURCHASE. BankWest and Individual Purchasers (referred to collectively
as the "Purchasers") hereby jointly and severally agree to purchase from
Flathead all of the shares of Bank common stock legally or beneficially owned by
Flathead, whether now owned or acquired after the date of this Agreement (the
"Shares"), upon the terms, conditions and covenants of this Agreement. The
Individual Purchasers, if they elect to purchase the shares from Flathead, will
be acting individually and no individual will own more than 25 percent of the
shares of the Bank. The individual purchasers will be purchasing Bank shares on
behalf of BankWest.
2. PURCHASE PRICE. The per share price for Bank stock shall be $815.00
per share increased by $0.305 per share for each full calendar day elapsed from
and including January 25, 1997 to and including the date of closing of the
transactions contemplated by this Agreement (the "Closing Date") and decreased
by dividends per share declared and paid on or after the date of this Agreement
and prior to the Closing Date. The Purchase Price shall be paid in cash or
immediately available funds, and the shares of the Bank shall be delivered to
Purchasers pursuant to this Agreement free and clear of liens and encumbrances.
A cashier's check drawn against a Montana financial institution payable to
Flathead or a Federal Reserve wire transfer of funds payable to Flathead Bank of
Bigfork will be deemed to be the same as cash or immediately available funds.
3. REGULATORY APPROVALS. Purchasers agree to diligently pursue and obtain
the approval of state and federal banking regulators necessary for the
completion of the transactions contemplated by this Agreement when and as
required by the terms of this Agreement (the "Regulatory
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Approvals"). As of Closing, Purchasers jointly and severally represent and
warrant to Flathead that all Regulatory Approvals required for consummation
of the transaction, if any, have been obtained. The representation and
warranty provided for above shall satisfy the requirements for consummation
by the Individual Purchasers.
4. CLOSING. (a) Purchasers shall select the Closing Date by written
notice delivered to Flathead not less than 10 days prior to the date selected
for closing; provided, however, that the Closing Date shall be on a regular
business day on which Bank is open for business on or after January 24, 1997
and on or before May 15, 1997. Closing shall occur at the Bank premises at
10:00 A.M. on the Closing Date or at such other place and time as the parties
may mutually agree upon.
(b) At Closing, Flathead shall deliver to Purchasers certificates
representing the Shares, duly endorsed for transfer or accompanied by blank
stock transfer powers. Flathead shall not be required to deliver
certificates representing Shares for which Flathead is the beneficial owner
until Flathead shall also become the legal owner; provided, however, that the
number of shares for which Flathead is the beneficial and not legal owner
shall not exceed 50 shares. If Flathead does not deliver certificates for
such beneficially owned shares at Closing, the Purchase Price attributable to
such shares shall be deposited in the joint name of Flathead and one or more
Purchasers in an interest-bearing account or certificate of deposit with an
insured depository organization acceptable to the parties and subject to a
letter agreement providing for the delivery of certificates representing the
beneficially-owned shares.
5. VOTING. Provided this Agreement has not been previously terminated,
Flathead agrees to vote the Shares in favor of the merger of Bank and an
interim bank to be formed by BankWest in accordance with a Plan of
Consolidation substantially in the form of attached Exhibit A at any regular
or special meeting of Bank shareholders called for the purpose of voting upon
such merger.
6. TERMINATION. This Agreement shall terminate as follows:
6.1 This Agreement shall terminate upon agreement between the
parties.
6.2 This Agreement shall terminate if the purchase of shares is
not consummated on or before May 15, 1997 unless extended in writing by the
parties; provided, however, such termination shall not relieve any party of
liability for its or their failure in performance, including, without
limitation, Purchasers' failure to purchase the Shares when and as provided
for in this Agreement.
6.3 This Agreement shall be terminated if Purchasers have failed
to receive required regulatory approval for the purchase of the Shares on or
before May 15, 1997, including, without limitation, failure of BankWest to
receive the approval of the Federal Reserve System to become a bank holding
company; provided, however, such termination shall not relieve any party of
liability for its or their failure in performance, including, without
limitation, Purchasers' failure to purchase the Shares when and as provided
for in this Agreement.
6.4 Any party may terminate this Agreement upon the material
failure in performance of any party; provided, however, that such termination
shall not relieve any party or parties for liability for such party or
parties failure in performance under this Agreement.
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7. REMEDIES. Upon the failure in performance by any party, the
non-breaching party or parties shall be entitled to (a) terminate this
Agreement as provided in Section 6.0, and (b) pursue such rights and remedies
as may be available at law or in equity; and (c) each such party shall be
entitled to seek and obtain orders of specific performance of this Agreement.
8. GENERAL PROVISIONS.
8.1 This Agreement is binding upon the heirs, successors and assigns
of the parties.
8.2 This Agreement incorporates all prior negotiations and may only
be amended in writing, signed by all the parties.
8.3 This Agreement shall be construed under Montana law.
8.4 Notices:
SELLER:
Larry W. Jochim, President
Flathead Holding Company of Bigfork
800 South Grand Avenue
Bigfork, Montana 59901
PURCHASER:
Douglas K. Morton
BankWest Financial, Inc.
P.O. Box 7070
Kalispell, Montana 59904-7070
8.5 Time is of the essence of this Agreement.
8.6 If any suit or other proceeding is brought for the interpretation
or enforcement of this Agreement, the prevailing party in such suit or other
proceeding shall be entitled to recover its costs incurred, including attorneys'
fees.
9. DISCLOSURE. Purchasers and each of them shall disclose and deliver to
Flathead within 10 days following the date of this Agreement the letters now or
previously in their possession or known to them and relating to Flathead, or any
of Flathead's directors, offices, principals, shareholders (whether legal or
beneficial owners of Flathead stock) or the beneficiaries of any trust holding
Flathead common stock. Purchasers represent that there has never been in
existence any written letter authored by Robert T. "Skip" Baxter. Flathead and
its affiliates and its officers, agents and employees agree not to contact,
harass, or file any lawsuit against either Steve Kellogg or Robert T. "Skip"
Baxter concerning any disclosures provided to Flathead pursuant to this
paragraph. Purchasers agree to provide Flathead an oral disclosure of the
confidential oral information that it has from Mr. Baxter.
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EXHIBIT B
Section 215. CONSOLIDATION OF BANKS WITHIN THE SAME STATE
(a) IN GENERAL
Any national bank or any bank incorporated under the laws of any state may,
with the approval of the Comptroller, be consolidated with one or more national
banking associations located in the same state under the charter of a national
banking association on such terms and conditions as may be lawfully agreed upon
by a majority of the board of directors of each association or bank proposing to
consolidate, and be ratified and confirmed by the affirmative vote of the
shareholders of each such association or bank owning at least two-thirds of its
capital stock outstanding, or by a greater proportion of such capital stock in
this case of such state bank if the laws of the state where it is organized so
require, at a meeting to be held on the call of the directors after publishing
notice of the time, place, and object of the meeting for four consecutive weeks
in a newspaper of general circulation published in the place where the
association or bank is located, or, if there is no such newspaper, then in the
paper of general circulation published nearest thereto, and after sending such
notice to each shareholder of record by certified or registered mail at least
ten days prior to the meeting, except to those shareholders who specifically
waive notice, but any additional notice shall be given to the shareholders of
such state bank which may be required by the laws of the state where it is
organized. Publication of notice may be waived, in cases where the Comptroller
determines that an emergency exists justifying such waiver, by unanimous action
of the shareholders of the association or state bank.
(b) LIABILITY OF CONSOLIDATED ASSOCIATION; CAPITAL STOCK; DISSENTING
SHAREHOLDERS
The consolidated association shall be liable for all liabilities of the
respective consolidating banks or associations. The capital stock of such
consolidated association shall not be less than that required under existing law
for the organization of a national bank in the place in which it is located:
PROVIDED, That if such consolidation shall be voted for at such meetings by the
necessary majorities of the shareholders of each association and state bank
proposing to consolidate, and thereafter the consolidation shall be approved by
the Comptroller, any shareholder of any of the associations or state banks so
consolidated who has voted against such consolidation at the meeting of the
association or bank of which he is a stockholder, or who has given notice in
writing at or prior to such meeting to the presiding officer that he dissents
from the plan of consolidation, shall be entitled to receive the value of the
shares so held by him when such consolidation is approved by the Comptroller
upon written request
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made to the consolidated association at any time before thirty days after the
date of consummation of the consolidation, accompanied by the surrender of
his stock certificates.
(c) VALUATION OF SHARES
The value of the shares of any dissenting shareholder shall be ascertained,
as of the effective date of the consolidation, by an appraisal made by a
committee of three persons, composed of (1) one selected by the vote of the
holders of the majority of the stock, the owners of which are entitled to
payment in cash; (2) one selected by the directors of the consolidated banking
association; and (3) one selected by the 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 Comptroller, who shall cause a reappraisal to
be made which shall be final and binding as to the value of the shares of the
appellant.
(d) APPRAISAL BY COMPTROLLER; EXPENSES OF CONSOLIDATED ASSOCIATION; SALE
AND RESALE OF SHARES; STATE APPRAISAL AND CONSOLIDATION LAW
If within ninety days from the date of consummation of the consolidation,
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 Comptroller
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
Comptroller in making the reappraisal or the appraisal, as the case may be,
shall be paid by the consolidated banking association. The value of the shares
ascertained shall be promptly paid to the dissenting shareholders by the
consolidated banking association. Within thirty days after payment has been
made to all dissenting shareholders as provided for in this section the shares
of stock of the consolidated banking association which would have been delivered
to such dissenting shareholders had they not requested payment shall be sold by
the consolidated banking association at an advertised public auction, unless
some other method of sale is approved by the Comptroller, and the consolidated
banking association shall have the right to purchase any of such shares at such
public auction, if it is the highest bidder therefor, for the purpose of
reselling such shares within thirty days thereafter to such person or persons
and at such price not less than par as its board of directors by resolution may
determine. If the shares are sold at public auction at a price greater than the
amount paid to the dissenting shareholders the excess in such sale price shall
be paid to such shareholders. The appraisal of such shares of stock in any
state bank shall be determined in the manner prescribed by the law of the state
in such cases, rather than as provided in this section, if such provision is
made in the state law; and no such consolidation shall be in contravention of
the law of the state under which such bank is incorporated.
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(e) STATUS OF CONSOLIDATED ASSOCIATION; PROPERTY RIGHTS AND INTERESTS
VESTED AND HELD AS FIDUCIARY
The corporate existence of each of the consolidating banks or banking
associations participating in such consolidation shall be merged into and
continued in the consolidated national banking association and such consolidated
national banking association shall be deemed to be the same corporation as each
bank or banking association participating in the consolidation. All rights,
franchises, and interests of the individual consolidating banks or banking
associations in and to every type of property (real, personal, and mixed) and
choses in action shall be transferred to and vested in the consolidated national
banking association by virtue of such consolidation without any deed or other
transfer. The consolidated national banking association, upon the consolidation
and without any order or other action on the part of any court or otherwise,
shall hold and enjoy all rights of property, franchises, and interests,
including appointments, designations, and nominations, and all other rights and
interests as trustee, executor, administrator, registrar of stocks and bonds,
guardian of estates, assignee, receiver, and committee of estates of lunatics,
and in every other fiduciary capacity, in the same manner and to the same extent
as such rights, franchises, and interests were held or enjoyed by any one of the
consolidating banks or banking associations at the time of consolidation,
subject to the conditions hereinafter provided.
(f) REMOVAL AS FIDUCIARY; DISCRIMINATION
Where any consolidating bank or banking situation, at the time of the
consolidation, was acting under appointment of any court as trustee, executor,
administrator, registrar of stocks and bonds, guardian of estates, assignee,
receiver, or committee of estates of lunatics, or in any other fiduciary
capacity, the consolidated national banking association shall be subject to
removal by a court of competent jurisdiction in the same manner and to the same
extent as was such consolidating bank or banking association prior to the
consolidation. Nothing contained in this section shall be considered to impair
in any manner the right of any court to remove the consolidated national banking
association and to appoint in lieu thereof a substitute trustee, executor, or
the fiduciary, except that such right shall not be exercised in such a manner as
to discriminate against national banking associations, nor shall any
consolidated national banking association be removed solely because of the fact
that it is a national banking association.
(g) ISSUANCE OF STOCK BY CONSOLIDATED ASSOCIATION; PREEMPTIVE RIGHTS
Stock of the consolidated national banking association may be issued as
provided by the terms of the consolidation agreement, free from any preemptive
rights of the shareholders of the respective consolidating banks.
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EXHIBIT C
_________ __, 1997
DRAFT
Douglas K. Morton, President
BankWest Financial, Inc.
444 West Idaho
Kalispell, Montana 59904
Re: Federal Income Tax Aspects of Acquisition of BankWest,
National Association by BankWest Financial, Inc.
Dear Mr. Morton:
You have requested our opinion concerning certain federal income tax
aspects of the acquisition by BankWest Financial, Inc. ("Holding Company") of
all of the outstanding shares of BankWest, National Association ("Bank").
We have reviewed the Stock Purchase Agreement, the Plan of Consolidation
and Consolidation Agreement (the "Consolidation Agreement") and the
Prospectus/Proxy Statement prepared in connection with the offering of Holding
Company shares, the exhibits attached thereto, and such other information,
materials and matters of law as we believe appropriate. In addition, we have
relied upon certain representations made to us by the management of Bank and
Holding Company ("Management"). Although we have made no independent
investigation of those representations, we have no reason to believe they are
untrue. Statutory references herein are to the Internal Revenue Code of 1986,
as amended, except as otherwise indicated.
BACKGROUND FACTS
Holding Company is incorporated under the laws of the State of Montana, and
headquartered in Kalispell, Montana. Holding Company was incorporated on
October 4, 1996 as a bank holding company for the purpose of acquiring up to 100
percent of the outstanding stock of Bank. Bank commenced business on May 18,
1987 and provides traditional deposit, lending, mortgage, and commercial
products and services to business and retail customers throughout its primary
market area. BankWest Interim Bank, N.A. ("Interim") is a national bank being
organized under the laws of the United States solely for the purpose of
effecting the acquisition. Flathead Holding Company of Bigfork, Montana
("Flathead") currently owns or will own by closing, 1,842 shares of common stock
of Bank.
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Bank emphasizes retail banking with its client base being predominately
individuals and small to medium-sized businesses. The majority of Bank loans are
geographically concentrated in its primary market area which is the area
surrounding Flathead County, Montana. Bank relies substantially on local
promotional activity including the personal relationships of its directors,
officers, employees, and shareholders, in addition to personalized service in
its community banking orientation, as means to compete with larger statewide
financial institutions.
Bank's principal business is accepting checking and savings deposits and
making residential real estate and home improvement loans secured by first and
second mortgages. Bank retains the right to service some of the mortgage loans
it sells for a fee. Bank also offers safe deposit, wire transfer, and other
customary bank services to its customers.
BUSINESS PURPOSE
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 percent of their
outstanding stock in any 12-month period without seeking the approval of any
regulatory authority. Because the shares of Bank's stock are not widely held,
an active market for its shares does not exist. The Holding Company can assist
shareholders wishing to dispose of their shares by standing ready to repurchase
them. To this end, Holding Company will be agreeable to purchase outstanding
shares of its common 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 Federal Reserve Board ("FRB") prohibit redemptions by holding
companies of their stock in excess of 10 percent of their equity capital in any
12-month period without prior notice. In addition, purchases by the Holding
Company of its stock cannot be made if the Holding Company's consolidated
capital would fall below then applicable minimum capital guidelines of bank
regulatory agencies. It is anticipated that when 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 Holding 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.
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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.
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.
Holding Company, however, 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 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 Holding 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 Holding Company must obtain prior
approval of the FRB.
TAX BENEFITS. On the effective date of the Consolidation Agreement, the
Holding Company will own up to 100 percent of the outstanding shares of Bank
Stock, and the Bank will then be the Holding Company's subsidiary. The Bank and
Holding 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 Holding Company (to enable it to pay
interest and principal on any indebtedness incurred in the proposal) without
being subjected to taxation. In addition, interest deductions on Holding
Company indebtedness may be used to offset the income of the Bank, reducing its
tax burden.
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DESCRIPTION OF THE TRANSACTION
Pursuant to the Stock Purchase Agreement, certain individual purchasers who
are directors of the Bank (referred to collectively as the "Purchasers") will
purchase from Flathead all of the shares of Bank common stock legally or
beneficially owned by Flathead. Flathead owns or will own 1,842 shares of Bank
stock of the 8,938 shares outstanding. The Individual Purchasers, if they elect
to purchase the shares from Flathead, will be acting individually and no
individual will own more than 25 percent of the shares of the Bank.
Pursuant to the Consolidation Agreement, upon the date of approval by the
Office of the Comptroller of the Currency (the "Effective Date"), the Bank will
consolidate with BankWest Interim Bank, N.A., a national bank in the process of
being organized and wholly owned by Holding Company. The banking institution
which results from the consolidation will operate under the name of BankWest,
National Association.
All shareholders of the Bank other than Flathead and those Purchasers who
have purchased shares of Bank stock pursuant to the Stock Purchase Agreement, or
shareholders who may dissent to the consolidation as provided below, will
receive ten (10) shares of Holding Company stock for each one (1) share of Bank
stock owned by him or her on the Effective Date. Upon the Effective Date, each
share of Bank stock held of record by a Bank shareholder (other than Flathead
and Company) shall, IPSO FACTO, and without any action on the part of such
shareholder, become and be converted into ten (10) shares of Holding Company
stock and outstanding certificates representing shares of Bank stock shall
thereafter represent shares of Holding Company stock.
Any Bank shareholder who dissents and votes against the Consolidation
Agreement at the Shareholders Meeting, or has given notice in writing at or
prior to such meeting to the presiding officer that such shareholder dissents
from the Consolidation, shall be entitled to receive the value of the shares of
Bank stock so held by him. The value will be determined by an appraisal as
described in the Consolidation Agreement.
The per share price for Bank stock to be paid to Flathead or the Purchasers
will be $815.00 per share increased by $0.305 per share for each full calendar
day elapsed from and including January 25, 1997 to and including the Effective
Date and decreased by dividends per share declared and paid on or after the date
of the Consolidation Agreement and prior to the Effective Date. The purchase
price shall be paid in cash or immediately available funds, and the shares of
the Bank shall be delivered by the Purchasers pursuant to the Consolidation
Agreement free and clear of liens and encumbrances.
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ADDITIONAL REPRESENTATIONS
The "Background Facts," "Business Purpose" and "Description of the
Transaction" as set forth in this letter are accurately stated, and there are no
material omissions of information necessary to prevent such statements from
being misleading.
7. Interim is a United States banking institution, organized solely to
effect the proposed transaction and all of its stock will be wholly owned by
Holding Company.
8. The fair market value of Holding Company stock to be received by the
shareholders of Bank will in each instance be approximately equal to the fair
market value of the Bank stock surrendered in exchange therefor.
9. The liabilities of Bank to be transferred in the consolidation and the
liabilities, if any, to which the transferred assets of the Bank are subject
were incurred in the ordinary course of business.
10. Holding Company has no plan or intention to liquidate Bank, merge
Bank with any other corporation, to sell or otherwise dispose of the stock of
Bank or to cause Bank to sell or dispose of any of the assets of Bank to be
acquired, except for dispositions made in the ordinary course of business.
11. There is no plan or intention by the shareholders of Bank who own
1 percent or more of the Bank stock, and to the best of the knowledge of the
management of Bank, there is no plan or intention on the part of the remaining
shareholders of Bank to sell, exchange or otherwise dispose of a number of
shares of Holding Company stock to be received in the proposed transaction which
would reduce such shareholders' holding to a number of shares having, in the
aggregate, a value less than 50 percent of the total value of all of the
formerly outstanding stock of Bank as of the transaction date.
12. Following the proposed transaction, Bank will not issue additional
shares of its stock which would result in Holding Company losing control of Bank
within the meaning of Section 368(c) of the Code.
13. Holding Company will pay the expenses of itself, Interim and Bank
incurred in the proposed transaction. Furthermore, the individual shareholders
of Bank will each pay their own expenses, if any, incurred in the transaction.
14. Holding Company has no plan or intention to redeem or otherwise
reacquire any of its stock to be issued in the transaction.
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15. Following the proposed transaction, Holding Company will continue the
business of Bank in a substantially unchanged manner.
16. No two parties to this transaction are investment companies as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
17. There is no intercorporate debt issued or to be settled at a discount
between Holding Company and Bank.
18. No corporation, a party to be the proposed reorganization, is under
the jurisdiction of a court in a Title 11 or similar case within the meaning of
Section 368(a)(3)(A) of the Code.
TAX OPINIONS
Based on the foregoing, it is our opinion that, for purposes of the federal
income tax (excluding any possible application of the alternative minimum tax):
1. The formation of BankWest Interim Bank, N.A. and its consolidation
with and into BankWest, National Association 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 Holding Company in exchange for either
Holding Company stock or cash. Rev. Rul. 67-448, 1967-2 C.B. 177.
2. The exchange described above will constitute an exchange within the
meaning of section 351 for those Bank shareholders who will receive Holding
Company stock in exchange for their Bank stock, and no gain or loss will be
recognized by the Bank shareholders upon the receipt of Holding Company stock in
exchange for Bank stock.
3. The exchange of shares of Bank stock for cash will be treated as
distributions in full payment in exchange for their Bank stock redeemed as
provided in section 302(a) and gain or loss must be recognized by such
exchanging shareholders. Since the tax result generated by a distribution in
redemption will vary in light of the facts and circumstances surrounding each
individual shareholder, each shareholder is urged to consult his or her own tax
counsel in connection with the transaction.
4. Bank shareholders who dissent to the proposed transactions and receive
solely cash in exchange for their share of Bank stock will be treated as having
received such payments as distributions in redemption of their shares of Bank
stock subject to the provisions of section 302.
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5. No gain or loss will be recognized by Holding Company upon the receipt
of Bank stock in exchange for Holding Company stock. Section 1032(a).
6. The income tax basis of the Bank stock received by Holding Company in
exchange for Holding Company stock will be the same as the basis of such stock
as held by the respective Bank shareholders immediately prior to the exchange.
Section 362(a). The basis of the Bank stock received by Holding Company in
exchange for cash will be the amount of cash paid for such stock.
7. The basis of the Holding Company stock received by the respective Bank
shareholders will be the same as the basis of the Bank stock surrendered in
exchange therefore. Section 358(a).
8. The holding period of the Holding Company stock to be received by the
Bank shareholders will include the period during which the Bank stock exchanged
therefor was held, provided the Bank stock is held as a capital asset on the
date of the exchange. Section 1223(1).
9. The holding period of the Bank stock to be received by Holding Company
will include the periods during which such stock was held by the respective Bank
shareholders before the exchange. Section 1223(2).
* * *
These opinions are based upon existing statutes, regulations, proposed
regulations, Internal Revenue Service Rulings and Revenue Procedures, judicial
and administrative decisions and other matters of record. An opinion of
counsel, unlike a tax ruling, has no official status of any kind; no guarantee
can be given that the IRS will not challenge or prevail on any issue. In
addition, the law upon which the opinions are based is subject to change and no
assurance can be given that any such change will not be applied retroactively.
Application for a tax ruling has not been made.
Neither this letter nor copies hereof may be distributed or otherwise made
available to anyone other than Bank, Holding Company, their employees, directors
and shareholders, without our prior written consent, except that we consent to
the inclusion of this letter as an exhibit to the Prospectus/Proxy Statement.
Very truly yours,
ROTHGERBER, APPEL, POWERS & JOHNSON LLP
DRAFT
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EXHIBIT D
ARTICLES OF INCORPORATION
OF
BANKWEST FINANCIAL, INC.
ARTICLE I
NAME
The name of the Corporation is BankWest Financial, Inc.
ARTICLE II
CAPITAL STOCK
2.1 AUTHORIZED SHARES. The Corporation shall have authority to issue
500,000 shares of a single class of common stock.
2.2 CUMULATIVE VOTING. Cumulative voting shall not be used in the
election of directors or for any other purpose.
2.3 TRANSFER RESTRICTIONS. The Corporation shall have the right by
appropriate action to impose restrictions upon the transfer of any shares of its
common stock, or any interest therein, from time to time issued, provided that
such restrictions, or notice thereof, shall be set forth upon the face or back
of the certificates representing such shares of common stock.
ARTICLE III
PURPOSE AND POWERS
The purpose for which the Corporation is organized is to transact all
lawful business for which corporations may be incorporated pursuant to the
Montana Business Corporation Act (the "Act").
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
4.1 The street address of the initial registered office of the Corporation
is 444 West Idaho, Kalispell, Montana 59901-3945.
4.2 The name of the initial registered agent of the Corporation at such
address is Douglas K. Morton.
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ARTICLE V
BOARD OF DIRECTORS
5.1 The initial Board of Directors of the Corporation shall consist of six
individuals whose names and addresses appear below, who are to serve as
directors of the Corporation until the first annual meeting of shareholders, or
until their successors are elected and qualify.
NAME ADDRESS
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Richard A. Dasen P.O. Box 1, Kalispell, MT 59903
Richard D. Gunlikson 22 2nd Avenue W., #3300, Kalispell, MT 59901
Chuck Lee P.O. Box 1194, Kalispell, MT 59903
Douglas K. Morton 203 Somerset Drive, Kalispell, MT 59901
Teruko Rogers 119 North Haven Drive, Kalispell, MT 59901
Barry Smith 775 Kelly Lane, Missoula, MT 59801
5.2 The directors shall be elected at each annual meeting of the
shareholders, provided that vacancies may be filled by election by the remaining
directors, though less than a quorum, or by the shareholders at a special
meeting called for that purpose. Despite the expiration of his or her term, a
director continues to serve until his or her successor is elected and qualifies.
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.
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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.
ARTICLE VIII
TENDER OFFER
The Board of Directors may, if it deems it advisable, oppose a tender offer
or other offer for the Corporation's securities, whether the offer is in cash,
debt or notes or in the securities of a corporation or otherwise. When
considering whether to oppose an offer, the Board of Directors may, but it is
not legally obligated to, consider any pertinent issues; by way of illustration,
but not of limitation, the Board of Directors may, but shall not be legally
obligated to, consider any or all of the following:
8.1 whether the offer price is acceptable based on the historical and
present operating results or financial condition of the Corporation;
8.2 whether a more favorable price could be obtained of the Corporation's
securities in the future;
8.3 the impact which an acquisition of the Corporation would have on the
employees, depositors and customers of the Corporation and its subsidiaries and
the communities which they serve;
8.4 the reputation and business practices of the offeror and its
management and affiliates as they would affect the employees, depositors and
customers of the Corporation and its subsidiaries and the future value of the
Corporation's stock;
8.5 the value of the securities, if any, which the offeror is offering in
exchange for the Corporation's securities, based on an analysis of the worth of
the Corporation as compared to the corporation or other entity whose securities
are being offered; and
8.6 any antitrust or other legal and regulatory issues that are raised by
the offeror.
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If the Board of Directors determines that an offer should be rejected, it
may take any lawful action to accomplish its purpose, including but not limited
to any or all of the following: advising shareholders not to accept the offer;
litigation against the offeror; filing complaints with all governmental and
regulatory authorities; acquiring the Corporation's securities; selling or
otherwise issuing authorized but unissued securities or treasury stock or
granting options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and soliciting a more
favorable offer from another individual or entity.
ARTICLE IX
SUPER-MAJORITY VOTE
No merger, consolidation, share exchange, liquidation or dissolution of the
Corporation nor any action that would result in the sale or other disposition of
all or substantially all of the assets of the Corporation shall be valid unless
first approved by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of common stock. At all other times where the Act
requires the vote or concurrence in any action by the holders of the outstanding
shares, series or class or shareholders entitled to vote thereon, such action is
approved if the votes cast favoring the action exceed the votes cast opposing
the action. This Article IX may not be amended unless first approved by the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of common stock.
ARTICLE X
INCORPORATOR
The name and address of the incorporator of the Corporation is Douglas K.
Morton, 444 West Idaho, Kalispell, Montana 59901-3945.
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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
Special Meeting to be held for the purposes of voting upon
the Consolidation Agreement.
(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 of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new
II-2
<PAGE>
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 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Kalispell, State of Montana, on the 6th day of January 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 January 6, 1997
- ------------------------- Executive Officer
Douglas K. Morton
/s/ Donald B. McCarthy Secretary and Treasurer (Principal January 6, 1997
- ------------------------- Financial Officer and Principal
Donald B. McCarthy Accounting Officer)
/s/ Richard A. Dasen Director January 6, 1997
- -------------------------
Richard A. Dasen
/s/ Richard D. Gunlikson Director January 6, 1997
- -------------------------
Richard D. Gunlikson
/s/ Charles Lee Director January 6, 1997
- -------------------------
Charles Lee
/s/ Teruko Rogers Director January 6, 1997
- -------------------------
Teruko Rogers
/s/ Barry Smith Director January 6, 1997
- -------------------------
Barry Smith
<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 Special Meeting to be held
for the purposes of voting upon the Consolidation Agreement.
<PAGE>
EXHIBIT 5
January 6, 1997
OPINION AS TO LEGALITY
Board of Directors
BankWest Financial, Inc.
44 West Idaho
Kalispell, Montana 55904
Dear Madam and Sirs:
You have requested our opinion in connection with the Registration
Statement on Form S-4 (the "Registration Statement") which is expected to be
filed by BankWest Financial, Inc. on or about January 6, 1997, with respect
to the offer and sale of 70,960 shares of a single class of common stock in
connection with the Plan of Consolidation and Consolidation Agreement as
described in the Registration Statement. We have reviewed such corporate
documents and have made such investigation of Montana law as we have deemed
necessary under the circumstances. Based on that review and investigation,
it is our opinion that when the shares referred to above are issued in the
manner described in the Registration Statement, said shares will be
authorized, fully paid and nonassessable.
Sincerely yours,
ROTHGERBER, APPEL POWERS & JOHNSON LLP
<PAGE>
EXHIBIT 23.1
January 6, 1997
CONSENT OF LEGAL COUNSEL
Board of Directors
BankWest Financial, Inc.
44 West Idaho
Kalispell, Montana 55904
Dear Madam and Sirs:
We consent to the use in the Form S-4 Registration Statement of BankWest
Financial, Inc. (the "Corporation"), relating to the proposed reorganization
involving the Corporation, BankWest Interim Bank, N.A. and BankWest, National
Association, our name and the statement with respect to our firm under the
heading of "LEGAL OPINIONS" in the Prospectus/Proxy Statement.
Sincerely yours,
ROTHGERBER, APPEL, POWERS & JOHNSON LLP
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
BankWest, National Association
We consent to inclusion of our reports dated November 11, 1996, and
September 6, 1996, with respect to the balance sheets of BankWest, National
Association as of September 30, 1996, December 31, 1995, 1994 and 1993, 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, 1995, and for the
nine-month period ended September 30, 1996, which reports appear 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
Missoula, Montana
January 6, 1997
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person executing this Power of
Attorney hereby appoints Douglas K. Morton as his or her attorney-in-fact, with
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Registration Statement on Form S-4 and to file the same
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission as such attorney-in-fact may deem
appropriate, hereby ratifying and confirming all that said attorney-in-fact, or
his substitute or substitutes, may do or cause to be done by virtue thereof.
Signature Position Date
- --------- -------- ----
/s/ Douglas K. Morton Chairman, President January 6, 1997
- ----------------------------- and Chief Executive
Douglas K. Morton Officer
/s/ Donald B. McCarthy Secretary and Treasurer January 6, 1997
- ----------------------------- (Principal Financial
Donald B. McCarthy Officer and Principal
Accounting Officer)
/s/ Richard A. Dasen Director January 6, 1997
- -----------------------------
Richard A. Dasen
/s/ Richard D. Gunlikson Director January 6, 1997
- -----------------------------
Richard D. Gunlikson
/s/ Chuck Lee Director January 6, 1997
- -----------------------------
Chuck Lee
/s/ Teruko Rogers Director January 6, 1997
- -----------------------------
Teruko Rogers
/s/ Barry Smith Director January 6, 1997
- -----------------------------
Barry Smith
<PAGE>
EXHIBIT 99
REVOCABLE PROXY
BANKWEST, NATIONAL ASSOCIATION
SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL 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 Special 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 Special Meeting
of Shareholders of the Bank to be held at The Outlaw Inn, 1701 Highway 93 South,
Kalispell, Montana, on ___________, 1997, at 4:00 p.m., and at any postponements
and adjournments thereof, upon the following items as set forth in the Notice of
Special 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 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"
PROPOSAL 1. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS MADE IT WILL BE VOTED "FOR" PROPOSAL 1.
<PAGE>
WITNESS my hand this _____ day of ____________________, 1997.
- ------------------------------ (Please sign exactly as name appears hereon.
NAME AND ADDRESS OF When signing as attorney, executor,
BANK SHAREHOLDERS(S) 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.
