<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarter Ended 12/31/94 Commission File No. 0-7463
GOLDENBANKS OF COLORADO, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-0632356
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1301 Jackson Street, Golden, Co. 80401
(Address of principal executive offices)
Registrant's telephone number, including area code (303)279-4563
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes X No
(2) Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of January 31, 1995.
Common Stock 1,366,932
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item I - FINANCIAL STATEMENTS
December 31, 1994
GOLDENBANKS OF COLORADO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<CAPTION>
December 31, June 30,
1994 1994
<S> <C> <C>
ASSETS
Cash and due from banks $ 26,478,697 $ 23,006,093
Federal funds sold 2,757,000 16,300,000
Total cash and cash equivalents 29,235,697 39,306,093
Investment securities:
U.S. Government securities 84,619,333 83,977,294
Obligations of states and political subdivisions 17,827,774 22,738,435
Federal Reserve Bank Stock 301,150 301,150
Other Investments 58,151,881 66,529,394
Loans 179,804,518 160,675,618
Less: Allowance for loan losses (5,182,799) (5,173,781)
Net Loans 174,621,719 155,501,837
Bank prem and equip less allowance for depreciation 5,798,702 5,716,391
Other real estate 489,000 414,000
Cost of purchased subsidiaries in excess of net assets 1,612,147 1,641,602
Other assets 3,759,915 4,043,692
TOTAL ASSETS $376,417,318 $380,169,888
LIABILITIES
Deposits:
Money market accounts $ 58,065,908 $ 65,516,229
NOW accounts 70,909,215 68,231,739
Other demand accounts 83,522,520 89,151,849
Savings 57,953,827 60,254,257
Time Certificates greater than $100 9,635,076 11,386,193
Other Time Certificates 45,483,228 47,773,571
Total Deposits 325,569,774 342,313,838
Short-term borrowings 17,093,872 4,799,885
Long-term debt 2,710,715 2,946,429
Accrued expenses and other liabilities 1,852,519 2,878,579
TOTAL LIABILITIES 347,226,880 352,938,731
STOCKHOLDERS' EQUITY
Common Stock 68,347 68,347
Capital Surplus 885,779 885,779
Retained Earnings 28,600,166 26,277,031
Unrealized Gain/(Loss) on Securities (363,854)
TOTAL STOCKHOLDERS' EQUITY 29,190,438 27,231,157
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $376,417,318 $380,169,888
MARKET VALUE OF INVESTMENT SECURITIES: $157,590,000 $170,964,000
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
GOLDENBANKS OF COLORADO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<CAPTION>
Six Months Ended Dec. 31, Three Mo. Ended Dec. 31,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $ 8,364,729 $ 5,873,855 $4,218,503 $3,119,747
Taxable investment securities 3,703,703 3,490,055 1,842,064 1,798,813
Investment securities exempt from federal income taxes 367,556 471,173 174,664 224,258
Federal funds sold and other short-term investments 282,035 217,498 130,545 110,908
Total Interest Income 12,718,023 10,052,581 6,365,776 5,253,726
INTEREST EXPENSE:
Deposits 3,373,831 2,990,557 1,655,148 1,531,666
Federal funds purchased and other short-term borrowings 96,663 51,210 49,633 26,716
Long-term debt 122,158 68,142 62,179 42,353
Total Interest Expense 3,592,652 3,109,909 1,766,960 1,600,735
NET INTEREST INCOME 9,125,371 6,942,672 4,598,816 3,652,991
Provision for Loan Losses (49,000) 475,000 (19,000) 490,000
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 9,076,371 7,417,672 4,579,816 4,142,991
OTHER INCOME:
Fees on deposit accounts 1,107,584 958,852 547,168 504,707
Other income 434,893 517,266 216,429 274,124
Gain on security transactions 12,750 59,468 0 6,700
Total Other Income 1,555,227 1,535,586 763,597 785,531
OTHER EXPENSE:
Salaries & employee benefits 3,399,257 2,826,132 1,689,957 1,465,539
Occupancy expense, net 479,295 401,065 237,572 210,058
Equipment expense 269,804 183,497 134,480 96,263
Other operating expense 2,586,009 2,254,369 1,337,838 1,211,735
Other real estate expense (18,102) 46,922 (4,613) 763
Total Other Expense 6,716,263 5,711,985 3,395,234 2,984,358
Income before income taxes 3,915,335 3,241,273 1,948,179 1,944,164
Applicable income taxes 1,182,121 978,244 593,887 610,087
NET INCOME BEFORE ACCOUNTING CHANGE 2,733,214 2,263,029 1,354,292 1,334,077
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,035,070
NET INCOME $ 2,733,214 $ 3,298,099 $1,354,292 $1,334,077
Net income per common share before
cumulative effect of accounting change $2.00 $1.65 $.99 $.98
Cumulative effect of accounting change .76
Net income per common share $2.00 $2.41 $.99 $.98
Dividends per share $0.30 $0.20 $.15 $.10
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
GOLDENBANKS OF COLORADO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS
For the Six Months Ended
(Unaudited)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 2,733,214 $3,298,099
Adjustments:
Provision for loan losses 49,000 (475,000)
Depreciation and amortization 305,841 155,191
Accretion/amortization of discount/premium on investments 206,840 422,224
Write down of OREO 45,000 25,000
Gain/Loss on sale of Fixed Assets (2,487)
Gain on early call of investment securities (12,750) (59,468)
Change in other assets 313,232 (1,671,416)
Change in accrued expenses and other liabilities (850,476) 948,414
Total adjustments 54,200 (655,055)
Net cash provided by operating activities 2,787,414 2,643,044
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities 1,224,296
Proceeds from maturities of investment securities 32,831,363 38,651,420
Purchases of investment securities (20,743,173) (52,211,723)
Change in loans (19,288,881) (11,175,753)
Purchase of Applewood <F1> (Net Cash) 9,060,534
Purchase of premises and equipment (364,510) (147,392)
Proceeds from sale of Fixed Assets 8,300
Net cash applied to investing activities (7,556,901) (14,598,618)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in deposits -Demand, Savings, & NOW (14,992,946) 30,456,863
Change in time deposits (1,751,117) (970,828)
Change in short-term borrowed funds 12,293,987 487,227
Proceeds from long-term debt 2,359,992
Change in long-term debt (235,714) (249,290)
Dividends paid (615,119) (410,080)
Net cash (applied to)/provided by financing activities (5,300,909) 31,673,884
NET INCREASE IN CASH AND CASH EQUIVALENTS (10,070,396) 19,718,310
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 39,306,093 21,071,142
CASH AND CASH EQUIVALENTS, END OF PERIOD $29,235,697 $40,789,452
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash received (paid) during the year for:
Interest income $12,069,012 $ 9,802,060
Interest expense 3,572,945 3,089,710
Income taxes 1,200,000 460,000
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Transfers of loans to other real estate owned 120,000 100,359
Dividends declared not yet paid 205,040 136,693
<FN>
<F1>
On November 19, 1993, the company acquired the assets and deposits and
certain liabilities of Bank of Applewood d/b/a Citywide Bank of Applewood as
follows:
Fair Value of Assets Acquired and Liabilities Assumed
Cash and cash equivalents $11,560,534
Investment Securities 11,122,753
Loans, net 19,034,851
Property and equipment 2,219,550
Deposits (42,943,347)
Other, net 1,505,659
Cash Paid $ 2,500,000
See notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
GOLDENBANKS OF COLORADO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions for Form 10-QSB and with
generally accepted accounting principles for interim financial statements.
All adjustments which are, in the opinion of management, necessary for a fair
statement of results of operations have been reflected in the accompanying
financial statements. All such adjustments made are of a normal and
recurring nature.
Note 2 - Earnings per Share
Earnings per share for the six months and three months ended December 31,
1994, and 1993 are based on 1,366,932 common shares outstanding during each
period.
Note 3 - Change of Accounting Principle
Prior to July 1, 1994, the Company acquired investment securities with the
intent to hold the securities to maturity. Accordingly, such securities were
carried at amortized cost.
On July 1, 1994, the Company adopted Financial Accounting Standards Board
Statement No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," and a portion of the Company's investment securities were
classified as "available for sale." Securities classified as "available for
sale" are measured at fair value. Unrealized holding gains and losses are
excluded from earnings and are reported as a separate component of
stockholders' equity until realized. As of December 31, 1994, securities
with a book value of $32.6 million are classified as "available for sale."
A valuation allowance of $364 thousand, which is net of income taxes, has
been recorded in equity to recognize the difference between the carrying
value and the fair value of these securities.
The adjusted cost of specific investment securities is used to compute gains
and losses upon disposition, and net gains/losses are shown separately as a
component of Other Income.
ITEM 4. OTHER INFORMATION
The Annual Meeting of Stockholders of Goldenbanks of Colorado, Inc. was held
on October 20, 1994. Present at this meeting in person or by proxy were
Stockholders representing 1,272,087 shares of outstanding common stock.
These shares represented 93.06% of the total outstanding common stock.
William J. Fortune was re-elected a Director for a term of three years,
expiring at the third succeeding Annual Meeting of the Stockholders. The
vote for Mr. Fortune was 1,135,126 shares for and 141,988 shares withholding
authority. Dan A. Gabrielson was re-elected a Director for a term of three
years, expiring at the third succeeding Annual Meeting of the Stockholders.
The vote for Mr. Gabrielson was 1,132,564 shares for and 144,550 shares
withholding authority. The terms of office of the other three directorships
did not expire at this meeting. The names of the other three Directors are
David C. Beck, Michael J. Hall, and G. Scott Gagon.
Stockholders also ratified the selection by the Board of Directors of
Deloitte and Touche as independent auditors for the Company for the fiscal
year ending June 30, 1995. The vote was 1,233,164 shares for; 8,728 shares
against; and 35,222 shares abstaining.
ITEM 6. REPORTS OF FORM 8-K
On November 22, 1994, the Company issued a press release concerning the
execution of a definitive agreement providing for the merger of the Company
into Norwest Corporation. The Company also granted an option to Norwest to
acquire up to 19.9% of Goldenbanks' currently outstanding common stock. This
option would be exercisable by Norwest only if certain conditions are met
relating to the proposed acquisition of the Company by a person or entity
other than Norwest.
William J. Fortune, President of the Company, and G. Scott Gagon, President
of the Company's principal subsidiary, Goldenbank, N.A., executed employment
agreements with the Company providing for continued employment by the
Company of Messrs. Fortune and Gagon for fifty weeks after the effective date
of the acquisition of the Company by Norwest. Form 8-K has been filed.
ITEM 7. MANAGEMENT'S DISCUSSION AND FINANCIAL REVIEW
The following commentary presents management's discussion and
analysis of the Company's financial performance and financial
condition. The discussion is presented in order to provide a more
complete understanding of the Consolidated Financial Statements.
Earnings Performance
Goldenbanks of Colorado, Inc.'s (the Company) net income for the
six months ended December 31, 1994, totaled $2.7 million compared
to $3.3 million for the six months ended December 31, 1993. The
earnings for the six months ended December 31, 1993, reflected a
cumulative effect of an accounting change due to the Company's
adoption of Statement of Fanancial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes". The Company adopted
this new accounting standard through a one-time cumulative
adjustment in the amount of $1,035,070. Income before the
accounting change totaled $2.3 million for the six months ended
December 31, 1993. If interim earnings before the accounting
change are compared, an increase of $470 thousand or 20.8% was
realized.
Income per share was $2.00 for the first six months of the current
fiscal year. For the first six months of fiscal 1994, income per
share, before the cumulative effect of the accounting change, was
$1.65, and income per share was $2.41 inclusive of the accounting
change.
A moderate increase in income was realized when the quarter ended
December 31, 1994 is compared to the quarter ended December 31,
1993. The Company's income totaled $1,354 thousand for the quarter
ended December 31, 1994, compared to $1,334 thousand for the
quarter ended December 31, 1993. Earnings per share were $.99 for
the second quarter of the current fiscal year compared to $.98 for
the same period a year ago.
The Company's six month earnings produced a return on average
stockholders' equity of 19.42%, and a return on average assets of
1.44%, on an annualized basis. This compares to a return on
average equity of 27.36%, and a return on average assets of 2.05%,
for the first six months of fiscal 1994, on an annualized basis.
Prior to the cumulative effect of the accounting change for the
first six months of fiscal 1994, the Company's return on average
equity was 18.78%, and the return on average assets was 1.41%, on
an annualized basis.
For the quarter ending December 31, 1994, the Company's return on
average stockholders' equity was 19.19%, on an annualized basis,
compared to 21.41% for the same quarter a year ago. The Company's
Management's Discussion
Page 2
Earnings Performance - (Continued)
return on average assets was 1.44%, on an annualized basis, for the
quarter ended December 31, 1994, compared to 1.52% for the quarter
ended December 31, 1993.
A notable factor, in comparing income and expense categories from
fiscal 1994 to fiscal 1995, is the acquisition of Goldenbank,
Applewood. The Applewood Bank was acquired by the Company
during the second quarter of fiscal 1994. Consequently, the
Consolidated Statement of Earnings reflects the operating results
of the Applewood Bank for the first six months of fiscal 1995,
while Applewood's operating results are reflected only for the
short period from November 19, 1993, to December 31, 1993, for
fiscal 1994.
In addition to the accounting change, and the addition of the
Applewood Bank, there were two other items which significantly
affected the Company's earnings. There was a significant increase
in net interest income for both the six month and three month
periods, ended December 31, 1994, compared to the same periods, in
the preceding fiscal year. Also impacting earnings, when both the
six month and three month periods ending December 31, 1994, are
compared to the same periods ending December 31, 1993, is a $500
thousand credit to the provision for loan loss expense, taken by
the Company's lead bank. The credit, taken during the second
quarter of fiscal 1994, was attributable to a reduction in the
allowance for loan loss level of that Bank.
Net interest income is defined as the total of interest income and
amortized fees on loans, less interest expense on deposits and
borrowed funds. Earning assets are funded by interest bearing
liabilities including deposits, short-term borrowings and long-term
debt. Earning assets are also funded by net noninterest related
funds consisting of demand deposits and stockholders' equity.
A strong net yield, plus changes in the mix and growth in earning
assets, produced net interest income on a fully taxable equivalent
basis (FTE) for the first six months of fiscal 1995 of $9.4
million, up 29.4% from $7.2 million in fiscal 1994. On a quarterly
basis, net interest income increased $917 thousand or 24.2%, from
the quarter ended December 31, 1993, to the quarter ended December
31, 1994. To arrive at income on a fully taxable equivalent basis,
adjustments were made to present yields, on certain tax exempt
municipal securities and loans, as if such income were fully
taxable.
Management's Discussion
Page 3
Earnings Performance - (Continued)
The Company's net yield on interest earning assets on an annualized
FTE basis was 5.36% for the six months ended December 31, 1994,
compared to 4.84% for the six months ended December 31, 1993. For
the quarter ended December 31, 1994, the net yield was 5.40%
compared to 4.66% for the quarter ended December 31, 1993. The net
yield on interest earning assets is determined by expressing net
interest income as a percentage of earning assets. The Company's
net yield on interest earning assets is attributable to a combina-
tion of two factors which include the percentage of interest
earning assets funded by interest bearing liabilities, and the
difference between the yield on earning assets and the rate paid on
interest bearing liabilities.
During the six months ended December 31, 1994, 74.5% of the Com-
pany's interest bearing assets were funded by interest bearing
liabilities. During the six months ended December 31, 1993, 75.7%
of the Company's interest bearing assets were funded by interest
bearing liabilities. A reduction in the level of interest bearing
assets, funded by interest bearing liabilities, from 75.7% to 73.9%
was realized when the quarter ended December 31, 1994, is compared
to the quarter ended December 31, 1993. The Company's ability to
attract and maintain noninterest bearing deposits, and the decrease
in the level of interest bearing assets funded by interest bearing
liabilities has enhanced the Company's net interest income.
The yields on the Company's interest bearing assets increased when
both the six and three month periods ended December 31, 1994, are
compared to the six and three month periods ended December 31,
1993. The rates on interest bearing liabilities increased but
to a lesser degree when the same periods are compared.
The Company's yield on interest bearing assets increased 50 basis
points to 7.42% from 6.92% when the six month period ended
December 31, 1994, is compared to the six month period ended
December 31, 1993. The Company's cost of funds increased, by a
single basis point, to 2.76% from 2.75%, when the first six months
of fiscal 1995 is compared to the first six months of fiscal 1994.
These rate changes resulted in an increase in the Company's
interest rate spread of 49 basis points for the first six months of
the fiscal year, compared to the same period in the previous year.
When the quarter ended December 31, 1994, is compared to the
quarter ended December 31, 1993, an increase of 65 basis points was
realized in the interest rate spread.
Management's Discussion
Page 4
Earnings Performance - (Continued)
As pointed out earlier in this discussion, a reduction in the
provision for loan losses positively impacted earnings in fiscal
1994. The provision for loan losses for the first six months of
fiscal 1994 reflected a credit balance of $475 thousand compared to
expense of $49 thousand for the first six months of fiscal 1995.
The credit balance is attributable to a $500 thousand reduction in
the Allowance for Loan Loss balance taken during the second quarter
of fiscal 1994, by the Company's lead bank. The credit was offset
by a provision expense of $25 thousand at another subsidiary bank.
The reduction in the Allowance for Loan Loss balance is due to the
fact that the Bank has improved the quality of its loan portfolio
and reduced the level of problem loans.
The Company's level of net charged off loans remained low during
the six months ended December 31, 1994, at $40 thousand, and for
the quarter ended December 31, 1993, net charge offs totaled $34
thousand. The Company realized net recoveries on previously
charged off loans in the amount of $219 thousand for the six months
ended December 31, 1993 and for the quarter ended December 31,
1993, recoveries totaled $177 thousand. The low level of charged
off loans is attributable to strong underwriting standards, early
identification and workouts on problem credits, and a strong
Colorado economy.
Management believes it has thoroughly reviewed its loan portfolio,
and has identified and allowed for problem loans. The allowance for
loan losses was 2.9% of total loans at December 31, 1994, and 3.2%
of total loans at June 30, 1994. The reduction in the allowance as
a percentage of total loans reflects growth in the loan portfolio,
and the low level of provision expense. Management feels that the
Company is adequately positioned against future credit risk.
The Company's noninterest income is reflected in the Other Income
section of the Consolidated Statement of Earnings. The Company's
other income is categorized into three components. The most
significant of these is fees on deposit accounts, followed by other
fee income, and investment security gains. Other income for the
first six months of fiscal 1995 totaled $1,555 thousand compared
with $1,536 thousand for the first six months of fiscal 1994. For
the quarter ended December 31, 1994, other income was $764 thousand
compared to $786 thousand for the quarter ended December 31, 1993.
Management's Discussion
Page 5
Earnings Performance-(Continued)
Service charges on both deposits and other services provided by
the Company's banking subsidiaries have long been an important
source of revenue. The increase in service charge revenue from the
first six months of fiscal 1994 to the first six months of fiscal
1995 totaled $149 thousand or 15.5%. The increase in service
charges is attributable to the acquisition of Goldenbank,
Applewood. Service charges at the Applewood Bank totaled $195
thousand for the six month period. Due to the timing of the
acquisition of the bank in November, 1993, Applewood contributed
only $35 thousand to the service charge total for the first six
months of the preceding fiscal year.
The Company realized a $59 thousand investment security gain for
the six months ended December 31, 1993, of which $7 thousand was
realized in the quarter ended December 31, 1993. For the current
fiscal year security gains totaled $13 thousand and there was no
gain or loss on securities for quarter ended December 31, 1994.
All of the investment security gains are attributable to gains
realized on municipal securities held by the Company which were
called at a premium.
In May 1993, the Financial Accounting Standards Board issued
Statement No. 114 (SFAS 114) "Accounting by Creditors for
Impairment of a Loan," which addresses the accounting for
impairment of certain loans in the Company's loan portfolio. The
Company is required to adopt SFAS 114 by the year ending June 30,
1996. Management is unable to estimate the impact SFAS 114 will
have on the reporting and disclosures in its balance sheet;
however, management believes the statement will not have a material
effect on the results of operations.
Other expenses for the first six months of fiscal 1995 totaled $6.7
million which is an increase of $1 million or 17.6% compared to the
first six months of fiscal 1994. For the quarter ended December
31, 1994, an increase in other expenses of $411 thousand or 13.8%
was realized when comparison is made to the quarter ended December
31, 1993. A significant factor in the increase in other expenses,
for both the six months ended December 31, 1993, compared to the
six months ended December 31, 1994, and the quarters ended on these
dates, is the acquisition of Goldenbank, Applewood.
Applewood contributed $137 thousand to other expenses for the first
six months of fiscal 1994. Due to the November, 1993, acquisition
date, all of these other expenses were realized in the second
Management's Discussion
Page 6
Earnings Performance - (Continued)
quarter of that year. Other expenses for the Applewood Bank
totaled $913 thousand for the first six months of fiscal 1995, with
$472 thousand of the expenses realized during the second quarter of
the year.
Salaries and employee benefits, which represents 50.6% of total
other expense for the six months ended December 31, 1994, increased
$573 thousand or 20.3% from the six months ended December 31, 1993.
From the quarter ended December 31, 1993, to the quarter ended
December 31, 1994, an increase of $224 thousand or 15.3% was
realized. The expense increase reflects annual cost increases, and
additional staffing attributable to the Company's growth and the
Applewood acquisition.
Other real estate (OREO) expenses are the costs associated with
properties obtained through foreclosure, and include the costs of
administering and operating these properties, any write downs in
the value of the properties prior to their disposition, and the
effect of gains and losses on the subsequent sale of these
properties. Other real estate expenses also reflect rental income
realized on these properties as a reduction to other real estate
expenses.
The Company's earnings for the six months ended December 31, 1994,
reflected the positive impact of $18 thousand in OREO income.
Expenses from OREO properties exceeded income by $47 thousand for
the six months ended December 31, 1993. For the quarter ended
December 31, 1994, the Company realized $5 thousand in OREO income
and for the quarter ended December 31, 1993, the Company realized
OREO expenses totaling under $1 thousand.
Other operating expense for the six months ended December 31, 1994,
was $332 thousand greater than the six months ended December 31,
1993. Other operating expense attributable to the Applewood Bank
for the six months ended December 31, 1994, were $309 thousand
greater than in the first six months of the preceding fiscal year,
and this change accounted for 93% of the increase in this expense
category for the six month period. An increase of $126 thousand
was realized in other operating expense for the quarter ended
December 31, 1994, compared to the quarter ended December 31, 1993.
The rise in expense is attributable to the Applewood acquisition,
as Applewood's other operating expense was $132 thousand greater
for the quarter ended December 31, 1994, than for the quarter ended
December 31, 1993.
Management's Discussion
Page 7
Earnings Performance - (Continued)
Income tax expense totaled $1.2 million for the six months ended
December 31, 1994, an increase of 20.8% over the same six months in
the preceding fiscal year. The rise in income tax expense is
attributable to the increase in the Company's before tax earnings
when the six months ended December 31, 1994, is compared to the six
months ended December 31, 1993. There is relatively little change
in income tax expense for the quarter ended December 31, 1994, when
compared to the quarter ended December 31, 1993. Income tax
expense for the quarter ended December 31, 1994, declined 2.7%,
when the quarters are compared, as income before income tax, for
the two quarters, is fairly flat.
Financial Condition
The consolidated balance sheets presented in this report summarize
the various sources of funds generated by the Company and the
manner in which those funds were invested. Total assets declined
approximately 1%, from $380 million, at June 30, 1994, to $376
million at December 31, 1994.
The Company's total deposits have declined $16.7 million or 4.9%
since June 30, 1994. There were declines in all deposit categories
with the exception of N.O.W. accounts. In the current rising
interest rate environment, it appears that some customers are
taking advantage of some opportunities to earn a higher rate of
interest, on a variety of investment products other than bank
deposits.
While the Company has experienced some declines in deposit
balances, it successfully grew its loan portfolio since June 30,
1994. The loan portfolio, expressed as a percentage of total
assets, increased from 42.3% as of June 30, 1994, to 47.8% as of
December 31, 1994. The shifting of earning assets from investments
into higher yielding loans positively effects the Company's
earnings.
The loan portfolio increased $19.1 million or 11.9% since June 30,
1994. The most significant loan growth included increases of $9.5
million in construction real estate loans and $8.7 million in
installment loans. Commercial loans and real estate mortgage loans
increased $546 thousand and $444 thousand, respectively.
Management's Discussion
Page 8
Financial Condition - (Continued)
With the growth of the loan portfolio the Company has seen a
decrease of $12.6 million or 7.3% in its investment portfolio.
Investments represented 45.6% of total assets at June 30, 1994, and
42.7% of total assets at December 31, 1994. The reduction in
investments, and the movement of funds into loans, has been
accomplished with maturing securities. No securities were sold
during the quarter.
The Company adopted Statement of Financial Accounting Standards No.
115 (SFAS 115), "Accounting for Certain Investments in Debt and
Equity Securities," on July 1, 1994. Under SFAS 115, a portion of
the Company's investment securities have been classified as
"available for sale." These securities are reported at current
market value with both unrealized gains and losses, which primarily
result from period-to-period interest rate changes, credited or
charged, net of the related tax effect, directly to a separate
component of stockholders' equity. This accounting adds volatility
to the Company's capital, but net income will not be impacted
unless the securities are sold.
Securities "available for sale" include securities considered part
of the Company's asset/liability management that may be sold in
response to changes in interest rates or for general liquidity
purposes. As of December 31, 1994, the Company has securities with
an amortized cost of $32.6 million classified as "available for
sale" which represents approximately 8.7% of the Company's total
assets at that date. As noted on the December 31, 1994,
Consolidated Balance Sheet, equity capital decreased $364 thousand
to recognize an unrealized loss in these securities' market values,
net of taxes.
As members of the Federal Reserve System, the Company's subsidiary
banks must maintain required levels of cash on hand or on deposit
with the Federal Reserve Bank or other financial institutions.
Each subsidiary bank is responsible for the maintenance of its
"cash position" and to meet these requirements on a continuous
basis. In addition to these regulatory requirements, the Company
keeps a portion of its funds available as cash or as amounts on
deposit with the Federal Reserve Bank or other depository
institutions, in order to satisfy its operational and liquidity
requirements. At June 30, 1994, 6% of the Company's funds were
held as cash and due from banks and at December 31, 1994, 7% of
funds were held in this manner.
Management's Discussion
Page 9
Financial Condition-(Continued)
The Company's Stockholders' Equity, consisting of capital
contributed by stockholders and retained earnings, provides a
significant source of funds for the Company. Stockholders' Equity
increased $2 million or 7.2% from June 30, 1994, to December 31,
1994. The change in equity is attributable to the Company's
earnings less dividends paid to shareholders and the unrealized
loss on securities (SFAS 115).
The Company's long-term debt decreased $236 thousand or 8% from
June 30, 1994, to December 31, 1994. The reduction is attributable
to regular debt service.
Short-term borrowings, consisting of repurchase agreements and
federal funds purchased by the Company's subsidiary banks provided
4.5% of funds at December 31, 1994, and 1.3% of funds at June 30,
1994.
Asset Quality
Loans of $179.8 million, and investment securities totaling $160.9
million are the principal assets of the Company. These two asset
categories combined make up 90.5% of total assets at December 31,
1994.
The quality of the Company's loan portfolio is monitored on an
ongoing basis. All of the Company's subsidiary banks have written
loan policies which help provide for consistent loan underwriting
and the basis for prudent loan decisions. Credit decisions are
based on the ability of the borrowers to repay the loan and the
value and liquidity of underlying collateral. Loan officers are
charged with the responsibility of reviewing existing loans on an
ongoing basis, identifying potential problem credits, and
developing action plans to collect and reduce problem loans. In
addition, loans are subject to review by the Company's internal
loan review officer, the Company's independent auditors, and bank
regulatory agencies.
The Company's internal loan review is performed by a loan review
officer who operates independently of the lending department and
reports directly to the banking subsidiaries' boards of directors.
Loan review encompasses examinations of the subsidiary banks' loans
for credit quality, documentation, and adherence to loan policy.
The Company also strives to avoid undue credit risk in its loan
Management's Discussion
Page 10
Asset Quality - (Continued)
portfolio by monitoring concentrations of loans by collateral,
purpose, and industry. The Company has no significant exposure to
highly leveraged transactions and has no foreign credits in its
loan portfolio.
The Company's level of problem assets total $2.2 million at
December 31, 1994, compared to $1.9 million at June 30, 1994.
Problem assets consist of other real estate (OREO), nonaccrual
loans, and loans 90 days past due. The Applewood Bank's problem
assets totaled $968 thousand at December 31, 1994, and $1.1 million
at June 30, 1994. Applewood's problem asset level largely reflects
problem assets acquired in the acquisition of the Bank which took
place during the preceding fiscal year. The Company is addressing
the problem assets at the Applewood Bank and is implementing the
same monitoring and review standards which are in place at its
other subsidiary banks.
At December 31, 1994, the Company had other real estate of $489
thousand compared to $414 thousand at June 30, 1994. Appraisals on
OREO properties are obtained annually. Any reduction in the fair
market value of the property is recorded immediately. The OREO
balance reflected in the balance sheets is the estimated amount
expected to be realized on the sale of the property, net of sales
expense.
Nonaccrual loans at December 31, 1994, were $1.7 million compared
to $1.4 million at June 30, 1994. The Company's 90 day past due
loans totaled $9 thousand at December 31, 1994, compared to $7
thousand at June 30, 1994.
The quality of the investment portfolio is a primary concern of
management. The Company's investment portfolio is structured to
provide profitability, and is managed to monitor the quality of
investments, and provide acceptable levels of liquidity. U.S.
government securities make up $84.6 million or 52.6% of the
investment portfolio at December 31, 1994. Obligations of states
and political subdivisions (municipal securities), comprise $17.8
million or 11.1% of the portfolio. Currently, 69.3% of the
municipal securities are Colorado bonds and 94.5% are rated A or
higher.
The Company also invests in mortgage backed securities and asset
backed securities. The mortgage backed securities consist of bonds
secured by pools of pass-through mortgage securities, primarily of
U.S. Agencies. The asset backed securities are secured by pools of
Management's Discussion
Page 11
Asset Quality - (Continued)
automobile loans, home equity loans, and letters of credit. The
mortgage backed securities are high quality securities and
consequently provide a good credit risk. All of the mortgage
backed securities are rated AAA. All of the asset backed
securities are rated at least A and 92.8% are rated AAA.
Liquidity
One of the principal functions of asset/liability management is to
provide for adequate liquidity. Liquidity is the ability to
ensure that sufficient funds are available to satisfy contractual
liabilities, to meet fluctuating loan demand and withdrawal
requirements of depositors, and to fund operations. The Company
depends on its financial strength, asset quality, and the stability
of its deposit base to ensure adequate liquidity. In the ordinary
course of business, cash flows needed to meet liquidity
requirements are generated from the Company's interest and fee
income, repayments of loan balances, and the regularly scheduled
maturities and cash flows of other earning assets.
Projected cash flows and maturities of the Company's investment
portfolio, due within one year, total $85.3 million, at December
31, 1994, and represent 53% of the portfolio. Maturities in the
loan portfolio also provide a steady flow of funds. Loan
maturities as well as regularly scheduled loan payments provide a
source of liquidity.
The overall liquidity of the Company is also enhanced by its
ability to purchase federal funds through established correspondent
banking relationships.
The parent company's cash requirements consist primarily of
dividends to shareholders and principal and interest payments on
debt. The long-term debt of the parent is relatively moderate
compared to its peers. The principal source of funds for the
parent is dividends from its subsidiary banks. Based on the strong
capital levels and current earnings of the subsidiary banks,
projected cash flows of the parent are adequate to service the debt
and provide for its operational needs.
Management's Discussion
Page 12
Capital Resources
The Company's capital adequacy is important for a number of
reasons. The strength of the Company can be determined by a review
of its underlying capital. A strong capital base is necessary to
support the volume, type, and character of the Company's business
and to provide for the absorption of adverse operating results. In
addition, the capital position of the Company lends itself to
promote public confidence in the Company and its subsidiary banks,
and furnishes a safeguard for depositors and other creditors.
Equity of the Company increased $2 million or 7.2% from June 30,
1994, to December 31, 1994. The equity balance was increased by
the six month earnings, and reduced by shareholder dividends of
$.30 per share. The Company's equity total has also been reduced,
since June 30, 1994, by the net unrealized loss on securities held
as "available of sale," as discussed earlier.
The Company is subject to the Federal Reserve's guidelines
pertaining to risk-based capital. The guidelines require the
calculation of risk-based capital ratios which provide a consistent
system for comparing capital positions of banking organizations and
to consider the different degrees of credit risk among an
organization's assets and off-balance sheet items in assessing
capital adequacy. Under these final guidelines the Company's Tier
1 capital was 12.6%, and the total capital was 13.85%, of risk-
based assets. These risk-based capital ratios are well above the
minimum requirements of 4% for Tier 1 capital and 8% for total
risk-based capital.
In addition, the Federal Reserve Board has introduced the leverage
ratio, which measures Tier 1 capital against quarterly average
assets, net of goodwill. A leverage ratio of 3% is the minimum
requirement for the most highly rated banking organizations and
most banking organizations would be expected to maintain a leverage
ratio between 4% and 5%. The Company's leverage ratio at December
31, 1994, is 7.34%.
The Company's subsidiary banks must also comply with the risk-based
capital guidelines and the leverage ratio requirements. At
December 31, 1994, all of the subsidiary banks exceed the regu-
latory minimums.
The Federal Deposit Insurance Corporation (FDIC) has published the
conditions for banks to qualify as a "well capitalized" bank for
the purpose of assignment of FDIC insurance premium rates.
Management's Discussion
Page 13
Capital Resources - (Continued)
To qualify as a "well capitalized" bank, an institution must have
a Tier 1 risk-based capital ratio of at least 6%, a total risk-
based capital ratio of at least 10%, and a leverage ratio of at
least 5%. If a bank meets these capital standards, and has a
sufficiently high supervisory rating, it will be assessed the
lowest FDIC insurance premium rate of $.23 per $100. At December
31, 1994, all of the Company's subsidiary banks met the criteria of
a "well capitalized" bank.
Interest Rate Sensitivity
Interest sensitivity risk is the risk that future changes in
interest rates will decrease net interest income. Net interest
income is affected by fluctuations in market interest rates as a
result of mismatches in the repricing of its assets and liabili-
ties. These mismatches are quantified in specific time intervals
and are referred to as interest rate sensitivity gaps. An asset
sensitive gap position, indicates that the net interest margin will
move in the same direction as interest rates (i.e., as rates
increase the net interest margin will increase). A liability
sensitive gap position would cause net interest income to move in
the opposite direction from interest rates.
The following table presents the Company's gap profile at December
31, 1994. To take into account such factors as prepayments of
certain types of loans and investments the analysis focuses on the
expected repricing of these assets (the "managerial gap") rather
than on contractual terms. For deposits without defined maturities
- - savings, N.O.W., and money market accounts - the estimated life
is based on maximum stated lives as provided by the guidelines in
the proposed Section 305 of the Federal Deposit Insurance
Corporation Improvement Act.
Management's Discussion
Page 14
Interest Rate Sensitivity - (Continued)
<TABLE>
Interest Rate Sensitivity Table
(Dollar Amounts in Thousands)
<CAPTION>
Cumulative Sensitivity Period
One to Over
Three Six One Five Five
Months Months Year Years Years
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Short-term investments $ 2,757 $ 2,757 $ 2,757 $ 2,757 $ 2,757
Securities 26,929 48,092 89,952 154,884 161,264
Loans 70,016 76,046 85,061 153,228 179,805
Total 99,702 126,895 177,770 310,869 343,826
Interest Bearing Liab.:
Savings and NOW accounts 0 0 0 128,863 128,863
Money market accounts 0 11,613 34,840 58,066 58,066
Time deposits 19,988 30,739 41,130 55,073 55,118
Short-term borrowings 17,094 17,094 17,094 17,094 17,094
Long-term debt 2,711 2,711 2,711 2,711 2,711
Total 39,793 62,157 95,775 261,807 261,852
Interest sensitivity gap $59,909 $64,738 $81,995 $ 49,062 $ 81,974
====== ====== ====== ====== ======
Percent of earning assets 17.42% 18.83% 23.85% 14.27% 23.84%
</TABLE>
This table shows that the Company is asset sensitive, and is in a
favorable position, as management believes we are currently in a rising
interest rate environment.
Gap analysis provides a static view of the Company's rate sensitivity at
a specific point in time. Further, this type of analysis assumes that
rate sensitive assets and liabilities are equally sensitive to rate
changes within the periods shown. In reality, however, there are varying
degrees of rate sensitivity.
Due to the limitations of gap reports the Company uses a simulation model
as its primary method of measuring interest rate risk. The model
simulates the Company's interest margin over a variety of interest rate
scenarios and time horizons. Because of the model's dynamic nature it can
capture the effects of different patterns of rate movements and the
changing relationships between rates. In addition, the model can take into
Management's Discussion
Page 15
Interest Sensitivity - (Continued)
account the effects of interest rate ceilings and floors. At December 31,
1994, the Company's simulation modeling indicates that net interest income
would fluctuate by approximately 3% due to an increase or decrease in
interest rates of 200 basis points over the remainder of fiscal 1995. If
interest rates rise, the change would be positive, and as previously
stated, management believes that the Company is in a favorable position to
take advantage of a rising interest rate environment.
Other Matters
On September 26, 1994, the Company announced that a letter of intent had
been signed for the merger of the Company into Norwest Corporation.
On November 22, 1994, the Company announced that a definitive agreement
providing for the merger of the Company into Norwest Corporation had been
executed. Terms of the agreement call for a tax free exchange of 1.9876
shares of Norwest common stock for each share of Goldenbanks common stock.
The agreement provides that if the average closing price of Norwest common
stock is less than $21.00 per share during the 15 trading days, ending
prior to the Goldenbanks shareholder meeting, held for the purpose of
approving the merger, Goldenbanks can terminate the purchase agreement.
Consummation of the transaction is conditioned on, among other things, the
approval of Goldenbanks' shareholders, and approval of all applicable
regulatory authorities. No assurances can be given regarding the time
frame under which the transaction would be completed. However, it is
anticipated the closing would occur in the first half of 1995.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDENBANKS OF COLORADO, INC.
Date: February 14, 1995
By _____________________________
William J. Fortune
President, Director, Chairman of the
Board, and Chief Executive
Officer
Date: February 14, 1995
By ____________________________
G. Scott Gagon
Director, Executive Vice President,
Treasurer, and Principal
Financial Accounting Officer
