<PAGE>
As filed with the Securities and Exchange Commission on February 8, 1994
Registration No. 033-52015
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
NORWEST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 6711 41-0449260
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Norwest Center
Sixth and Marquette
Minneapolis, Minnesota 55479-1000
612-667-1234
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
Stanley S. Stroup
Executive Vice President and General Counsel Copy to:
Norwest Corporation Mary E. Schaffner
Norwest Center Norwest Corporation
Sixth and Marquette Norwest Center
Minneapolis, Minnesota 55479-1026 Sixth and Marquette
612-667-8858 Minneapolis, Minnesota 55479-1026
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
---------------------
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of the Registration
Statement.
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. [_]
===============================================================================
<PAGE>
NORWEST CORPORATION
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C>
1. Forepart of Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Available Information;
Pages of Prospectus Incorporation of Certain
Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Summary Information
Charges, and Other Information
4. Terms of the Transaction The Transaction
5. Pro Forma Financial Information *
6. Material Contacts with the Company The Transaction
Being Acquired
7. Additional Information Required for *
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Counsel Legal Opinion
9. Disclosure of Commission Position on *
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Summary; The Merger;
Registrants Recent Operating Results of
Norwest; Certain Regulatory
Considerations
11. Incorporation of Certain Information Incorporation of Certain
by Reference Documents by Reference;
Management and Additional
Information
12. Information with Respect to S-2 or *
S-3 Registrants
</TABLE>
<PAGE>
NORWEST CORPORATION
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Form S-4 Item Prospectus Heading
------------- ------------------
<S> <C>
13. Incorporation of Certain Information *
by Reference
14. Information with Respect to *
Registrants Other Than S-2 or S-3
Registrants
15. Information with Respect to S-3 *
Companies
16. Information with Respect to *
S-2 or S-3 Companies
17. Information with Respect to Companies Summary--Selected Financial
Other Than S-2 or S-3 Companies Data; Summary--Comparative
Unaudited Per Share Data;
Information About Bancshares
and the Bank
18. Information If Proxies, Consents, Meeting Information;
or Authorizations Are to Be Solicited The Transaction--Dissenters'
Rights
19. Information If Proxies, Consents, or *
Authorizations Are Not to Be Solicited
in an Exchange Offer
- ------------------------
*Item is omitted because answer is negative or item is inapplicable.
<PAGE>
D. L. BANCSHARES, INC.
211 WEST HOLMES STREET
DETROIT LAKES, MN 56501
February 9, 1994
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
(the "Special Meeting") of D. L. Bancshares, Inc. ("Bancshares") to be held at
3300 Norwest Center, Minneapolis, Minnesota 55402 on March 11, 1994, at 10:00
a.m., local time. At the Special Meeting you will be asked to consider and
vote upon the Agreement and Plan of Reorganization, dated as of September 23,
1993, as amended, among Bancshares, First National Bank of Detroit Lakes (the
"Bank"), and Norwest Corporation ("Norwest"), and the related Agreement and
Plan of Merger (together, the "Merger Agreement"), providing for (a) the merger
of Bancshares (the "Merger") with a wholly-owned subsidiary of Norwest and (b)
subsequent to the Merger, the consolidation of the Bank with a wholly owned
banking subsidiary of Norwest.
Under the terms of the Merger Agreement, the Merger will result in the
conversion of each share of Bancshares Class A Voting Common Stock and each
share of Bancshares Class B Non-Voting Common Stock outstanding immediately
prior to the time the Merger becomes effective into a number of shares of
Norwest common stock (par value $1-2/3 per share) determined in accordance with
the provisions of the Merger Agreement, which are described in the accompanying
Proxy Statement-Prospectus for the Special Meeting.
The enclosed Proxy Statement-Prospectus contains a more complete
description of the terms of the Merger. You are urged to read the Proxy
Statement-Prospectus carefully.
The Board of Directors has approved the Merger Agreement as being in the
best interest of Bancshares's shareholders and recommends that you vote in
favor of the Merger. In making this recommendation, the Board of Directors has
considered numerous factors including the consideration offered by Norwest and
the structure of the proposed Merger, which allows shareholders of Bancshares
to participate in the future of the combined organization and which is intended
to qualify as a tax-free reorganization for federal income tax purposes. See
"THE TRANSACTION--Certain Federal Income Tax Consequences" in the Proxy
Statement-Prospectus.
In order to ensure that your vote is represented at the Special Meeting,
PLEASE DATE, SIGN, AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE. If
you attend the meeting, you may vote in person if you wish, even though you
have previously returned your proxy.
/s/ Robert A. Harris
--------------------
Robert A. Harris
Chairman of the Board and President
<PAGE>
D. L. BANCSHARES, INC.
211 WEST HOLMES STREET
DETROIT LAKES, MINNESOTA 56501
------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON MARCH 11, 1994
------------------------------
A special meeting of shareholders (the "Special Meeting") of D. L.
Bancshares, Inc. ("Bancshares), a Minnesota corporation, will be held at 3300
Norwest Center, Minneapolis, Minnesota 55402, on Friday, March 11, 1994, at
10:00 a.m., local time, for the following purposes:
1. To consider and vote upon the Agreement and Plan of Reorganization,
dated as of September 23, 1993, as amended, (including the Agreement and
Plan of Merger attached thereto) by and among Bancshares, First National
Bank of Detroit Lakes (the "Bank"), a national banking association, and
Norwest Corporation ("Norwest"), a Delaware corporation, a copy of which is
included in the accompanying Proxy Statement-Prospectus as Appendix A,
under the terms of which (a) a wholly-owned subsidiary of Norwest would be
merged with Bancshares (the "Merger"), with Bancshares as the surviving
corporation, and each outstanding share of (i) Class A Common Stock (the
"Class A Common Stock"), par value $.01 per share and (ii) Class B Non-
Voting Common Stock, par value $.01 per share (the "Class B Common Stock")
(collectively, the "Bancshares Common Stock"), of Bancshares would be
converted into shares of common stock, par value $1 2/3 per share, of
Norwest ("Norwest Common Stock"), and (b) subsequent to the consummation of
the Merger, the Bank would be consolidated with a wholly-owned national
banking subsidiary of Norwest; and to authorize such further action by the
Board of Directors and proper officers of Bancshares as may be necessary or
appropriate to carry out the intent and purposes of the Merger.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only holders of record of Bancshares Class A Common Stock on the books of
Bancshares at the close of business on February 15, 1994, will be entitled to
vote at the Special Meeting or any adjournment thereof.
Your attention is directed to the Proxy Statement-Prospectus accompanying
this notice for a more complete statement regarding the matters to be acted
upon at the Special Meeting.
By Order of the Board of Directors
/s/ Raymond J. Schirmer
Secretary and Treasurer
February 9, 1994
HOLDERS OF BANCSHARES COMMON STOCK ARE URGED TO COMPLETE, SIGN, DATE, AND MAIL
THE ENCLOSED PROXY PROMPTLY IN THE ACCOMPANYING ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES. IF YOU ATTEND THE SPECIAL MEETING,
YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AND VOTE IN PERSON. THE PROXY MAY BE
REVOKED AT ANY TIME PRIOR TO ITS EXERCISE IN THE MANNER DESCRIBED IN THE PROXY
STATEMENT-PROSPECTUS.
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
211 WEST HOLMES STREET
DETROIT LAKES, MINNESOTA 56501
February 9, 1994
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders (the
"Special Meeting") of First National Bank of Detroit Lakes (the "Bank") to be
held at the main office of the Bank, 211 West Holmes Street, Detroit Lakes,
Minnesota 56501, on Friday, March 11, 1994, at 11:00 a.m., local time. At
the Special Meeting you will be asked to consider and vote upon the
consolidation (the "Bank Consolidation") of the Bank with Norwest Interim
Bank Detroit Lakes, National Association ("Norwest Interim Bank"), a wholly
owned subsidiary of Norwest Corporation ("Norwest"), pursuant to the terms of
the Agreement and Plan of Consolidation (the "Bank Consolidation Agreement"), to
be entered into by the Bank and Norwest Interim Bank and the related Agreement
and Plan of Reorganization dated as of September 23, 1993, as amended, among
D. L. Bancshares, Inc., the Bank, and Norwest (the "Merger Agreement").
Pursuant to the terms of the Merger Agreement and the Bank Consolidation
Agreement, in the Bank Consolidation, each share of common stock of the Bank
("Bank Common Stock") outstanding prior to the Bank Consolidation, other than
shares owned by Norwest, will be converted into and exchanged for a number of
shares of Norwest common stock (par value $1-2/3) ("Norwest Common Stock")
determined in accordance with the provisions of the Merger Agreement, which are
described in the enclosed Proxy Statement-Prospectus.
Please read the enclosed Proxy Statement-Prospectus for further information
concerning the Bank Merger and related transactions, and the parties involved.
Approval of the Bank Consolidation requires the affirmative vote of a
majority of the outstanding shares of Bank Common Stock. Your Board of
Directors believes that the terms of the proposed transaction are fair and in
the best interests of Bank shareholders, and therefore recommends approval of
the Bank Merger.
/s/ Robert A. Harris
President
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
211 WEST HOLMES STREET
DETROIT LAKES, MINNESOTA 56501
--------------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON MARCH 11, 1994
--------------------------------
A special meeting of shareholders (the "Special Meeting"), of First
National Bank of Detroit Lakes (the "Bank"), a national banking association,
will be held at the main office of the Bank, 211 West Holmes Street, Detroit
Lakes, Minnesota 56501 on Friday, March 11, 1994, at 11:00 a.m., local time,
for the following purposes:
1. To consider and vote upon whether the proposed consolidation (the
"Consolidation") of First National Bank of Detroit Lakes with Norwest
Interim Bank Detroit Lakes, National Association ("Norwest Bank"), an
interim national banking association to be formed as a wholly-owned
subsidiary of Norwest Corporation, a Delaware corporation, pursuant to the
terms of the Agreement and Plan of Consolidation (the "Bank Consolidation
Agreement"), to be entered into by the Bank and Norwest Bank (the form of
which is attached as Appendix B to the accompanying Proxy Statement-
Prospectus), under the laws of the United States, shall be ratified and
confirmed; and to vote upon any other matters incidental to the
Consolidation.
2. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Only shareholders of record on the books of the Bank at the close of
business on February 15, 1994, will be entitled to vote at the Special Meeting
or any adjournment thereof.
Your attention is directed to the Proxy Statement-Prospectus accompanying
this notice for a more complete statement regarding the matters to be acted
upon at the Special Meeting.
By Order of the Board of Directors
/s/ Raymond J. Schirmer
Executive Vice President & Cashier
February 9, 1994
HOLDERS OF BANK COMMON STOCK ARE URGED TO READ
THE ENCLOSED PROXY STATEMENT-PROSPECTUS
CAREFULLY AND COMPLETELY.
THE BANK IS NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND A PROXY TO THE BANK.
<PAGE>
PROXY STATEMENT OF
D. L. BANCSHARES, INC.
FOR A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 11, 1994[/R]
---------------------
INFORMATION STATEMENT OF
FIRST NATIONAL BANK OF DETROIT LAKES
FOR A SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 11, 1994[/R]
____________
PROSPECTUS
OF
NORWEST CORPORATION
COMMON STOCK
This Prospectus of Norwest Corporation ("Norwest") relates to the issuance
of up to 450,000 shares of the common stock, par value $1 2/3 per share, of
Norwest ("Norwest Common Stock") issuable to (i) the shareholders of D. L.
Bancshares, Inc. ("Bancshares") upon consummation of the proposed merger (the
"Merger") of a wholly-owned subsidiary of Norwest, Norwest Acquisition Co.
("Merger Co.") with and into Bancshares, with Bancshares as the surviving
corporation, pursuant to the terms of an Agreement and Plan of Reorganization,
dated as of September 23, 1993, as amended, by and among Bancshares, First
National Bank of Detroit Lakes (the "Bank"), and Norwest (together with the
Agreement and Plan of Merger attached thereto, the "Merger Agreement"), and
(ii) the stockholders, other than Bancshares, of the Bank upon consummation of
the proposed consolidation (the "Bank Consolidation") of the Bank with Norwest
Interim Bank Detroit Lakes, National Association ("Norwest Interim Bank"), an
interim national banking association to be formed as a wholly owned subsidiary
of Norwest, pursuant to the terms of an Agreement and Plan of Consolidation
to be entered into by the Bank and Norwest Interim Bank (the "Bank
Consolidation Agreement"). The Merger and the Bank Consolidation are
sometimes hereinafter collectively referred to as the "Reorganizations." The
Merger Agreement and the form of the Bank Consolidation Agreement
(collectively, the "Reorganization Documents") are set forth in Appendix A and
Appendix B, respectively, to this Proxy Statement-Prospectus and are
incorporated by reference herein.
This Prospectus also serves as the Proxy Statement of Bancshares for a
special meeting of its shareholders to be held on Friday, March 11, 1994 (the
"Bancshares Special Meeting"), and the Information Statement of the Bank for a
special meeting of its shareholders to be held on March 11, 1994 (the "Bank
Special Meeting").
Except as described herein, upon consummation of the Reorganizations, each
outstanding share of (i) the Class A Voting Common Stock (the "Class A Common
Stock") and (ii) the Class B Non-Voting Common Stock (the "Class B Common
Stock") of Bancshares (collectively, the "Bancshares Common Stock") and each
outstanding share of common stock of the Bank ("Bank Common Stock"), other than
shares of Bank Common Stock owned by Bancshares, will be converted into shares
of Norwest Common Stock. The actual number of shares of Norwest Common Stock
to be issued upon consummation of the Reorganizations will be based on the
equity of the Bank (as defined in the Merger Agreement), on the net assets
(liabilities) of Bancshares (other than its shares in the Bank), and on the
market price of Norwest Common Stock determined during a measurement period
provided for in the Reorganization Agreements.
For a more complete description of the Merger Agreement and the Bank
Consolidation Agreement and the terms of the Merger and the Bank Consolidation,
see "THE TRANSACTION."
This Proxy Statement-Prospectus and the form of proxy for the special
meeting of Bancshares shareholders are first being mailed to shareholders of
Bancshares and to shareholders of the Bank on or about February 9, 1994.[/R]
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
The date of this Proxy Statement-Prospectus is February 9, 1994.
<PAGE>
AVAILABLE INFORMATION
Norwest is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Norwest files reports, proxy statements, and other information with
the Securities and Exchange Commission (the "Commission").
Reports, proxy statements, and other information concerning Norwest can be
inspected and copied at the public reference facilities of the Commission, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048, and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained at prescribed
rates by writing to the Commission, Public Reference Section, 450 Fifth Street,
N.W., Washington, D.C. 20549. Reports, proxy statements, and other information
filed by Norwest with the New York Stock Exchange and the Chicago Stock
Exchange may be inspected at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005 and at the offices of the Chicago Stock
Exchange at One Financial Place, 440 South LaSalle Street, Chicago, Illinois
60605.
This Proxy Statement-Prospectus does not contain all of the information
set forth in the Registration Statement on Form S-4 and exhibits thereto (the
"Registration Statement") covering the securities offered hereby that Norwest
has filed with the Commission. Certain portions of the Registration Statement
have been omitted pursuant to the rules and regulations of the Commission.
Reference is hereby made to such omitted portions for further information with
respect to Norwest, Bancshares, and the securities offered hereby.
2
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO NORWEST,
EXCLUDING EXHIBITS, UNLESS SPECIFICALLY INCORPORATED THEREIN, ARE AVAILABLE
WITHOUT CHARGE UPON REQUEST TO LAUREL A. HOLSCHUH, SECRETARY, NORWEST
CORPORATION, NORWEST CENTER, SIXTH AND MARQUETTE, MINNEAPOLIS, MINNESOTA
55479-1026, TELEPHONE (612) 667-8655. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY MARCH 4, 1994.
The following documents filed by Norwest with the Commission are
incorporated by reference in, and made a part of, this Proxy Statement-
Prospectus: (i) Annual Report on Form 10-K for the year ended December 31,
1992, as amended by Amendment No. 1 on Form 8 dated March 3, 1993; (ii)
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1993, June 30,
1993 and September 30, 1993; (iii) Current Reports on Form 8-K dated February
8, 1993, March 12, 1993, June 28, 1993, August 10, 1993, August 31, 1993,
September 15, 1993, September 27, 1993, October 25, 1993 and December 29, 1993;
and (iv) the description of Norwest Common Stock, 10.24% Cumulative Preferred
Stock, Cumulative Convertible Preferred Stock, Series B, and Series A Junior
Participating Preferred Stock Purchase Rights contained in the Registration
Statements filed pursuant to Section 12 of the Securities Exchange Act, as
amended, (the "Exchange Act") and any amendment or report filed for the purpose
of updating any such description.
All documents filed by Norwest with the Commission pursuant to Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act subsequent to the date hereof
and prior to the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of such filing. Any
statement contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes
hereof to the extent that a statement contained herein or in any other
subsequently filed document which also is, or is deemed to be, incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part hereof.
3
<PAGE>
TABLE OF CONTENTS
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
AVAILABLE INFORMATION...................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 3
SUMMARY.................................................................... 6
The Companies........................................................... 6
Terms of the Transaction................................................ 7
Special Meetings and Vote Required...................................... 8
Reasons for the Reorganizations; Recommendations of the Boards of
Directors.............................................................. 9
Effective Dates of the Reorganizations.................................. 9
Regulatory Approvals................................................... 10
Management and Operations After the Reorganizations.................... 10
Interests of Certain Persons in the Transaction........................ 10
Rights of Dissenting Shareholders...................................... 10
Certain Federal Income Tax Consequences................................ 10
Markets and Market Prices.............................................. 11
Certain Differences in Rights of Shareholders.......................... 11
Comparative Unaudited Per Share Data................................... 11
Selected Financial Data................................................ 14
MEETING INFORMATION....................................................... 17
General................................................................ 17
Date, Place, and Time.................................................. 17
Record Date; Vote Required............................................. 17
Principal Shareholders and Security Ownership of Management of
Bancshares............................................................ 18
Principal Stockholders and Security Ownership of Management of
the Bank.............................................................. 20
Voting and Revocation of Proxies for the Bancshares Special Meeting.... 21
Solicitation of Proxies for the Bancshares Special Meeting............. 21
THE TRANSACTION........................................................... 22
Reasons for the Merger................................................. 22
Reasons for the Bank Consolidation..................................... 22
Terms of the Reorganization............................................ 23
Effective Dates of the Reorganizations................................. 25
Surrender of Certificates.............................................. 26
Other Terms and Conditions to the Reorganizations...................... 27
Regulatory Approvals................................................... 28
Business Pending the Reorganizations................................... 29
Waiver, Amendment, and Termination..................................... 31
Management and Operations After the Reorganizations.................... 31
Interest of Certain Persons in the Transaction......................... 32
Certain Differences in Rights of Shareholders.......................... 33
Dissenter's Rights of Bancshares Shareholders.......................... 38
Appraisal Rights of Dissenting Bank Shareholders....................... 40
Certain Federal Income Tax Consequences................................ 41
Resale of Norwest Common Stock......................................... 42
Dividend Reinvestment and Optional Cash Payment Plan................... 43
Accounting Treatment................................................... 43
Expenses............................................................... 43
4
<PAGE>
INFORMATION ABOUT BANCSHARES AND THE BANK.................................. 45
General................................................................. 45
The Bank................................................................ 45
Competition............................................................. 45
Employees............................................................... 45
Market Prices and Dividends............................................. 45
Regulation.............................................................. 46
Management's Discussion and Analysis of Financial Condition and Results
of Operations......................................................... 46
RECENT OPERATING RESULTS OF NORWEST........................................ 102
CERTAIN REGULATORY CONSIDERATIONS.......................................... 104
General................................................................. 104
Dividend Restrictions................................................... 104
Holding Company Structure............................................... 104
Capital Requirements.................................................... 105
Federal Deposit Insurance Corporation Improvement Act of 1991........... 106
FDIC Insurance.......................................................... 108
EXPERTS.................................................................... 109
LEGAL OPINION.............................................................. 109
MANAGEMENT AND ADDITIONAL INFORMATION...................................... 109
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION, AND AGREEMENT
AND PLAN OF MERGER (THE MERGER AGREEMENT)
APPENDIX B AGREEMENT AND PLAN OF CONSOLIDATION
(THE BANK CONSOLIDATION AGREEMENT)
APPENDIX C MINNESOTA STATUTE SECTIONS 302A.471 and 302A.473
APPENDIX D UNITED STATES CODE, TITLE 12, SECTION 215
APPENDIX E BANKING CIRCULAR 259
-----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE NORWEST COMMON STOCK
OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY STATEMENT-
PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF NORWEST OR BANCSHARES SINCE THE DATE OF THIS PROXY STATEMENT-
PROSPECTUS.
5
<PAGE>
SUMMARY
The following summary is not intended to be complete and is qualified in
all respects by the more detailed information included in this Proxy Statement-
Prospectus, the Appendices hereto, and the documents incorporated by reference
herein. When used in this Proxy Statement-Prospectus, the terms "Norwest",
"Bancshares", and "Bank" refer to Norwest Corporation, D.L. Bancshares, Inc.,
and First National Bank of Detroit Lakes, respectively, and where the context
requires, such entities and their respective subsidiaries. All information
concerning Norwest included in this Proxy Statement-Prospectus has been
furnished by Norwest, and all information concerning Bancshares and the Bank
included in this Proxy Statement-Prospectus has been furnished by Bancshares
and the Bank to Norwest for incorporation herein. ON APRIL 27, 1993, THE BOARD
OF DIRECTORS OF NORWEST DECLARED A 2-FOR-1 STOCK SPLIT IN THE FORM OF A 100%
STOCK DIVIDEND ON NORWEST COMMON STOCK, WHICH WAS DISTRIBUTED ON JUNE 28, 1993,
TO HOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON JUNE 4, 1993. THE INFORMATION
IN THIS PROXY STATEMENT-PROSPECTUS HAS BEEN ADJUSTED TO GIVE EFFECT TO THE
STOCK SPLIT.
THE COMPANIES
NORWEST CORPORATION
Norwest Corporation is a regional bank holding company organized under
the laws of Delaware in 1929 and registered under the Bank Holding Company Act
of 1956, as amended (the "BHC Act"). As a diversified financial services
organization, Norwest operates through subsidiaries engaged in banking and in
related businesses. Norwest provides retail, commercial, and corporate banking
services to its customers through banks located in Arizona, Colorado, Illinois,
Indiana, Iowa, Minnesota, Montana, Nebraska, North Dakota, Ohio, South Dakota,
Wisconsin, and Wyoming. Norwest provides additional financial services to its
customers through subsidiaries engaged in various businesses, principally
mortgage banking, consumer finance, equipment leasing, agricultural finance,
commercial finance, securities brokerage and investment banking, insurance,
computer and data processing services, trust services, and venture capital
investments.
At September 30, 1993, Norwest had consolidated total assets of $50.4
billion, total deposits of $31.6 billion, and total stockholders' equity of
$3.4 billion. Based on total assets at September 30, 1993, Norwest was the
13th largest commercial banking organization in the United States. Norwest
recently completed, through its subsidiary GST Co., the acquisition of First
United Bank Group, Inc. ("First United"), a bank holding company headquartered
in Albuquerque, New Mexico, in exchange for 17,785,447 shares (excluding shares
reserved for stock options) of Norwest Common Stock. First United owned and
operated banks in New Mexico and Texas as well as other subsidiaries engaged in
related businesses, and had $3.5 billion in assets at September 30, 1993.
Norwest regularly explores opportunities for acquisitions of financial
institutions and related businesses. Generally, management of Norwest does not
make a public announcement about an acquisition until a definitive agreement
has been signed. Norwest has also entered into definitive agreements for the
acquisition of various other financial institutions having aggregate total
assets at September 30, 1993, of $1.3 billion. Certain of these acquisitions
have received regulatory approval and are expected to be completed in the first
or second quarter of 1994. The remaining acquisitions are subject to the
approval of regulatory authorities and are also expected to be completed in the
second quarter of 1994. None of these
6
<PAGE>
acquisitions are significant for the financial statements of Norwest, either
individually or in the aggregate.
Norwest's principal executive offices are located at Norwest Center,
Sixth and Marquette, Minneapolis, Minnesota 55479-1000, and its telephone
number is 612-667-1234.
Additional information concerning Norwest is included in the Norwest
documents incorporated by reference herein. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
D. L. BANCSHARES, INC. AND FIRST NATIONAL BANK OF DETROIT LAKES
Bancshares is a one-bank holding company organized under the laws of
Minnesota in 1982 and registered under the BHC Act. It owns 95.24% of the
stock of its sole subsidiary, First National Bank of Detroit Lakes, Detroit
Lakes, Minnesota. As of September 30, 1993, Bancshares had total consolidated
assets of $77.7 million, and total stockholders' equity of $3.4 million.
The Bank was incorporated in 1927 as a national bank. As of September
30, 1993, the Bank reported total assets of $76.9 million, total deposits of
$68.1 million, and net loans outstanding of $45.9 million.
The principal executive offices of Bancshares and the Bank are located at
211 West Holmes Street, Detroit Lakes, Minnesota 56501. The telephone number
of Bancshares and the Bank is 218-847-1361.
TERMS OF THE TRANSACTION
The Merger Agreement provides for the merger of Merger Co. with and into
Bancshares, with Bancshares as the surviving corporation. Upon consummation of
the Merger, the outstanding shares of Bancshares Common Stock (other than
shares as to which statutory dissenters' rights have been exercised and not
forfeited) will be converted into a number of shares of Norwest Common Stock
determined in accordance with the provisions of the Merger Agreement. The
exact number of shares of Norwest Common Stock into which each outstanding
share of Bancshares Common Stock will be converted will be determined by a
conversion factor (the "Merger Conversion Factor") based on the equity of the
Bank as determined in accordance with generally accepted accounting principles
(excluding certain adjustments for investments available for sale and
marketable equity securities), the average of the closing prices of Norwest
Common Stock during a specified period, and the number of shares of Bancshares
Common Stock outstanding immediately prior to the Effective Time of the Merger.
The Merger Agreement, and the Bank Consolidation Agreement also provide
for the consolidation of the Bank with Norwest Interim Bank under the charter
of the Bank (the "Bank Consolidation") following the Effective Time of the
Merger. Upon consummation of the Bank Consolidation, the outstanding shares of
Bank Common Stock (other than shares owned by Bancshares and shares as to which
statutory dissenters' rights of appraisal have been exercised and not
forfeited) will be converted into shares of Norwest Common Stock in accordance
with the provisions of the Bank Consolidation Agreement. The exact number of
shares of Norwest Common Stock into which each outstanding share of Bank Common
Stock will be converted will be determined by a conversion factor (the "Bank
Conversion Factor") based on the net assets (liabilities) of Bancshares (other
than its shares in the
7
<PAGE>
Bank), the average of the closing prices of Norwest Common Stock during a
specified period (the "Norwest Measurement Price"), and the number of shares of
Bank Common Stock owned by shareholders other than Bancshares immediately prior
to the Effective Time of the Bank Consolidation (as defined below). See "THE
TRANSACTION--Terms of the Reorganizations."
SPECIAL MEETINGS AND VOTE REQUIRED
BANCSHARES SPECIAL MEETING
The special meeting of Bancshares shareholders (the "Bancshares Special
Meeting") to consider and vote on the Merger will be held on Friday, March
11, 1994, at 10:00 a.m., local time, at 3300 Norwest Center, Minneapolis,
Minnesota 55402. Only holders of record of Bancshares Class A Common Stock at
the close of business on February 15, 1994, will be entitled to vote on the
Merger at the Bancshares Special Meeting. At such date, there were 9,245
shares of Bancshares Class A Common Stock outstanding. Each share of
Bancshares Class A Common Stock is entitled to one vote. For additional
information relating to the Bancshares Special Meeting, see "MEETING
INFORMATION."
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Bancshares Class A Common
Stock. AS OF THE RECORD DATE FOR THE BANCSHARES SPECIAL MEETING, THREE MEMBERS
OF THE FINGERHUT FAMILY AND A RELATED FAMILY TRUST (THE "FINGERHUT
SHAREHOLDERS") OWNED OR CONTROLLED THE VOTING OF 9,215 SHARES, OR 99.68% OF THE
OUTSTANDING SHARES OF BANCSHARES CLASS A COMMON STOCK, THE SOLE CLASS OF
BANCSHARES COMMON STOCK WITH THE RIGHT TO VOTE ON THE MERGER. ACCORDINGLY,
WITHOUT THE VOTE OF THE REMAINING BANCSHARES SHAREHOLDERS, THE FINGERHUT
SHAREHOLDERS WILL HAVE THE ABILITY TO EFFECT THE MERGER. The Fingerhut
Shareholders have informed Bancshares that they intend to vote all of their
shares in favor of the Merger Agreement. The remaining outstanding shares of
Bancshares Common Stock are held by the directors of Bancshares, certain of
whom may also be deemed to be affiliates of the Fingerhut Shareholders. At the
record date, directors and executive officers of Norwest did not own
beneficially any shares of Bancshares Common Stock. See "MEETING
INFORMATION--Record Date; Vote Required" and "MEETING INFORMATION--Principal
Shareholders and Security Ownership of Management of Bancshares."
BANK SPECIAL MEETING
The special meeting of Bank stockholders (the "Bank Special Meeting") to
consider and vote on the Bank Consolidation will be held on Friday, March 11,
1994, at 11:00 a.m., local time, at the main office of the Bank, 211 West
Holmes Street, Detroit Lakes, Minnesota 56501. Only holders of record of Bank
Common Stock at the close of business on February 15 1994, will be entitled to
vote at the Bank Special Meeting. At such date, there were 9,245 shares of
Bank Common Stock outstanding. Each share of Bank Common Stock is entitled to
one vote. For additional information relating to the Bank Special Meeting, see
"MEETING INFORMATION."
Approval of the Bank Consolidation Agreement requires the affirmative vote
of the holders of two-thirds of the outstanding shares of Bank Common Stock.
AS OF THE RECORD DATE FOR THE BANK SPECIAL MEETING, BANCSHARES HELD 8,805, OR
95.24%, OF THE OUTSTANDING SHARES OF BANK COMMON STOCK. ACCORDINGLY, WITHOUT
THE VOTE OF THE REMAINING BANK SHAREHOLDERS, BANCSHARES WILL HAVE THE ABILITY
TO EFFECTUATE THE BANK CONSOLIDATION. In
8
<PAGE>
addition, directors of the Bank beneficially own all of the remaining 440
shares of the Bank Common Stock. Management of Bancshares and such directors
have informed the Bank that they intend to vote all of their shares in favor of
the Bank Consolidation Agreement. At the record date, directors and executive
officers of Norwest did not own beneficially any shares of the Bank Common
Stock. See "MEETING INFORMATION--Record Date; Vote Required" and "MEETING
INFORMATION--Principal Shareholders and Security Ownership of Management of the
Bank."
REASONS FOR THE REORGANIZATIONS; RECOMMENDATION OF THE BOARDS OF DIRECTORS
The Board of Directors of Bancshares carefully considered and approved the
terms of the Merger unanimously as being in the best interests of Bancshares
and its shareholders and recommends that Bancshares shareholders vote FOR the
proposal to approve the Merger Agreement.
The Board of Directors of the Bank carefully considered and approved the
terms of the Bank Consolidation unanimously as being in the best interests of
the Bank and its stockholders and recommends that Bank stockholders vote FOR
the proposal to approve the Bank Consolidation Agreement. See "THE
TRANSACTION--Reasons for the Reorganizations."
The recommendations of Bancshares's Board of Directors and of the Bank's
Board of Directors is based upon a number of factors, including the financial
terms of the Merger Agreement and the Bank Consolidation Agreement, the
opportunity for the shareholders of Bancshares and the Bank, respectively, to
diversify their investment into Norwest, a company with substantially greater
financial strength, management depth, and capital resources than Bancshares or
the Bank, the tax-free nature of the transaction, and the active and liquid
trading market of Norwest's Common Stock on the NYSE.
EFFECTIVE DATES OF THE REORGANIZATIONS
Subject to the terms and conditions of the Merger Agreement, the Merger
will be effective at 11:59 p.m., Minneapolis, Minnesota time (the "Effective
Time of the Merger") on the date on which the appropriate filings are made with
the Secretaries of State of the States of Minnesota and Delaware (the
"Effective Date of the Merger"). Such filings will be made on the "Closing
Date" (as defined below). Subject to the terms and conditions of the Bank
Consolidation Agreement, the Bank Consolidation will be effective at 12:01
a.m., Minneapolis, Minnesota time (the "Effective Time of the Consolidation")
on the date specified in the certificate of approval issued by the Office of
the Comptroller of the Currency with respect to such Bank Consolidation (the
"Effective Date of the Consolidation"), which date shall be the first business
day after the Effective Time of the Merger. The Effective Date of the Merger
and the Effective Date of the Bank Consolidation are sometimes hereinafter
referred to collectively as the "Effective Dates of the Reorganizations." The
date of the closing of the Reorganizations (the "Closing Date") will occur on
the third business day after the last day of the calendar month in which all
conditions to the Merger contained in the Merger Agreement have occurred or on
such other date upon which the parties may agree. The parties expect the
closing of the Reorganizations to occur as soon as possible following
shareholder approval of the Reorganizations. See "THE TRANSACTION--Effective
Dates of the Reorganizations" and "THE TRANSACTION--Conditions to the
Reorganizations."
CONDITIONS AND TERMINATION
The respective obligations of Norwest, Bancshares and the Bank to
consummate the Reorganizations are subject to certain conditions, including
without limitation, the receipt of regulatory approvals, approval of the Merger
Agreement by the requisite vote of the holders of Bancshares Class A Common
Stock and the holders of the Bank Common Stock, receipt by Norwest and/or
Bancshares of certain accounting and tax opinions, a requirement that
Bancshares' equity as of the Closing Date, shall be in an amount at least equal
to Bancshares' equity as of June 30, 1993, subject only to certain permitted
adjustments, and certain other conditions customary in transactions of this
nature. See "THE MERGER--Conditions to the Merger" and "--Regulatory
Approvals."
The Merger Agreement may be terminated at any time prior to the Effective
Dates of the Reorganizations whether prior to or after approval by the
shareholders of Bancshares or the Bank, by either party under certain specified
conditions, including if the Merger has not been consummated by July 21, 1994,
unless such failure of consummation is due to the failure of the party seeking
termination to perform its respective covenants and agreements under the Merger
Agreement or by Bancshares if the Norwest Measurement Price is less than
$25.00. See "THE MERGER--Waiver, Amendment and Termination--The Merger and the
Bank Consolidation."
9
<PAGE>
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board"). The Bank
Consolidation is also subject to the prior approval of the Office of the
Comptroller of the Currency ("OCC"). The Merger was approved by the Federal
Reserve Board on December 21, 1993. As of the date of this Proxy Statement-
Prospectus, the OCC has not yet approved the Bank Consolidation. See "THE
TRANSACTION--Regulatory Approvals."
MANAGEMENT AND OPERATIONS AFTER THE REORGANIZATIONS
Following the Reorganizations, Norwest intends to operate at the Bank's
present locations and to offer products and services offered by Norwest
affiliates. See "THE TRANSACTION--Management and Operations After the
Reorganizations."
INTERESTS OF CERTAIN PERSONS IN THE TRANSACTION
Certain directors and executive officers of, respectively, Bancshares and
the Bank, may be deemed to have certain interests in the Merger and the Bank
Consolidation that are in addition to their interest (if any) as shareholders
of Bancshares and the Bank. These include provisions in an employment
agreement with Robert A. Harris, who is, respectively, chairman and president
of Bancshares and president of the Bank, for cash payments under a phantom
stock plan and certain cash consideration to be paid to Ray Schirmer, and to
Daniel T. Kronlund, who are executive officers of the Bank, upon consummation
of the Reorganizations. In addition, at the closing of the Reorganizations,
Norwest has agreed to pay or cause to be paid in full, certain loans from
specified entities controlled by the Fingerhut Shareholders to Bancshares. The
Bancshares Board of Directors and the Bank Board of Directors were both aware
of these interests and considered them, among other things, in unanimously
approving the Merger Agreement and the Bank Consolidation Agreement and the
Transaction contemplated thereby. See "THE TRANSACTION--Interests of Certain
Persons in the Transaction."
RIGHTS OF DISSENTING SHAREHOLDERS
Under Minnesota law, Bancshares shareholders who dissent from the Merger
are entitled to obtain payment of the fair value of their shares instead of
receiving Norwest Common Stock in the Merger. Under federal law, dissenting
Bank shareholders who comply with the requisite statutory procedures will be
entitled to receive an appraisal value of their shares instead of receiving
Norwest Common Stock in the Consolidation. The value so determined could be
more than, the same as, or less than the value of the consideration to be
received by Bancshares shareholders pursuant to the Merger Agreement or by Bank
shareholders pursuant to the Consolidation Agreement, who do not dissent. With
respect to both shareholders of Bancshares and Bank, failure to comply with
statutory procedures in the exercise of dissenters' rights may nullify such
rights. See --"THE TRANSACTION--Rights of Dissenting Bancshares Shareholders;
and "--"Rights of Dissenting Bank Shareholders."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger and the Bank Consolidation are each expected to qualify for
federal income tax purposes as a tax-free reorganization, and it is a condition
to consummation of the Reorganizations that Bancshares receive an opinion of
its counsel that the Reorganizations will so qualify. Such opinion will not be
binding on the Internal Revenue Service.
10
<PAGE>
If the Merger and the Bank Consolidation (as the case may be) qualify as a
tax-free reorganization, shareholders of Bancshares and the Bank (as the case
may be) will generally recognize no gain or loss for federal income tax
purposes on the exchange of their Bancshares Common Stock or Bank Common Stock
(as the case may be) for Norwest Common Stock, except to the extent they
receive cash in lieu of fractional shares of Bancshares Common Stock or Bank
Common Stock or as a result of their exercise of their statutory rights to
object to the Merger or the Bank Consolidation. See "THE TRANSACTION--Certain
Federal Income Tax Consequences."
SHAREHOLDERS OF BANCSHARES AND THE BANK SHOULD READ CAREFULLY THE
DISCUSSION SET FORTH UNDER "THE TRANSACTION--CERTAIN FEDERAL INCOME TAX
CONSEQUENCES" AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES TO THEM OF THE MERGERS UNDER FEDERAL, STATE, LOCAL, AND
ANY OTHER APPLICABLE TAX LAWS.
MARKETS AND MARKET PRICES
Norwest Common Stock is listed on the New York Stock Exchange (the "NYSE")
and the Chicago Stock Exchange (the "CSE"). On September 21, 1993, the last
trading day preceding public announcement of the proposed Merger, the closing
price per share of Norwest Common Stock was $26.125 and on February 4, 1994,
(most recent practicable date prior to the effective date of this Proxy
Statement-Prospectus for which such information was available), the price was
$25.75. There is no public market for Bancshares Common Stock or Bank Common
Stock. Shareholders of Bancshares and shareholders of the Bank are advised to
obtain current market quotations for Norwest Common Stock. The market price
for Norwest Common Stock will fluctuate between the date of this Proxy
Statement-Prospectus and the Effective Dates of the Reorganizations, which may
be a period of several weeks or months. As a result, the market value of the
Norwest Common Stock that shareholders of Bancshares and of the Bank ultimately
receive in the Merger or the Bank Consolidation, as the case may be, could be
more or less than its market value on the date of this Proxy Statement-
Prospectus. No assurance can be given concerning the market price of Norwest
Common Stock before or after the Effective Dates of the Reorganizations.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Upon consummation of the Reorganizations, shareholders of Bancshares and
shareholders of the Bank will become stockholders of Norwest. As a result,
such shareholders' respective rights will change significantly. See "THE
TRANSACTION--Certain Differences in Rights of Shareholders."
COMPARATIVE UNAUDITED PER SHARE DATA
The following table presents selected comparative unaudited per share data
for Norwest Common Stock on a historical and pro forma combined basis and for
Bancshares Common Stock and Bank Common Stock on a historical and a pro forma
equivalent basis giving effect to the Merger and the Bank Consolidation using
the pooling of interests method of accounting. See "THE TRANSACTION--
Accounting Treatment." This information is derived from the consolidated
historical financial statements of Norwest, including the related notes
thereto, incorporated by reference in this Proxy Statement-Prospectus, the
consolidated historical financial statements of Bancshares, and the historical
financial statements of the Bank, including the notes thereto, appearing
elsewhere in this Proxy Statement-Prospectus. This information should be read
in conjunction with such historical financial statements and the
11
<PAGE>
related notes thereto. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE"
and "INFORMATION ABOUT BANCSHARES AND THE BANK."
This data is not necessarily indicative of the results of the future
operations of the combined entity or the actual results that would have
occurred had the Merger and the Bank Consolidation been consummated prior to
the periods indicated.
12
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
</TABLE>
<TABLE>
<CAPTION>
Norwest Common Stock Bancshares Common Stock Bank Common Stock
--------------------- ----------------------- ----------------------
Pro Forma Pro Forma Pro Forma
Historical Combined Historical Equivalent Historical Equivalent
---------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BOOK VALUE (1):
September 30, 1993 $10.65 10.65 36.36 33.87 656.95 461.80
December 31, 1992 9.69 9.69 28.33 30.82 656.17 420.16
DIVIDENDS DECLARED (2):
Nine Months Ended:
September 30, 1993 0.475 0.475 0.000 1.511 97.000 20.597
Year Ended:
December 31, 1992 0.540 0.540 0.000 1.717 32.000 23.416
December 31, 1991 0.470 0.470 0.000 1.495 0.000 20.381
December 31, 1990 0.423 0.423 0.000 1.345 0.000 18.343
NET INCOME (3):
Nine Months Ended:
September 30, 1993 1.53 1.53 8.03 4.88 98.14 66.55
Year Ended:
December 31, 1992 1.16 1.16 10.01 3.69 104.71 50.27
December 31, 1991 1.33 1.33 3.63 4.23 51.92 57.64
December 31, 1990 0.57 0.57 2.90 1.80 70.95 24.60
</TABLE>
(1) The pro forma combined book values per share of Norwest Common Stock are
based upon the historical total common equity for Norwest and Bancshares divided
by total pro forma common shares of the combined entities assuming (i)
conversion of the outstanding Bancshares Common Stock at an assumed Merger
Conversion Factor of 3.18044 and (ii) conversion of the outstanding Bank Common
Stock (other than shares owned by Norwest as a result of the Merger) at an
assumed Bank Merger Conversion Factor of 43.36294. The pro forma equivalent
book values per share of Bancshares Common Stock and per share of Bank Common
Stock represent the pro forma combined amounts multiplied by the assumed Merger
Conversion Factor and the assumed Bank Merger Conversion Factor, respectively.
The assumed conversion factors used in this table, which are based on an assumed
aggregate number of shares of Norwest Common Stock of 313,111.39 to be issued in
the Reorganizations and an assumed Norwest Measurement Price of $27.625 (based
on closing price on September 30, 1993, not the 10 trading-day average of
closing prices), would result in the issuance of 294,031.70 shares of Norwest
Common Stock upon conversion of all outstanding shares of Bancshares Common
Stock in the Merger and of 19.079.69 shares upon conversion of all outstanding
shares of Bank Common Stock (other than shares owned by Norwest as a result of
the Merger) in the Bank Merger. See "THE TRANSACTION--Terms of the
Transaction."
(2) Assumes no changes in cash dividends per share. The pro forma equivalent
dividends per share of Bancshares Common Stock and per share of Bank Common
Stock represent cash dividends declared per share of Norwest Common Stock
multiplied by 3.18044 and 43.36294, respectively.
(3) The pro forma combined net income per share (based on fully diluted net
income and weighted average shares outstanding) is based upon the combined
historical net income for Norwest and Bancshares divided by the average pro
forma common shares of the combined entities, assuming a Merger Conversion
Factor of 3.18044 and a Bank Merger Conversion Factor of 43.36294. The pro
forma equivalent net income per share of Bancshares Common Stock and Bank Common
Stock represents the pro forma combined net income per share multiplied by
3.18044 and 43.36294, respectively.
13
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth certain selected historical financial
information for Norwest, Bancshares, and the Bank. The income statement and
balance sheet data included in the selected financial data for the five years
ended December 31, 1992, are derived from the audited consolidated financial
statements of Norwest for such five-year period, the audited consolidated
financial statements of Bancshares and the unaudited financial statements of
the Bank for the year ended December 31, 1992, and the unaudited consolidated
financial statements of Bancshares and the unaudited financial statements of
the Bank for the four years ended December 31, 1991. The financial data for
the nine-month periods ended September 30, 1993 and 1992, are derived from the
unaudited historical financial statements of Norwest, Bancshares, and the Bank.
All financial information derived from unaudited financial statements reflects,
in the respective opinions of management of Norwest, Bancshares, and the Bank,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such data. Results for the nine months ended September
30, 1993, are not necessarily indicative of the results that may be expected
for any other interim period or for the year as a whole. This information
should be read in conjunction with the consolidated financial statements of
Norwest and the related notes thereto, included in documents incorporated
herein by reference, and in conjunction with consolidated financial statements
of Bancshares and the financial statements of the Bank, including the notes
thereto, appearing elsewhere in this Proxy Statement-Prospectus. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "INFORMATION ABOUT
BANCSHARES AND THE BANK."
14
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
-------------------- ---------------------------------------------------
1993 1992 1992(1) 1991 1990(2) 1989(3) 1988
--------- --------- -------- -------- -------- -------- --------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
NORWEST:
Interest income $ 2,768.2 2,680.0 3,587.0 3,802.1 3,690.7 3,440.7 2,948.2
Interest expense 1,011.2 1,168.9 1,509.2 2,024.2 2,201.9 2,100.9 1,696.4
--------- -------- -------- -------- -------- -------- --------
Net interest income 1,757.0 1,511.1 2,077.8 1,777.9 1,489.5 1,339.8 1,251.8
Provision for credit losses 99.6 154.5 266.7 401.9 428.3 225.5 184.0
Non-interest income 1,116.5 923.8 1,228.8 1,031.2 872.1 711.9 604.0
Non-interest expenses 2,090.4 1,775.8 2,436.6 1,939.5 1,666.9 1,455.3 1,359.6
--------- -------- -------- -------- -------- -------- --------
Income before income taxes 683.5 504.6 603.3 467.7 266.4 370.9 312.2
Income tax expense 204.9 130.1 163.2 66.8 110.1 96.0 28.4
--------- -------- -------- -------- -------- -------- --------
Income before cumulative effect
of a change in accounting method 478.6 374.5 440.1 400.9 156.3 274.9 283.8
Cumulative effect on years prior to
1992 of change in accounting method -- (76.0) (76.0) -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 478.6 298.5 364.1 400.9 156.3 274.9 283.8
========= ======== ======== ======== ======== ======== ========
Net income per share:
Primary:
Before cumulative effect of a
change in accounting method 1.56 1.22 1.42 1.34 0.57 1.00 1.04
Cumulative effect on years prior to
1992 of change in accounting method -- (0.26) (0.26) -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.56 0.96 1.16 1.34 0.57 1.00 1.04
========= ======== ======== ======== ======== ======== ========
Fully diluted:
Before cumulative effect of a
change in accounting method $ 1.53 1.20 1.41 1.33 0.57 0.99 1.02
Cumulative effect on years prior to
1992 of change in accounting method -- (0.25) (0.25) -- -- -- --
--------- -------- -------- -------- -------- -------- --------
Net income $ 1.53 0.95 1.16 1.33 0.57 0.99 1.02
========= ======== ======== ======== ======== ======== ========
Dividends declared per
common share $ 0.475 0.395 0.540 0.470 0.423 0.380 0.325
At period end:
Total assets $50,387.9 43,278.0 46,657.2 42,736.3 41,088.4 36,229.3 32,984.5
Long-term debt 6,001.7 4,455.7 4,481.0 3,610.4 3,007.0 2,658.0 2,381.0
Total stockholders' equity 3,438.6 3,121.6 3,140.7 2,984.8 2,296.5 2,163.6 2,136.2
</TABLE>
(1) On February 9, 1993, Lincoln Financial Corporation ("Lincoln"), a $2.0
billion bank holding company headquartered in Fort Wayne, Indiana, was acquired
in a pooling transaction. Norwest's historical results have been restated to
include the historical results of Lincoln. Appropriate Norwest items reflect an
increase in Lincoln's provision for credit losses of $60.0 million and $33.5
million in Lincoln's provisions and expenditures for costs related to
restructuring activities.
(2) On April 19, 1991, United Banks of Colorado, Inc. ("United"), a $5.5
billion financial institution headquartered in Denver, Colorado, merged with
Norwest in a pooling transaction. Norwest's historical results have been
restated to include the historical results of United. Appropriate Norwest items
reflect United's special provisions for credit losses and writedowns for other
real estate owned, which together totaled $165 million, and $31 million of
accruals for expected reorganization and restructuring costs for the year ended
December 31, 1990. The special provisions were due to deterioration of several
large commercial loan relationships, the anticipated results of the then recent
examination by the Office of the Comptroller of the Currency, and the
anticipated impact of the Resolution Trust Corporation's accelerated efforts to
liquidate foreclosed properties at deep discounts.
(3) On May 1, 1990, First Interstate Corporation of Wisconsin ("FIWI"), a $2.0
billion financial institution headquartered in Sheboygan, Wisconsin, merged
with Norwest in a pooling transaction. Norwest's historical results have been
restated to include the historical results of FIWI. Appropriate Norwest items
reflect $12.0 million in charges resulting from FIWI's decision to sell its
portfolio of stripped mortgage-backed securities, an increase in FIWI's
provision for credit losses of $16.2 million, and $24.5 million in FIWI's
provisions and expenditures for costs related to restructuring activities.
15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30 YEAR ENDED DECEMBER 31
------------------ ----------------------------------------
1993 1992 1992 1991 1990 1989 1988
------- ----- ------ ----- ----- ----- -------
(In millions except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
BANCSHARES:
Interest income $ 4.5 4.5 6.1 6.5 6.4 5.8 5.2
Interest expense 1.8 2.3 3.0 3.9 4.1 3.9 3.4
------- ----- ------ ----- ----- ----- -------
Net interest income 2.7 2.2 3.1 2.6 2.3 1.9 1.8
Provision for credit losses 0.0 0.0 0.0 0.0 0.1 0.1 2.0
Non-interest income 0.5 0.4 0.6 0.4 0.5 0.5 0.4
Non-interest expenses 1.9 1.9 2.6 2.7 2.4 2.4 2.2
------- ----- ------ ----- ----- ----- -------
Income (loss) before income taxes 1.3 0.7 1.1 0.3 0.3 (0.1) (2.0)
Income tax expense 0.6 0.1 0.2 0.0 0.0 0.0 0.5
Cumulative effect of change in accounting
method - - - - - - -
Net income (loss) $ 0.7 0.6 0.9 0.3 0.3 (0.1) (1.5)
======= ===== ====== ===== ===== ===== =======
Net income (loss) per share:
Primary $ 8.03 6.83 10.01 3.63 2.90 (1.32) (17.17)
Fully diluted 8.03 6.83 10.01 3.63 2.90 (1.32) (17.17)
Dividends declared per
common share - - - - - - -
At period end:
Total assets $ 77.7 75.9 77.6 72.9 70.9 65.5 61.1
Long-term debt 3.2 4.1 4.1 4.2 4.1 3.8 3.3
Total stockholders' equity 3.4 2.2 2.6 1.7 1.3 1.1 1.2
THE BANK:
Interest income $ 4.5 4.6 6.1 6.4 6.4 5.8 5.2
Interest expense 1.6 2.1 2.7 3.5 3.7 3.6 3.0
------- ----- ------ ----- ----- ----- -------
Net interest income 2.9 2.5 3.4 2.9 2.7 2.2 2.2
Provision for credit losses 0.0 0.0 0.0 0.0 0.1 0.1 2.0
Non-interest income 0.5 0.4 0.6 0.5 0.5 0.5 0.4
Non-interest expenses 1.9 1.9 2.6 2.6 2.4 2.3 2.1
------- ----- ------ ----- ----- ----- -------
Income (loss) before income taxes 1.5 1.0 1.4 0.8 0.7 0.3 (1.5)
Income tax expense 0.6 0.3 0.4 0.3 0.1 0.0 0.0
Cumulative effect of change in accounting
method
Net income (loss) $ 0.9 0.7 1.0 0.5 0.6 0.3 (1.5)
======= ===== ====== ===== ===== ===== =======
Net income (loss) per share:
Primary $ 98.14 75.60 104.71 51.92 70.95 41.34 (131.86)
Fully diluted 98.14 75.60 104.71 51.91 70.95 41.34 (131.86)
Dividends declared per
common share 97.00 - 32.00 - - - -
At period end:
Total assets $ 76.9 75.1 76.7 72.1 70.1 64.6 60.2
Long-term debt - - - - - - -
Total stockholders' equity 6.1 6.0 6.0 5.1 4.7 4.1 3.7
</TABLE>
16
<PAGE>
MEETING INFORMATION
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
Bancshares Common Stock in connection with the solicitation of proxies by the
Board of Directors of Bancshares for use at the Bancshares Special Meeting to
be held on Friday March 11, 1994, and any adjournments thereof, to consider
and take action upon a proposal to approve the Merger Agreement and such other
business as may properly come before the Bancshares Special Meeting or any
adjournments thereof. Each copy of this Proxy Statement-Prospectus mailed to
holders of Bancshares Common Stock is accompanied by a form of proxy for use at
the Bancshares Special Meeting.
This Proxy Statement-Prospectus is also being furnished by the Bank to
holders of Bank Common Stock in connection with the Bank Special Meeting to be
held on Friday, March 11, 1994, and any adjournments thereof, to consider and
take action upon a proposal to approve the Bank Consolidation Agreement and
such other business as may properly come before the Bank Special Meeting or any
adjournments thereof.
This Proxy Statement-Prospectus is also being furnished by Norwest to the
shareholders of Bancshares and the stockholders of the Bank as a prospectus in
connection with the issuance by Norwest of shares of Norwest Common Stock upon
consummation of the Merger and the Bank Consolidation.
This Proxy Statement-Prospectus, the attached Notices of Special Meeting,
and the form of proxy for Bancshares shareholders enclosed herewith are first
being mailed to shareholders of Bancshares and stockholders of the Bank on or
about February 9, 1994.
DATE, PLACE, AND TIME
The Bancshares Special Meeting will be held at 3300 Norwest Center,
Minneapolis, Minnesota 55402 on Friday March 11, 1994, at 10:00 a.m., local
time. The Bank Special Meeting will be held at the main office of the Bank,
211 West Holmes Street, Detroit Lakes, Minnesota 56501, on Friday March 11,
1994, at 11:00 a.m., local time.
RECORD DATE; VOTE REQUIRED
BANCSHARES SPECIAL MEETING
The Board of Directors of Bancshares has fixed the close of business on
February 15, 1994, as the record date for the determination of the holders of
Bancshares Class A Common Stock entitled to receive notice of, and to vote at,
the Bancshares Special Meeting. On the record date there were 9,245 shares of
Bancshares Class A Common Stock and 83,205 shares of Class B Non-Voting Common
Stock ("Bancshares Class B Common Stock") issued and outstanding. Approval of
the Merger Agreement requires the affirmative vote of the holders of a majority
of the outstanding shares of Bancshares Class A Common Stock, the sole class of
Bancshares Common Stock entitled to vote on the Merger. The Merger cannot be
consummated without shareholder approval of the Merger Agreement.
As of the record date for the Bancshares Special Meeting, the Fingerhut
Shareholders owned beneficially or controlled the voting of an aggregate of
9,215 shares of Bancshares Class A Common Stock or 99.68% of the shares of
Bancshares Class A Common Stock outstanding on that date and thus have the
power to approve the Merger without the vote of
17
<PAGE>
any other shareholders of Bancshares. The Fingerhut Shareholders have informed
Bancshares that they intend to vote all of their shares in favor of the Merger
Agreement. As of the record date, the remaining outstanding shares of
Bancshares Class A Common Stock (30 shares) were held by the directors of
Bancshares, certain of whom may be deemed to be affiliates of the Fingerhut
Shareholders. Information regarding the shares of Bancshares Common Stock
beneficially owned, directly or indirectly, by the Fingerhut Shareholders,
directors and executive officer of Bancshares, and by all directors and
officers as a group is set forth in the tables under the headings "Principal
Shareholders" and "Security Ownership of Management of Bancshares" below.
BANK SPECIAL MEETING
The Board of Directors of the Bank has fixed the close of business on
February 15, 1994 as the record date for the determination of shareholders of
the Bank entitled to receive notice of, and to vote at, the Bank Special
Meeting. On the record date there were 9,245 shares of Bank Common Stock
outstanding. Approval of the Bank Consolidation Agreement requires the
affirmative vote of the holders of two-thirds of the outstanding shares of Bank
Common Stock. Bancshares holds 8,805 shares of Bank Common Stock, or 95.24% of
its shares of the shares outstanding and thus has the power to approve the Bank
Consolidation without the vote of any other Bank shareholder. If the Merger is
approved at the Bancshares Special Meeting, Norwest may be deemed to
beneficially own 100% of the outstanding Common Stock of Bancshares.
Management of Bancshares has advised Norwest that it will vote all of shares of
Bank Common Stock held by Bancshares in favor of the Bank Consolidation. The
Merger cannot be consummated without the approval of the Bank Consolidation
Agreement by the shareholders of the Bank.
As of the record date for the Bank Special Meeting, directors and officers
of the Bank and their affiliates owned beneficially or controlled the voting of
an aggregate of 440 shares of Bank Common Stock or approximately 4.76% of the
shares of Bank Common Stock outstanding on that date. Information regarding
the shares of Bank Common Stock beneficially owned, directly or indirectly, by
certain shareholders, by each director and executive officer of the Bank, and
by all directors and officers as a group is set forth in the table under the
heading "Principal Stockholders and Security Ownership of Management of the
Bank" below.
At the record date, directors and executive officers of Norwest did not
own beneficially any shares of Bancshares Common Stock or Bank Common Stock.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF BANCSHARES
Principal Shareholders
The following table sets forth the names and addresses of, and the number
of shares and the percentage of outstanding shares beneficially owned as of the
record date for the Bancshares Special Meeting by those persons who may be
deemed to beneficially own 5% or more of the outstanding shares of Bancshares
Class A Common Stock, the sole class of voting stock of Bancshares authorized
and outstanding. Each shareholder named below has sole voting and investment
power over the shares shown in the table, unless otherwise indicated. The
shares shown in the table include all shares the named parties may be deemed to
own beneficially, including shares held by spouses and minor children:
18
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature Percent of Class A
Shareholder of Beneficial Ownership Common Stock
- ----------- ----------------------- ------------------
<S> <C> <C>
Beverly Fingerhut Diekel 2,925 shares 31.64%
c/o 5354 Parkdale Drive
Parkdale 3,
Suite 310
Minneapolis, MN 55416
Ronald Fingerhut 3,365 shares (2) 36.40%
c/o 5354 Parkdale Drive
Parkdale 3,
Suite 310
Minneapolis, MN 55416
Allan Fingerhut 2,925 shares (3) 31.64%
c/o 5354 Parkdale Drive
Parkdale 3,
Suite 310
Minneapolis, MN 55416
- ---------------------
</TABLE>
(1) Mrs. Diekel is the sister of Ronald Fingerhut. Mrs. Diekel also
beneficially holds 26,325 shares of Bancshares Class B Common Stock which
will also be exchanged for Norwest Common Stock in the Merger on the same
basis as Bancshares Class A Common Stock.
(2) Includes 440 shares of Bancshares Class A Common Stock held by a family
trust for which Mr. Fingerhut serves as the trustee. Mr. Fingerhut also
directly and indirectly beneficially owns an aggregate of 30,285 of
Bancshares Class B Common Stock to be exchanged for Norwest Common Stock in
the Merger.
(3) Allan Fingerhut is the brother of Ronald Fingerhut and Beverly Fingerhut
Diekel, and also beneficially holds 26,325 shares of Bancshares Class B
Common Stock to be exchanged for Norwest Common Shares in the Merger.
Security Ownership of Management
The following table sets forth the number of shares of each class of
equity securities of Bancshares, if any, beneficially owned by each director
and executive officer of Bancshares, and all directors and officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial
Ownership of Each Class of Equity Securities
-----------------------------------------------------------
Number of Shares Percent of Class
-------------------------- --------------------------
Name of Class A Class B Class A Class B
Beneficial Owner Position Common Stock Common Stock Common Stock Common Stock
- ---------------- -------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Robert Harris Director, Chairman 10 90 * *
and President
19
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Stanley Nemer Director and 10 90 * *
Vice President
Byron Frank Director and 10(1) 90 * *
Vice President
All directors and officers 30 270 * 2.92%
as a group (4 persons)
</TABLE>
- ----------------------
*Less than 1%
(1) Excludes 440 shares held in trust for the benefit of the family of Byron
Frank, for which trust Ronald Fingerhut serves as trustee. Such shares
have been included in the shares held by Mr. Fingerhut in the "Principal
Shareholders" table above.
PRINCIPAL SHAREHOLDERS AND SECURITY OWNERSHIP OF MANAGEMENT OF THE BANK
The following tables set forth (i) the name and address, the number of
shares and the percentage of outstanding shares beneficially owned as of the
record date for the Bank Special Meeting by the sole person known to the Bank
who may be deemed to beneficially own 5% or more of the outstanding shares of
Bank Common Stock and (ii) the number of shares of Bank Common Stock, if any,
beneficially owned by each director and executive officer of the Bank and by
all directors and officers of the Bank as a group. Each shareholder named
below has sole voting and investment power over the shares shown in the table,
unless otherwise indicated. The shares shown in the table include all shares
the named parties may be deemed to own beneficially, including shares held by
spouses.
Principal Shareholder
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock
------------------------------- -------------------- ------------
<S> <C> <C>
D. L. Bancshares, Inc. 8,805 95.24%
211 West Holmes Street
Detroit Lakes, Minnesota 56501
</TABLE>
Security Ownership of Management
<TABLE>
<CAPTION>
Name of Beneficial Percent of
Owner Position Number of Shares Total Shares
- ------------------ -------- ---------------- ------------
<S> <C> <C> <C>
Dixie Johnson Director 88 *
Stephen Evans Director 88 *
James Beaton Director 88 *
David Daggett Director 88 *
Robert Westlake Director 88(1) *
</TABLE>
20
<PAGE>
Directors and executive
officers as a group
(11 persons) 440 4.76%
________________________
* Less than 1%.
(1) The shares indicated are held of record by the D.L. Animal Hospital Trust,
of which trust Mr. Westlake is the beneficiary.
VOTING AND REVOCATION OF PROXIES FOR THE BANCSHARES SPECIAL MEETING
Shares of Bancshares Class A Common Stock represented by a proxy properly
signed and received at, or prior to, the Bancshares Special Meeting, unless
subsequently revoked, will be voted at the Bancshares Special Meeting in
accordance with the instructions thereon. If a proxy is signed and returned
without indicating any voting instructions, shares of Bancshares Class A Common
Stock represented by such proxy will be voted FOR approval of the Merger
Agreement. Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before the proxy is voted by filing either an
instrument revoking it or a duly executed proxy bearing a later date with the
Secretary of Bancshares prior to or at the Bancshares Special Meeting or by
voting the shares subject to the proxy in person at the Bancshares Special
Meeting. Attendance at the Bancshares Special Meeting will not in and of
itself constitute a revocation of a proxy.
The Board of Directors of Bancshares is not aware of any business to be
acted upon at the Bancshares Special Meeting other than the business described
herein. If, however, other matters are properly brought before the Bancshares
Special Meeting, or any adjournments thereof, the persons appointed as proxies
will have discretion to vote or act on such matters according to their best
judgment.
SOLICITATION OF PROXIES FOR THE BANCSHARES SPECIAL MEETING
In addition to solicitation by mail, directors, officers, and employees
of Bancshares may solicit proxies from the shareholders of Bancshares, either
personally or by telephone, telegram, or other form of communication. None of
the foregoing persons who solicit proxies will be specifically compensated for
such services. Nominees, fiduciaries, and other custodians will be requested
to forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in sending proxy material to beneficial
owners. Bancshares will bear its own expenses in connection with any
solicitation of proxies for the Bancshares Special Meeting. See "THE
TRANSACTION--Expenses." No solicitation of proxies will be conducted in
connection with the Bank Special Meeting.
HOLDERS OF BANCSHARES CLASS A COMMON STOCK ARE REQUESTED TO COMPLETE, DATE, AND
SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO BANCSHARES IN THE
ENCLOSED POSTAGE-PREPAID ENVELOPE.
21
<PAGE>
THE TRANSACTION
This section of the Proxy Statement-Prospectus describes certain aspects
of the Merger and the Bank Consolidation. The following description does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement and the form of the Bank Consolidation Agreement, which are
attached as Appendix A and Appendix B, respectively, to this Proxy Statement-
Prospectus and are incorporated by reference herein. ALL SHAREHOLDERS OF
BANCSHARES AND THE BANK ARE URGED TO READ THE MERGER AGREEMENT AND THE BANK
CONSOLIDATION AGREEMENT IN THEIR ENTIRETY.
REASONS FOR THE MERGER
In reaching its determination to approve the Merger Agreement, the Board
of Directors of Bancshares considered various factors, including:
. The financial terms of the Merger Agreement.
. The opportunity for Bancshares shareholders to diversify their
investment into Norwest, a company with significantly greater financial
strength, management depth, and capital resources than Bancshares. The
structure of the Merger as a tax-free transaction to Bancshares
shareholders to the extent that they receive Norwest Common Stock
solely in exchange for their shares of Bancshares Common Stock. (See
"Certain Federal Income Tax Consequences.")
. The fact that shares of Norwest Common Stock issuable in the Merger
will be part of an active and liquid trading market on the NYSE.
. The general conditions of the banking industry and the possibilities of
continued consolidation in it.
. The likelihood that the Merger would be approved by the appropriate
regulatory authorities.
Based on these matters and such other matters as it deemed relevant, the Board
of Directors of Bancshares approved the Merger Agreement as being in the best
interests of Bancshares and its shareholders.
THE BOARD OF DIRECTORS OF BANCSHARES UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF BANCSHARES VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT.
REASONS FOR THE BANK CONSOLIDATION
In reaching its determination to approve the Bank Consolidation, the
Board of Directors of the Bank considered a number of factors including:
. The financial terms of the Bank Consolidation Agreement.
. The opportunity for the Bank shareholders to diversify their investment
into Norwest, a company with significantly greater financial strength,
management depth, and capital resources than the Bank.
. The structure of the Bank Consolidation as a tax-free transaction to
the Bank shareholders to the extent that they receive Norwest Common
Stock solely in exchange for their shares of the Bank Common Stock.
(See "Certain Federal Income Tax Consequences.")
. The fact that shares of Norwest Common Stock issuable in the Bank
Consolidation will be part of an active and liquid trading market on
the NYSE.
22
<PAGE>
. The general conditions of the banking industry and the possibilities of
continued consolidation in it.
. The likelihood that the Bank Consolidation would be approved by the
appropriate regulatory authorities.
Based on these matters and such other matters as it deemed relevant, the Board
of Directors of Bancshares approved the Bank Consolidation Agreement as being
in the best interests of Bancshares and its shareholders.
THE BOARD OF DIRECTORS OF BANCSHARES UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS OF BANCSHARES VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT.
TERMS OF THE REORGANIZATIONS
In General
Pursuant to the Reorganization Agreements, on the Effective Dates of the
Reorganizations, and at the Effective Time of the Merger and the Effective Time
of the Consolidation, as the case may be, the shares of Bancshares Common Stock
and Bank Common Stock outstanding immediately prior to such Effective Times
(other than shares of such stock as to which statutory dissenters' rights have
been exercised) will be converted into and exchanged for an aggregate of
310,269 shares of Norwest Common Stock, which number of shares of Norwest
Common Stock shall be (i) increased by dividing the amount by which the "Bank
Equity" (defined below) as of the last day of the month immediately preceding
the Closing Date exceeds $5,995,000 by the "Norwest Measurement Price" (defined
below), or (ii) decreased by dividing the amount by which the Bank Equity as of
the last day of the month immediately preceding the Closing Date is less than
$5,995,000 by the Norwest Measurement Price. The adjusted total shares of
Norwest Common Stock to be issued to Bancshares' shareholders and Bank
shareholders in the Reorganizations are referred to in the Reorganization
Agreements as the "Aggregate Norwest Shares". Under the Reorganization
Agreements, the term "Bank Equity" means the equity of the Bank as determined
in accordance with generally accepted accounting principles (excluding any
adjustments for investments available for sale and adjustments for marketable
equity securities). The "Norwest Measurement Price" is defined as the average
of the closing prices of a share of Norwest Common Stock as reported on the
consolidated tape of the New York Stock Exchange for the ten (10) trading days
ending at the end of the tenth trading day immediately preceding the
"Measurement Date." The "Measurement Date" shall be the first business day
immediately preceding the Closing Date.
The closing price for Norwest Common Stock will fluctuate between the date
of this Proxy Statement-Prospectus and the Effective Dates of the
Reorganizations, which may be a period of several weeks, and the Norwest
Measurement Price will fluctuate accordingly. As a result, the market value of
the Norwest Common Stock that shareholders of Bancshares and of the Bank
ultimately receive in the Reorganizations could be more or less than its market
value on the date of this Proxy Statement-Prospectus or the Norwest Measurement
Price.
The Reorganization Agreements also contain certain provisions regarding
the allocation of the Aggregate Norwest Shares issued in the Reorganizations
between the Bancshares shareholders as a group and the shareholders of the Bank
(other than Bancshares) as a group. These provisions are more fully described
under the headings "The Merger" and "The Bank Consolidation" below.
23
<PAGE>
The Merger
----------
At the Effective Time of the Merger, Merger Co. will merge with and into
Bancshares. Upon the consummation of the Merger, each shareholder of
Bancshares (other than those shareholders who have exercised their statutory
dissenters' rights) will be entitled to receive that number of shares of
Norwest Common Stock equal to the number of shares of Bancshares Common Stock
held by such shareholder immediately prior to the Effective Time of the Merger
multiplied by a conversion factor (defined for purposes of illustration in this
Proxy Statement-Prospectus as the "Merger Conversion Factor") computed as
described in the next sentence. The "Merger Conversion Factor" used to
determine the number of shares of Norwest Common Stock into which each
outstanding share of Bancshares Common Stock will be converted will be
determined by subtracting the "Variable Norwest Shares" (as defined below) from
the Aggregate Norwest Shares and dividing the result thereof by the number of
shares of Bancshares Common Stock outstanding immediately prior to the
Effective Time of the Merger. The Variable Norwest Shares are determined by
(A) subtracting (if a positive number) or adding (if a negative number) the
"Company Assets" (as defined below) from or to, as the case may be, the product
of the Aggregate Norwest Shares multiplied by the Norwest Measurement Price,
(B) multiplying the result thereof by 4.76%, (C) dividing the result thereof by
the Norwest Measurement Price (with the result of (A), (B), and (C) being the
"Variable Norwest Shares". The "Company Assets" are defined as the net assets
(liabilities) of Company, other than its shares in the Bank, as of the last day
of the month immediately preceding the Closing Date.
By way of illustration only, assume that (i) the Aggregate Norwest Shares
to be issued in the Reorganizations equal 310,269 shares, (ii) the Norwest
Measurement Price is $27.00; (iii) Company Assets as of the last day of the
month preceding the Closing Date equal ($2,300,000) (a negative number), and
(iv) the number of shares of Bancshares Common Stock outstanding prior to the
Effective Time of the Merger equal 92,450 shares. Based on the provisions of
the Merger Agreement described above and the above assumptions, the Variable
Norwest Shares would equal 18,823.62 [(the Aggregate Norwest Shares (310,269
shares) x the Norwest Measurement Price ($27.00) plus the Company Assets
----
($2,300,000) x 4.76% or 508,237.72, divided by the Norwest Measurement Price.]
The Merger Conversion Factor would thus equal 3.15 (the Aggregate Norwest
shares (310,269) less the Variable Norwest Shares (18,823.62)) or 291,445.38,
divided by the outstanding shares of Bancshares Common Stock (92,450). Based
on this illustration, each share of outstanding Bancshares Common Stock would
be converted into approximately 3.15 shares of Norwest Common Stock. The
foregoing information is provided solely for purposes of illustration. No
assurance can be given concerning the actual Merger Conversion Factor that will
apply on the Closing Date.
The Bank Consolidation
----------------------
Following the Effective Time of the Merger, the Bank Consolidation
Agreement provides, subject to the conditions set forth therein and in the
Merger Agreement, that the Bank will consolidate with Norwest Interim Bank
under the charter of the Bank at the Effective Time of the Consolidation. Upon
the consummation of the Consolidation, each shareholder of the Bank (other than
Bancshares and those shareholders who have exercised their statutory
dissenters' appraisal rights) will be entitled to receive that number of shares
of Norwest Common Stock equal to the number of shares of Bank Common Stock held
by such shareholder immediately prior to the Effective Time of the
Consolidation multiplied by a conversion factor (defined for purposes of
illustration in this Proxy Statement-Prospectus as the "Bank Consolidation
Conversion Factor") computed as described in the next sentence. The "Bank
Consolidation Conversion Factor" used to determine the number of shares of
Norwest Common Stock into which each outstanding share of Bank Common Stock
will be converted will be determined by
24
<PAGE>
dividing the Variable Norwest Shares by the number of outstanding shares of
Bank Common Stock owned by shareholders other than Bancshares immediately prior
to the Effective Time of the Consolidation.
Based on the assumptions used under the heading "The Merger" above, if the
Variable Norwest Shares equal 18,823.62 shares and the assumed number of
outstanding shares of Bank Common Stock held by Bank stockholders other than
Bancshares is 440 shares, the Bank Consolidation Conversion Factor would equal
42.78 and each share of Bank Common Stock would be converted into approximately
42.78 shares of Norwest Common Stock. The foregoing information is provided
solely for purposes of illustration. No assurance can be given concerning the
actual Bank Consolidation Conversion Factor that will apply on the Closing
Date.
Terms Applicable to the Merger and The Bank Consolidation
The Merger Agreement provides that if, between the date of the Merger
Agreement and the Effective Time of the Merger, shares of Norwest Common Stock
are changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares,
or readjustment, or if a stock dividend thereon is declared with a record date
within the same period, the conversion factors provided for in the Merger
Agreement will be adjusted accordingly. The Bank Consolidation Agreement
includes a parallel provision.
No fractional shares of Norwest Common Stock will be issued in the
Reorganizations. Instead, Norwest will pay to each holder of Bancshares
Common Stock or Bank Common Stock who would otherwise be entitled to a
fractional share an amount of cash equal to the fraction of a share of Norwest
Common Stock to which the shareholder of Bancshares or stockholder of the Bank
would otherwise be entitled multiplied by the Norwest Measurement Price.
Shares of Norwest Common Stock issued and outstanding immediately prior to
the Effective Times of the Reorganizations will remain issued and outstanding.
EFFECTIVE DATES OF THE REORGANIZATIONS
Subject to the terms and conditions of the Merger Agreement, the Effective
Date of the Merger will be the date on which an executed Agreement and Plan of
Merger, Articles of Merger, or a Certificate of Merger, as appropriate, is
filed with the Secretaries of State of the States of Minnesota and Delaware.
Such filings will be made on the Closing Date, which shall be the third
business day after the last day of the calendar month in which the satisfaction
or waiver of all conditions of the Merger Agreement have occurred or on such
other date upon which the parties agree, and the time at which such filing will
be made is hereinafter referred to as the "Time of Filing." The Effective Time
of the Merger will be 11:59 p.m., Minneapolis, Minnesota time, on the Effective
Date of the Merger. Subject to the terms and conditions of the Merger
Agreement and the Bank Consolidation Agreement, the Effective Date of the Bank
Consolidation will be on the date specified in the Certificate of Approval of
the OCC approving the Consolidation. The Effective time of the Bank
Consolidation will occur at 12:01 a.m. on the Effective Date of the Bank
Consolidation. There can be no assurance, however, as to when or whether the
Reorganizations will occur. Norwest and Bancshares anticipate that the closing
will occur as soon as possible following the Special Meetings. See "Terms of
the Merger," "Conditions to the Merger," and "Regulatory Approvals."
25
<PAGE>
SURRENDER OF CERTIFICATES
As soon as practicable after the Effective Time of the Merger and the
Effective Time of the Bank Consolidation, Norwest Bank Minnesota, National
Association, acting in the capacity of exchange agent for Norwest (the
"Exchange Agent"), will mail to each former holder of record of shares of
Bancshares Common Stock or shares of Bank Common Stock a form of letter of
transmittal, together with instructions for the exchange of such holder's stock
certificates for a certificate representing Norwest Common Stock.
SHAREHOLDERS OF BANCSHARES AND STOCKHOLDERS OF THE BANK SHOULD NOT SEND IN
THEIR CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND
INSTRUCTIONS.
Upon surrender to the Exchange Agent of one or more certificates for
Bancshares Common Stock or Bank Common Stock, together with a properly
completed letter of transmittal, there will be issued and mailed to the holder
a certificate representing the number of whole shares of Norwest Common Stock
to which such holder is entitled and, where applicable, a check for the amount
representing any fractional share. A certificate for Norwest Common Stock may
be issued in a name other than the name in which the surrendered certificate is
registered only if (i) the certificate surrendered is properly endorsed and
otherwise in proper form for transfer and (ii) the person requesting the
issuance of such certificate either pays to the Exchange Agent any transfer or
other taxes required by reason of the issuance of a certificate for such shares
in a name other than the registered holder of the certificate surrendered or
establishes to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable.
All Norwest Common Stock issued pursuant to the Reorganizations will be
deemed issued as of the Effective Time of the Merger or the Effective Date of
the Bank Consolidation, as the case may be. No dividends with a record date
after the Effective Dates of the Reorganizations will be paid to shareholders
of Bancshares or stockholders of the Bank entitled to receive certificates for
shares of Norwest Common Stock until such shareholders surrender their
certificates representing shares of Bancshares Common Stock or Bank Common
Stock. Upon such surrender, there shall be paid to the shareholder in whose
name the certificates representing such shares of Norwest Common Stock are
issued any dividends the record and payment dates of which shall have been
after the Effective Dates of the Reorganizations and before the date of such
surrender. After such surrender, there shall be paid to the person in whose
name the certificate representing such shares of Norwest Common Stock is
issued, on the appropriate dividend payment date, any dividend on such shares
of Norwest Common Stock which shall have a record date after the Effective
Dates of the Reorganizations and prior to the date of surrender, but a payment
date subsequent to the surrender. In no event shall the persons entitled to
receive such dividends be entitled to receive interest on amounts payable as
dividends.
OTHER TERMS AND CONDITIONS OF THE REORGANIZATIONS
THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the shareholders of Bancshares. Consummation of the Merger
is also subject to the satisfaction of certain other conditions, unless waived,
to the extent waiver is permitted by applicable law. Such conditions to the
obligations of both parties to consummate the Merger include, but are not
limited to, (i) the receipt of all necessary regulatory approvals, including
the approval of the Merger by the Federal Reserve Board, the approval of the
Bank
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Consolidation by the OCC, and the expiration of all applicable waiting and
approval periods, (ii) the continued effectiveness of the Registration
Statement of which this Proxy Statement-Prospectus is a part and receipt by
Norwest of all state securities law or blue sky authorizations necessary for
the Merger, (iii) the absence of any order of a court or agency of competent
jurisdiction restraining, enjoining, or otherwise prohibiting consummation of
the Merger or the Bank Consolidation, (iv) the continued accuracy of
representations and warranties by the other party, (v) the performance by the
other party of its obligations under the Merger Agreement, (vi) the receipt of
certain certificates from officers of the other party, (vii) the absence of any
change or any circumstances which might reasonably be expected to have a
material adverse effect on the financial condition, results of operations,
business, or prospects of Bancshares and the Bank taken as a whole, on the one
hand, and of Norwest and its subsidiaries taken as a whole, on the other, other
than changes that affect the banking industry generally or changes in the
general level of interest rates; (viii) neither party shall have terminated the
Merger Agreement and (ix) there shall not have occurred any general suspensions
of trading in securities on the New York Stock Exchange or a declaration of a
banking moratorium or suspension of payments in respect of banking in the
United States.
Bancshares's obligation to consummate the Merger is further subject to (i)
authorization for listing on the NYSE and CSE upon official notice of issuance
of the shares of Norwest Common Stock issuable pursuant to the Merger, and (ii)
the receipt of an opinion of its counsel to the effect that for federal income
tax purposes the Merger will be a tax-free reorganization.
In addition, immediately after the Effective Time of the Merger, Norwest
has agreed to pay in full certain loans from various trusts for the benefit of
the Fingerhut Shareholders and their affiliates and a loan from Sun Tree
Limited Partnership, a partnership controlled by certain of the Fingerhut
Shareholders. See "THE TRANSACTION-Interests of Certain Persons in the
Transaction."
Norwest's obligation to consummate the Merger is also subject to (i) the
receipt by Norwest of a comfort letter from KPMG Peat Marwick addressed to
Norwest in form and substance reasonably satisfactory to Norwest and customary
in scope and substance for letters delivered by independent public accountants
in connection with registration statements on Form S-4 filed under the
Securities Act of 1933; (ii) the receipt by Bancshares and the Bank of any and
all material consents or waivers from third parties to loan agreements, leases,
or other material contracts required for the consummation of the Merger, and
the receipt by Bancshares and the Bank of any and all material permits,
authorizations, consents, waivers, and approvals required for the consummation
of the Merger; (iii) the requirement that Bancshares and the Bank considered as
a whole shall not have sustained since June 30, 1993, any material loss or
interference with their business from any civil disturbance or any fire,
explosion, flood, or other calamity, whether or not covered by insurance; (iv)
the absence of any reasonable basis for any proceeding, claim, or action
seeking to impose, or that could reasonably be expected to result in, the
imposition on Bancshares or the Bank of any liability arising from the release
of hazardous substances under any local, state, or federal environmental
statute, regulation, or ordinance which has had or could reasonably be expected
to have a material adverse effect upon Bancshares and the Bank taken as a
whole; (v) the absence of any condition or requirement in any approvals,
licenses, or consents granted by any regulatory authority relating to
Bancshares or the Bank that, in the good faith judgment of Norwest, is
unreasonably burdensome to Norwest; (vi) the establishment of such additional
accruals and reserves as may be necessary to conform Bancshares's accounting
and credit loss reserve practices and methods to those of Norwest and Norwest's
plans for the conduct of Bancshares's business after the Merger and to provide
for the costs and expenses of consummation by Bancshares of the transactions
contemplated by the Merger Agreement; (vii) receipt by Norwest of an opinion of
counsel to Bancshares with Bank as to the due incorporation, existence and good
standing of
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Bancshares and Bank and as to certain other matters; (viii) the
equity of Bancshares as of the Closing Date shall be in an amount at least
equal to the equity of Bancshares as of June 30, 1993, subject to certain
permitted adjustments (ix) neither Bancshares nor Bank shall be subject to any
cease and desist order, written agreement or memorandum of understanding with,
or a party to any commitment letter, extraordinary supervisory letter or
similar undertaking to, or be subject to any order or directive by any Bank
Regulator that adversely affects Bank or Bancshares (collectively, "Regulatory
Directive"), or shall have assessed any civil money penalty by any Bank
Regulator which has not been paid or reserved for in full, nor been advised by
any Bank Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such Regulatory
Directive or civil money penalty (unless such Regulatory Directive will expire
or become ineffective upon the Effective Time of the Merger or the Effective
Time of the Bank Consolidation); and (x) either the Bank shall have sold or
transferred for fair market value as determined by an independent loan
appraisal certain identified loans (excluding servicing obligations arising
under any participations sold with respect to such loans), or the amount owing
on such loans shall have been paid in full.
THE BANK CONSOLIDATION
The Bank Consolidation will occur only if (i) the Bank Consolidation
Agreement is approved by the requisite vote of the stockholders of the Bank and
of Norwest Bank; (ii) the Bank Consolidation is approved by all appropriate
banking and regulatory authorities, and all conditions prescribed by law for
the consummation of the Bank Consolidation have been satisfied; and (iii) the
Merger has been consummated.
REGULATORY APPROVALS--THE MERGER AND THE BANK CONSOLIDATION
The Merger. The Merger is subject to prior approval by the Federal
Reserve Board under Section 3 of the Bank Holding Company Act of 1956, as
amended (the "BHC Act"), which requires that the Federal Reserve Board take
into consideration the financial and managerial resources and future prospects
of the existing and proposed institutions and the convenience and needs of the
communities to be served. The BHC Act prohibits the Federal Reserve Board from
approving the Merger if it would result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country may be substantially to lessen competition or to tend to
create a monopoly, or if it would in any other manner be a restraint of trade,
unless the Federal Reserve Board finds that the anticompetitive effects of the
Merger are clearly outweighed in the public interest by the probable effect of
the transaction in meeting the convenience and needs of the communities to be
served. The Federal Reserve Board also has the authority to deny an
application if it concludes that the combined organization would have an
inadequate capital position.
Under the BHC Act, the Merger may not be consummated until the 30th day
following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. The commencement of an antitrust action would stay the effectiveness
of the Federal Reserve Board's approval unless a court specifically orders
otherwise. The BHC Act provides for the publication of notice and public
comment on the applications and authorizes the regulatory agency to permit
interested parties to intervene in the proceedings. The 30-day waiting period
with respect to the Merger has expired.
The Bank Consolidation. The Bank Consolidation is also subject to the
approval of the OCC, and receipt of such approval is a condition to
consummation of the Consolidation. The
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application for approval of the Bank Consolidation was filed with the OCC
on November 17, 1993.
In NoDak Bancorporation v. Clarke, Civil Case No. A1-91-163 (May 8, 1992),
the Federal District Court for the District of North Dakota ruled that the OCC
lacked the authority to approve a merger under Title 12, Section 215a, of the
United States Code in which some of the shareholders of a bank which was to be
merged into a national bank were required to accept cash rather than stock in
the surviving bank. The District Court based its decision on the reasoning of
the United States Court of Appeals for the eleventh Circuit in Lewis v. Clark
[sic], 911 F.2d 1558 (11th Cir. 1990). On appeal, the United States Court of
Appeals for the Eighth Circuit declined to follow the reasoning of the Lewis
decision and overturned the lower court's ruling (998 F.2d 1416 (8th Cir.
1993)). To the best of the knowledge of the managements of Norwest and the
Bank, no decision in any other federal judicial district court or circuit,
other than those discussed in this paragraph, has been reported as of the date
of this Proxy Statement-Prospectus that has cited the appellate court's
decision in Lewis v. Clark, nor has the OCC indicated that it would not approve
mergers that involve payment of different considerations to different
shareholders, other than such mergers in states located in the Eleventh
Circuit.
Status of Regulatory Approvals. On December 21, 1993, the Federal Reserve
Board announced its approval of the Merger. As of the date of this Proxy
Statement-Prospectus, the OCC had not yet approved the Bank Consolidation. The
approval of any application merely implies satisfaction of regulatory criteria
for approval, which do not include review of the transaction from the
standpoint of the adequacy of the consideration to be received by, or fairness
to, shareholders. Regulatory approvals do not constitute an endorsement or
recommendation of the proposed transactions.
Norwest is not aware of any governmental approvals or compliance with
banking laws and regulations that are required for consummation of the
Reorganizations other than those described above. Should any other approval or
action be required, it is presently contemplated that such approval or action
would be sought. There can be no assurance that any such approval or action,
if needed, could be obtained and, if such approvals or actions are obtained,
there can be no assurance as to the timing thereof. Neither the Merger nor the
Bank Consolidation can proceed in the absence of all requisite regulatory
approvals. See "Effective Dates of the Reorganizations," "Conditions to the
Reorganizations," and "Waiver, Amendment, and Termination."
BUSINESS PENDING THE REORGANIZATIONS
Under the Merger Agreement, each of Bancshares and the Bank is generally
obligated to maintain its corporate existence in good standing; to maintain the
general character of its business and conduct its business in the ordinary and
usual manner; to maintain proper business and accounting records in accordance
with generally accepted principles; to maintain its properties in good repair
and condition, ordinary wear and tear excepted; to maintain in all material
respects presently existing insurance coverage; to use its reasonable best
efforts to preserve its business organization intact, to keep the services of
its present principal employees, and to preserve its good will and the good
will of its suppliers, customers, and others having business relationships with
it; to use its reasonable best efforts to obtain any approvals or consents
required to maintain existing leases and other contracts in effect following
the Merger; to comply in all material respects with all laws, regulations,
ordinances, codes, orders, licenses, and permits applicable to the properties
and operations of Bancshares and the Bank the noncompliance with which
reasonably could be expected to have a material adverse effect on Bancshares
and the Bank taken as a whole; and to permit Norwest and its
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representatives to examine its books, records, and properties, and to
interview officers, employees, and agents at all reasonable times when it is
open for business. The Merger Agreement also provides that, prior to the
Closing Date, neither Bancshares nor the Bank may, without the prior written
consent of Norwest, among other things: (i) amend or otherwise change its
articles of incorporation or association or bylaws; (ii) issue or sell, or
authorize for issuance or sale, or grant any options or make other agreements
with respect to the issuance or sale, or conversion of, any shares of its
capital stock, phantom shares, or other share equivalents, or any other of its
securities; (iii) authorize or incur any long-term debt (other than deposit
liabilities); (iv) mortgage, pledge, or subject to lien or other encumbrance
any of its properties, except in the ordinary course of business; (v) enter
into any material agreement, contract, or commitment in excess of $25,000
except banking transactions in the ordinary course of business and in
accordance with policies and procedures in effect on the date of the Merger
Agreement; (vi) make any investments except investments made by the Bank in the
ordinary course of business for terms of up to one year and in amounts of
$100,000 or less; (vii) amend or terminate any "employee benefit plan" within
the meaning of the Employee Retirement Income Security Act of 1974, as amended,
except as required by law; (viii) make any contributions to any such plan
except as required by the terms of such plan in effect as of the date of the
Merger Agreement; (ix) declare, set aside, make, or pay any dividend or other
distribution with respect to its capital stock; (x) redeem, purchase, or
otherwise acquire, directly or indirectly, any of the capital stock of
Bancshares; (xi) increase the compensation of any officers, directors, or
executive employees, except pursuant to existing compensation plans and
practices and except as permitted under the Merger Agreement; (xii) sell or
otherwise dispose of any shares of the capital stock of Bancshares or the Bank;
or (xiii) sell or otherwise dispose of any of its assets or properties other
than in the ordinary course of business (xiii) sell or trade, or enter into any
agreement to sell or trade, any of the Bank's investment securities prior to
their maturity, except with the consent of Norwest.
In addition, the Merger agreement provides that, until the Effective Date
of the Merger, Bancshares shall not permit the Bank to make, and the Bank shall
not make any "Extensions of Credit" (defined below) that do not comply with the
restrictions set forth below. The term "Extensions of Credit" shall mean all
loans and extensions of credit (as those terms are defined in 12 USC (S)84 and
12 CFR part 32), including all loans, commitments to make loans, renewals,
modifications, overdrafts and all other extensions of credit of any kind to
Bank customers or on behalf of Bank customers. The following restrictions
shall apply for Extensions of Credit by the Bank: (A) all Extensions of Credit
shall be made in compliance with the Bank's lending policies effective as of
the date of the Merger Agreement and shall be duly rated 1, 2, 3 or 4 by the
Bank in accordance with its internal loan rating system as set forth in its
lending policies effective on the date hereof, except as otherwise authorized
by Norwest in writing; (B) no Extensions of Credit shall be made to any
principal shareholder, officer or director of the Bank or any member of the
immediate family of any principal shareholder, officer or director of the Bank,
or any related interest or affiliate thereof or of the Bank or Bancshares, or
any trust for the benefit thereof, except as authorized by Norwest in writing;
(C) all Extensions of Credit shall be made in compliance with all applicable
federal regulations; (D) no Extension of Credit in excess of $100,000 in
principal amount (in the aggregate for all loans which are required to be
combined as provided in 12 USC (S)84 or 12 CFR Part 32) shall be made by the
Bank except to the extent that there has been a determination by Norwest that
such Extension of Credit would be rated 1, 2, 3 or 4 under Bank's normal loan
rating system or Norwest has otherwise consented to such Extension of Credit;
and (E) Bank shall not increase any Extension of Credit by $25,000 or more of
any Extension of Credit on Bank's watch list without the prior written consent
of Norwest.
Neither Bancshares nor the Bank, nor any director, officer,
representative, or agent thereof, will, directly or indirectly, solicit,
authorize the solicitation of, or enter into any
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discussions with any party or group (other than Norwest) concerning any offer
or possible offer (i) to purchase any shares of common stock, any option or
warrant to purchase any shares of common stock, any securities convertible into
any shares of common stock, or any other equity security of Bancshares or the
Bank; (ii) to make a tender or exchange offer for any shares of such common
stock or other equity security; (iii) to purchase, lease, or otherwise acquire
the assets of Bancshares or the Bank, except in the ordinary course of
business; or (iv) to merge, consolidate, or otherwise combine with Bancshares
or the Bank. Any offer or inquiry to Bancshares or the Bank concerning any of
the foregoing must be promptly disclosed, along with the terms thereof, to
Norwest.
In addition, Bancshares has agreed that it will not take any action with
respect to Bancshares which would disqualify the Merger as a "pooling of
interests" for accounting purposes.
WAIVER, AMENDMENT, AND TERMINATION--THE MERGER AND THE BANK CONSOLIDATION
The Merger Agreement--Waiver and Amendment. The Merger Agreement provides
that the parties may, in writing, waive any inaccuracies in the representations
and warranties of the other party or compliance by the other party with any of
the covenants and conditions in the Merger Agreement. In addition, at any time
before the Time of Filing the parties may amend the Merger Agreement by action
of their respective Boards of Directors or pursuant to authority delegated by
their respective Boards of Directors, provided that no such amendment occurring
after approval of the Merger by the Bancshares shareholders may adversely
affect the consideration to be received by the Bancshares shareholders.
The Merger Agreement--Termination. The Merger Agreement provides that it
may be terminated at any time prior to the Time of Filing (i) by mutual written
consent of the parties; (ii) by either party by written notice to the other if
the Merger shall not have been consummated by July 21, 1994, unless such
failure of consummation is due to the failure of the party seeking termination
to perform or observe in all material respects the covenants and agreements to
be performed or observed by it under the Merger Agreement; (iii) by either
party by written notice to the other if any court or governmental authority of
competent jurisdiction shall have issued a final order restraining, enjoining,
or otherwise prohibiting the consummation of the transactions contemplated by
the Merger Agreement or (iv) by Bancshares if the Measurement Price is less
than $25.00.
The Bank Consolidation Agreement. The Bank Consolidation Agreement
provides that it may be terminated at any time prior to the Effective Date of
the Bank Consolidation by mutual written consent of the Boards of Directors of
the parties or by action of the Board of Directors of either party if the
Merger Agreement is terminated. The Bank Consolidation Agreement may be
amended by mutual consent of the Boards of Directors of the parties; provided,
however, that no such amendment occurring after approval of the Bank
Consolidation Agreement shall have a material adverse affect on the rights of
Bank stockholders.
MANAGEMENT AND OPERATIONS AFTER THE REORGANIZATIONS
As of the Effective Time of the Merger, Bancshares will become a
subsidiary of Norwest. As a result of the Bank Consolidation, which will occur
immediately following the Merger, the Bank will be merged with another
subsidiary of Norwest, Norwest Bank, under the charter of Bank, and will cease
to exist as a separate entity. Norwest Bank will operate at the Bank's present
locations, providing products and services offered by Norwest affiliates. See
"Terms of the Merger and of the Bank Consolidation."
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INTEREST OF CERTAIN PERSONS IN THE TRANSACTION
Certain directors and executive officers of Bancshares and the Bank may
be deemed to have certain interests in the Merger and Consolidation that are in
addition to their interest (if any) as shareholders of Bancshares and the Bank.
These include provisions in an employment agreement with Robert A. Harris, who,
respectively, is a director and the chairman and president of Bancshares, and a
director and president of the Bank, involving cash payments under a phantom
stock plan and certain cash consideration to be paid to Ray Schirmer, the
Executive Vice President, and Daniel T. Kronlund, Senior Vice President of the
Bank, upon consummation of the Reorganizations.
In addition, at the closing of the Reorganizations, Norwest has agreed to
pay or cause to be paid in full, certain loans from certain entities controlled
by the Fingerhut Shareholders to Bancshares. The Bancshares Board of Directors
and the Bank Board of Directors were both aware of these interests and
considered them, among other things, in unanimously approving the Merger
agreement and the Consolidation Agreement and transactions contemplated
thereby.
Compensation to Certain Directors and Executive Officers of Bancshares
and the Bank. Robert A. Harris, the Bank and Bancshares entered into that
certain Employment Agreement, dated April 13, 1989 (the "Harris Employment
Agreement"). Pursuant to the Harris Employment Agreement, Mr. Harris was
retained by the Bank as Chief Executive Officer and President for a five (5)
year term subject to termination under certain conditions. In addition to
providing for base compensation certain fringe benefits and annual bonuses, the
Harris Employment Agreement established a phantom stock plan for the benefit of
Mr. Harris created a share account which was credited with 978 shares of the
Bank's common capital stock for accounting purposes only and without the rights
ordinarily attaching to the ownership of such stock. The Harris Employment
Agreement provides that the sale of the Bank (for example, upon consummation of
the Merger and the Bank Consolidation) each share of phantom stock vested in
Mr. Harris shall be converted into the amount of cash or property received for
each share of the Bank's stock transferred, diluted for purposes of such
compensation by the number of shares of phantom stock held by Mr. Harris. The
amount to which Mr. Harris would otherwise entitled to pursuant to the
foregoing is to be further reduced under the terms of the Harris Employment
Agreement by the dollar amount equal to the sum of the Bank's capital, surplus,
undivided profit and loan loss reserve on December 31, 1988 minus the dollar
amount of all loan charge offs (net of recoveries) upon all outstanding loans
as of December 31, 1988. In connection with the Merger and the Bank
Consolidation, the parties to the Harris Employment Agreement have agreed that
Mr. Harris shall receive $667,843 in full settlement of all rights to his
phantom stock. The amount of this payment is subject to increase or decrease
if the number of Aggregate Norwest Shares received at the Closing is more or
less than 310,269 shares.
In connection with the Merger and the Bank Consolidation, Ray Schirmer,
Executive Vice President and cashier of the Bank, and secretary and treasurer
of Bancshares, will receive cash compensation equal to one percent (1%) of the
dollar value of the sum of the Aggregate Norwest Shares (valued at $26.125 per
share) plus
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(1%) of Bancshares indebtedness to Norwest Bank Minnesota, N.A. on
the Closing Date. Assuming that such debt equals $3.4 million, and Bank Equity
equals $5,995,000 on the Closing Date, he would receive $115,049.50.
In connection with the Merger and the Bank Consolidation, Daniel
Kronlund, Senior Vice President of the Bank, will also receive cash
compensation equal to one percent (1%) of the dollar value of the sum of the
Aggregate Norwest Shares (valued at $26.125 per share) plus (1%) of Bancshares
indebtedness to Norwest Bank Minnesota, N.A. on the Closing Date. Assuming
that such debt equals $3.4 million, and Bank Equity equals $5,995,000 on the
Closing Date, he would receive $115,049.50.
Repayment of Certain Affiliate Loans. In addition, immediately after the
Effective Time of the Merger, Norwest has agreed to pay in full loans from
certain trusts for the benefit of the Fingerhut Shareholders and their
affiliates in the approximate principal amount of $1,603,780.53 (as of January
31, 1994), plus accrued but unpaid interest, and a loan from Sun Tree Limited
Partnership, a partnership controlled by certain of the Fingerhut Shareholders,
in the approximate principal amount of $1,414,594.65 (as of January 31, 1994),
plus accrued, unpaid interest.
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Bancshares is incorporated as a corporation under the laws of Minnesota,
and Norwest is incorporated as a corporation under the laws of Delaware.
Shareholders of Bancshares, whose rights are governed by Bancshares's Articles
of Incorporation and By-Laws and by Minnesota corporate law, will, upon
consummation of the Merger, become stockholders of Norwest. Stockholders of
the Bank, whose rights are governed by the Bank's Articles of Incorporation and
By-Laws and by federal law, will, upon consummation of the Bank Consolidation,
also become stockholders of Norwest. The rights of former shareholders of
Bancshares and former stockholders of the Bank as Norwest stockholders will
then be governed by Norwest's Certificate of Incorporation and By-Laws and by
the Delaware General Corporation Law. The following is a summary of certain
significant differences between the rights of shareholders of Bancshares,
stockholders of the Bank, and stockholders of Norwest.
CAPITAL STOCK
Bancshares. Bancshares's Articles of Incorporation authorize the issuance
of 1,000,000 shares of voting Bancshares Class A Common Stock, par value $.01
per share and 100,000 shares of non-voting Bancshares Class B Common Stock, par
value $.01 per share, and do not authorize the issuance of preferred stock.
Accordingly, all Bancshares shareholders have equal rights and preferences with
respect to dividends and distributions upon liquidation.
The Bank. The Bank's Articles of Incorporation authorizes the issuance of
9,245 shares of capital stock, par value $100.00 per share, in such series with
such rights and privileges as determined by the Board of Directors. All shares
of Bank Common Stock currently outstanding have equal rights of preferences
with respect to voting, dividends, and distributions upon liquidation.
NORWEST. Norwest's Certificate of Incorporation authorizes the issuance
of 500,000,000 shares of common stock, par value $ 1 2/3 per share, and
5,000,000 shares of preferred stock ("Norwest Preferred Stock"). At September
30, 1993, 293,099,468 shares of Common Stock were issued, of which 290,770,768
were outstanding and 2,328,700 were held as treasury shares; 2,276,500 shares
of Norwest Preferred Stock were issued and outstanding; and 1,000,000
additional shares of Norwest Preferred Stock were reserved for issuance upon
the exercise of certain rights described below. Norwest has authorized for
issuance from time to time and registered with the Securities and Exchange
Commission (the "SEC") an additional 1,700,000 shares of Norwest Preferred
Stock. Norwest has also authorized for issuance from time to time and
registered with the SEC pursuant to a universal shelf registration statement,
an indeterminate number of securities (the "Shelf Securities") with an
aggregate initial offering price not to exceed $1,000,000,000. The Shelf
Securities may be issued as Preferred Stock or as securities convertible into
shares of Preferred Stock or Common Stock. Based on the current number of
shares of
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Preferred Stock authorized for issuance under Norwest's Certificate
of Incorporation, the maximum number of shares of Preferred Stock and Common
Stock, respectively, that could be issued pursuant to the effective shelf
registration statements, when added to shares of Preferred Stock and Common
Stock already reserved for issuance, issued, or outstanding, could not exceed
respectively, 5,000,000 shares of Preferred Stock, and 500,000,000 shares of
Common Stock. All or any portion of the authorized but unissued Norwest
Preferred Stock or Shelf Securities issuable as, or convertible into Norwest
Preferred Stock, may be issued by the Board of Directors of Norwest without
further action by Norwest stockholders. Holders of Norwest Preferred Stock
have certain rights and preferences with respect to dividends and upon
liquidation that are superior to those of holders of Norwest Common Stock. The
relative rights and preferences of any Norwest Preferred Stock issued in the
future may be established by the Norwest Board of Directors without stockholder
action. Although management has no current plans for the issuance of any
shares of Norwest Preferred Stock, except as disclosed in this Proxy Statement-
Prospectus, such shares, when and if issued, could have dividend, liquidation,
voting, and other rights superior to those of Norwest Common Stock.
On November 22, 1988, the Board of Directors of Norwest declared a
dividend of one preferred share purchase right (collectively, the "Rights") for
each outstanding share of Norwest Common Stock. The dividend was paid on
December 9, 1988, to stockholders of record on that date. Holders of shares of
Norwest Common Stock issued subsequent to that date, including those to be
issued in connection with the Merger, will receive the Rights with their
shares. The Rights trade automatically with shares of Norwest Common Stock and
become exercisable only under certain circumstances. The Rights are designed
to protect the interests of Norwest and its stockholders against coercive
takeover tactics. The purpose of the Rights is to encourage potential
acquirors to negotiate with Norwest's Board of Directors prior to attempting a
takeover and to give the Board leverage in negotiating on behalf of all
stockholders the terms of any proposed takeover. The Rights may, but are not
intended to, deter takeover proposals.
Until a Right is exercised, the holder of a Right, as such, will have no
rights as a stockholder of Norwest including, without limitation, the right to
vote or receive dividends. Upon becoming exercisable, each Right will entitle
the registered holder to purchase from Norwest one four-hundredth of a share of
Norwest Series A Junior Participating Preferred Stock (collectively, the
"Junior Preferred Shares"). The stated purchase price for each one one-
hundredth of a Junior Preferred Share is $175.00. The purchase price is
subject to adjustment upon the occurrence of certain events, including stock
dividends on the Junior Preferred Shares or issuance of warrants for, or
securities convertible on certain terms into, Junior Preferred Shares. The
number of Rights outstanding and the number of Junior Preferred Shares issuable
upon exercise of the Rights are subject to adjustment in the event of a stock
split of, or a stock dividend on, Norwest Common Stock.
The Rights will become exercisable only if a person or group acquires or
announces an offer to acquire 25% or more of the outstanding shares of Norwest
Common Stock. This triggering percentage may be reduced to no less than 15% by
the Board of Directors prior to the time the Rights become exercisable. The
Rights have certain additional features that will be triggered upon the
occurrence of specified events:
(1) If a person or group acquires at least the triggering percentage of
Norwest Common Stock, the Rights permit holders of the Rights, other than
such person or group, to acquire Norwest Common Stock at 50% of market
value. However, this feature will not apply if a person or group which
owns less than the triggering percentage acquires at least 85% of the
outstanding shares of Norwest Common Stock pursuant to a cash tender offer
for 100% of the outstanding Norwest Common Stock.
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(2) After a person or group acquires at least the triggering percentage
and before the acquiror owns 50% of the outstanding shares of Norwest
Common Stock, the Board of Directors may exchange each Right, other than
Rights owned by such acquiror, for one share of Norwest Common Stock or
one four-hundredth of a Junior Preferred Share.
(3) In the event of certain business combinations involving Norwest or
the sale of 50% or more of the assets or earning power of Norwest, the
Rights permit holders of the Rights to purchase the stock of the acquiror
at 50% of market value.
The Junior Preferred Shares will not be redeemable. Each Junior Preferred
Share will be entitled to a minimum preferential quarterly dividend payment of
$1.00 per share but will be entitled to an aggregate dividend of 400 times the
dividend declared per share of Norwest Common Stock. In the event of
liquidation, the holders of the Junior Preferred Shares will be entitled to a
minimum preferential liquidation payment of $400.00 per share but will be
entitled to an aggregate payment of 400 times the payment made per share of
Norwest Common Stock. Each Junior Preferred Share will have 400 votes, voting
together with the Norwest Common Stock. Finally, in the event of any merger,
consolidation, or other transaction in which Norwest Common Stock is exchanged,
each Junior Preferred Share will be entitled to receive 400 times the amount
received per share of Norwest Common Stock. These rights are protected by
customary antidilution provisions.
At any time prior to the acquisition by a person or group of the
triggering percentage or more of the outstanding shares of Norwest Common
Stock, the Board of Directors may redeem the Rights in whole, but not in part,
at a price of $.0025 per Right (the "Redemption Price"). The redemption of the
Rights may be made effective at such time, on such basis, and with such
conditions as the Board of Directors in its sole discretion may establish.
Immediately upon any redemption of the Rights, the right to exercise the Rights
will terminate and the only remaining right of the holders of Rights will be to
receive the Redemption Price.
The Rights will expire on November 23, 1998, unless extended or earlier
redeemed by Norwest. Generally, the terms of the Rights may be amended by the
Board of Directors without the consent of the holders of the Rights.
PREEMPTIVE RIGHTS
Bancshares. Bancshares shareholders have no preemptive rights to acquire
treasury stock and previously unissued shares of Bancshares stock upon their
issuance.
The Bank. Bank stockholders have the preemptive right to subscribe for
previously unissued shares of the Bank's capital stock.
Norwest. Norwest stockholders have no preemptive rights or other purchase
rights other than the Rights.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
Bancshares. Under Minnesota law, the affirmative vote of the holders of a
majority of the voting power of all shares entitled to vote is required to
approve a plan of merger, consolidation, or exchange. Under Bancshares'
Articles of Incorporation, Bancshares Class A Common Stock is the sole class of
Bancshares Common Stock having voting rights, including the right to vote of
the Merger.
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The Bank. Under federal law, the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Bank Stock is required to approve
a merger or consolidation.
Norwest. Under Delaware law, the vote of a simple majority of the
outstanding shares of Norwest Common Stock entitled to vote thereon is required
to approve a merger or consolidation, or the sale, lease, or exchange of
substantially all of Norwest's corporate assets. With respect to a merger, no
vote of the stockholders of Norwest is required if Norwest is the surviving
corporation and (1) the related agreement of merger does not amend Norwest's
Certificate of Incorporation, (2) each share of stock of Norwest outstanding
immediately before the merger is an identical outstanding or treasury share of
Norwest after the merger, and (3) the number of shares of Norwest stock to be
issued in the merger (or to be issuable upon conversion of any convertible
instruments to be issued in the merger) does not exceed 20% of the shares of
Norwest Common Stock outstanding immediately before the merger.
DISSENTERS' RIGHTS
Bancshares and the Bank. Under Minnesota law, and under federal law,
shareholders of Bancshares and stockholders of the Bank are entitled to
exercise dissenters' rights and obtain payment of the fair value of their
shares. See the more detailed discussion below under "Rights of Dissenting
Shareholders."
Norwest. Under Delaware law a stockholder is generally entitled to
receive payment of the appraised value of such stockholder's shares if the
stockholder dissents from a merger or consolidation. However, appraisal
rights are not available to holders of (a) shares listed on a national
securities exchange or held of record by more than 2,000 persons or (b) shares
of the corporation surviving a merger, if the Merger did not require the
approval of the stockholders of such corporation, unless in either case, the
holders of such stock are required by the terms of the Merger to accept
anything other than (i) shares of stock of the surviving corporation, (ii)
shares of stock of another corporation which are also listed on a national
securities exchange or held by more than 2,000 holders, or (iii) cash in lieu
of fractional shares of such stock. Appraisal rights are not available for a
sale of assets or an amendment to the Certificate of Incorporation. Because
shares of Norwest Common Stock are listed on both the NYSE and the CSE, and
Norwest has more than 2,000 stockholders of record, its stockholders are not,
subject to the aforementioned exceptions, entitled to any rights of appraisal
in connection with mergers or consolidations involving Norwest.
SPECIAL MEETINGS
Bancshares. Under Minnesota law and Bancshares's By-Laws, a special
meeting of shareholders may be called by Bancshares's President, the members of
its Board of Directors, or the holders of not less than one-tenth of the
outstanding shares of Bancshares Common Stock.
The Bank. Under federal law and the Bank's By-Laws, a special meeting of
stockholders may be called by a majority of the Board of Directors or on the
written request of stockholders owning not less than twenty five percent of the
capital stock of the Bank.
Norwest. Under Delaware law and the By-Laws of Norwest, a special meeting
of stockholders may be called only by the Chairman of the Board, a Vice
Chairman, the President, or a majority of the Board of Directors.
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ANTITAKEOVER STATUTES
Bancshares. Minnesota has in force both a control share acquisition
statute, which regulates the accumulation of shares of voting stock of
Minnesota corporations, and a business combination statute, which restricts
business combinations with Minnesota corporations. The control share
acquisition statute precludes an acquiror of the voting shares of a Minnesota
corporation who crosses one of three thresholds (20%, 33 1/3%, or 50% of the
voting power) from obtaining voting control with respect to such shares unless
both a majority of all voting shares and a majority of all disinterested voting
shares vote to accord voting power to the control shares. The statute further
provides that the corporation may redeem the control shares if the acquiror has
not complied with certain procedural requirements or if the control shares are
not accorded full voting rights by the shareholders. The business combination
statute regulates business combinations such as mergers, consolidations, and
asset purchases with public corporations where the acquiror became an
interested shareholder of the public corporation before either the purchase
resulting in such acquiror becoming an interested shareholder or the business
combination received the prior approval of a majority of the disinterested
directors of the public corporation. An "interested shareholder" is any person
that is either the beneficial owner, directly or indirectly, of ten percent or
more of the voting stock of the public corporation or an affiliate or associate
of the public corporation and was at any time within the preceding four years
the beneficial owner, directly or indirectly, of ten percent or more of the
voting stock of the public corporation. A "disinterested" director is a person
who is not currently nor has been within five years an officer or employee of
the public corporation or a related corporation. The statute prohibits
business combinations with an unapproved interested shareholder for a period of
four years after the date of the interested shareholder's share acquisition.
The business combination statute is designed to inhibit unfriendly
acquisitions, but is does not apply to corporations whose articles of
incorporation or bylaws contain a provision electing not to be covered by law.
Neither Bancshares's articles of incorporation nor its bylaws contain such a
provision.
Norwest. The Delaware antitakeover statute governs business combinations
between a publicly held Delaware corporation having certain numbers of
stockholders or listed on certain exchanges and an interested stockholder.
This statute is designed primarily to regulate the second step of a two-tiered
takeover attempt. Delaware law broadly defines a "business combination" as
including a merger, sale of assets, issuance of voting stock, and various other
types of transactions with an interested stockholder and other related parties.
An "interested stockholder" is defined as any person who beneficially owns,
directly or indirectly, 15% or more of the outstanding voting stock of a
corporation. Delaware law prohibits a corporation from engaging in a business
combination with an interested stockholder for a period of three years
following the date on which the stockholder became an interested stockholder,
unless (a) the board of directors approved the business combination before the
stockholder became an interested stockholder, (b) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, such stockholder owned at least 85% of the voting stock
outstanding when the transaction began, excluding in computing such percentage
shares held by certain types of stockholders, or (c) the board of directors
approved the business combination after the stockholder became an interested
stockholder and the business combination was approved by at least two-thirds of
the outstanding voting stock not owned by such stockholder.
In addition to being subject to the laws of Delaware, Norwest, as a bank
holding company, is subject to various provisions of federal law with respect
to mergers, consolidations, and certain other corporate transactions.
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DISSENTER'S RIGHTS OF BANCSHARES SHAREHOLDERS
Because the holders of Bancshares Class A Common Stock are the holders of
the sole class of Bancshares Common Stock entitled to vote on the Merger, such
shareholders are entitled to exercise dissenters' rights pursuant to the
provisions of Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act. In accordance with these sections, such shareholders have the
right to dissent from the Merger and to be paid the fair value of their shares.
The term "fair value" means the value of a shareholder's stock immediately
before the Effective Date of the Merger. Under Section 302A.473, where a
merger is to be submitted for approval at a meeting of shareholders, the
corporation must notify each of its shareholders of the right to dissent and
include in such notice a copy of Sections 302A.471 and 302A.473. This Proxy
Statement-Prospectus shall constitute such notice to the holders of Bancshares
Class A Common Stock.
The following discussion is not a complete statement of the laws
pertaining to a dissenting shareholder's rights under Minnesota law and is
qualified in its entirety by the full text of Sections 302A.471 and 302A.473
attached as Appendix C to this Proxy Statement-Prospectus. Any shareholder who
wishes to exercise the right to dissent and demand the fair value of such
shareholder's shares, or who wishes to preserve the right to do so, should
review the following discussion and Appendix C carefully. DISSENTERS' RIGHTS
WILL BE LOST IF THE PROCEDURAL REQUIREMENTS ARE NOT FULLY AND PRECISELY
SATISFIED.
A holder of Bancshares Common Stock wishing to exercise the right to
demand the fair value of such shareholder's shares must first file, BEFORE the
vote of shareholders is taken at the Special Meeting, a written notice of
intent to demand the fair value of such shareholder's shares and must, in
addition, not vote in favor of the Merger Agreement. Because a proxy which
does not contain voting instructions will, unless revoked, be voted FOR
approval of the Merger Agreement, a shareholder of Bancshares who votes by
proxy and who wishes to exercise dissenters' rights must (i) vote AGAINST
approval of the Merger Agreement or (ii) ABSTAIN from voting on approval of the
Merger Agreement. A vote against the Merger Agreement, whether in person or by
proxy, will not in and of itself satisfy the requirement of a written notice of
intent to demand the fair value of a shareholder's common stock.
A demand for fair value must be executed by or for the shareholder of
record, fully and correctly, as such shareholder's name appears on the
certificate or certificates representing such shareholder's shares. If the
common stock is owned of record in a fiduciary capacity, such as by a trustee,
guardian, or custodian, such demand must be executed by the fiduciary. If the
common stock is own of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for a shareholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in making the demand, the
agent is acting as agent for the record owner.
A record owner who holds shares as a nominee for others, such as a broker,
may demand fair value of the shares held for all, or fewer than all, of the
beneficial owners of such shares. In such a case, the written demand should
set forth the number of shares to which it relates. When no number of shares
is expressly mentioned, the demand will be presumed to cover all shares
standing in the name of the record owner. Beneficial owners of common stock
who are not record owners and who intend to exercise dissenters' rights should
instruct the record owner to comply with the statutory requirements with
respect to the exercise of dissenters' rights before the date of the Special
Meeting.
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Shareholders of Bancshares who elect to exercise dissenters' rights and
demand fair value should mail or deliver their written demand to Bancshares,
211 West Holmes Street, Detroit Lakes, Minnesota 56501, Attention: Raymond J.
Schirmer, Secretary. The written demand should specify the shareholder's name
and mailing address, the number of shares owned, and that the shareholder is
thereby demanding the fair value of such shareholder's shares.
After the Effective Date of the Merger, Bancshares, as the surviving
entity, will cause to be mailed to each of the shareholders of Bancshares who
has properly asserted dissenters' rights a notice that contains (i) the address
to which a demand for payment and stock certificates must be sent in order to
receive payment and the date by which they must be received; (ii) a form to be
used to certify the date on which the shareholder, or the beneficial owner on
whose behalf the shareholder dissents, acquired the shares or an interest in
them, and to demand payment; and (iii) another copy of Sections 302A.471 and
302A.473, together with a brief description of these sections. To receive the
fair value of common stock a dissenting shareholder must demand payment and
deposit the certificates representing such shares within 30 days after the
notice is given.
After Bancshares receives a valid demand for payment, it will cause to be
remitted to each dissenting shareholder who has properly asserted dissenters'
rights the fair value of the shares of Common Stock with interest at the
judgment rate computed from the Effective Date of the Merger. Such payment
will be accompanied by (i) the consolidated audited financial statements of
Norwest for its most recently completed fiscal year, together with the latest
available interim financial statements; (ii) an estimate of the fair value of
the shares with respect to which dissenters' rights have been exercised and a
brief description of the method used to reach the estimate; and (iii)
additional copies of Sections 302A.471 and 302A.473 along with a brief
description of the procedures to be followed to demand the supplemental payment
discussed below. If Bancshares fails to remit payment within 60 days after
receiving shares from a dissenting shareholder, it is obligated to return any
certificates for such shares to the dissenting shareholder.
If a dissenting shareholder believes that the amount remitted by
Bancshares is less than the fair value of the shares plus interest, such
dissenting shareholder may give written notice to Bancshares of such
shareholder's own estimate of the fair value for the shares plus interest and
demand a supplemental payment for the difference. Any written demand for
supplemental payment must be made within 30 days after Norwest has mailed its
original remittance.
Within 60 days after receiving a demand for supplemental payment,
Bancshares, as the surviving entity, must either pay the amount of the
supplemental payment demanded (or agreed to between the dissenting shareholder
and Bancshares) or file a petition in the state courts of Minnesota requesting
that the court determine the fair value of the shares plus interest. Any
petition so filed must name as parties all dissenting shareholders who have
demanded supplemental payments and who have been unable to reach an agreement
with Bancshares concerning the fair value of their shares. The court may
appoint appraisers, with such power and authority as the court deems proper, to
receive evidence on and recommend the amount of fair value of the shares. The
jurisdiction of the court is plenary and exclusive, and the fair value as
determined by the court it binding on all shareholders, wherever located. A
dissenting shareholder, if successful, is entitled to a judgment for the amount
by which the fair value of such shareholder's shares as determined by the court
exceeds the amount originally remitted by Bancshares.
Generally, the costs and expenses associated with a court proceeding to
determine the fair value of the shares will be borne by the surviving entity,
unless the court finds that a dissenting shareholder has demanded supplemental
payment in a manner which is arbitrary,
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vexatious, or not in good faith. Similar costs and expenses may also be
assessed in instances where Bancshares has failed to comply with the procedures
in Section 302A.473 pertaining to dissenters' rights discussed above. The
court may, in its discretion, award attorneys' fees to an attorney representing
dissenting shareholders out of any amount awarded to such dissenters.
Failure to follow the steps required by Section 302A.473 for asserting
dissenters' rights may result in the loss of a shareholder's rights to demand
the fair value of such shareholder's shares of common stock. Shareholders
considering seeking appraisal should realize that the fair value of their
shares, as determined under Section 302A.473 in the manner outlined above,
could be more than, the same as, or less than the value of the Norwest Common
Stock they would be entitled to as a result of the Merger if they did not seek
appraisal of their shares.
APPRAISAL RIGHTS OF DISSENTING BANK SHAREHOLDERS
Title 12, Section 215, of the United States Code provides that any
shareholder of either of the parties to a consolidation involving a national
bank who objects to the proposed consolidation has the right to receive payment
in cash of the value of such shareholder's shares as of the effective date of
the consolidation, if and when the consolidation is consummated, subject to
certain conditions. These conditions, in the case of a shareholder of the
Bank, are that: (i) the shareholder must have voted against approval of the
Consolidation at the Special Meeting or given notice in writing at, or prior
to, the Special Meeting to the presiding officer that such shareholder dissents
from the proposed Consolidation; (ii) the shareholder must, within 30 days
after the effective date of the Consolidation, make a written request for
payment to the surviving bank; and (iii) the written request must be
accompanied by surrender of the shareholder's stock certificate(s). Any
shareholder of the Bank who votes against the Consolidation at the Special
Meeting, or who gives notice in writing at, or prior to, the Special Meeting to
the presiding officer that such shareholder dissents, will be notified in
writing of the effective date of the Consolidation. Failure to comply with
each of the foregoing conditions will result in the loss of the appraisal
rights described herein.
The value of the shares of any dissenting shareholder shall be determined
by an appraisal made by a committee of three persons, one to be selected by the
majority vote of the dissenting shareholders, one by the Board of Directors of
the surviving bank, and the third by the two so chosen. The valuation agreed
upon by any two of the three appraisers shall govern. If the value so fixed is
not satisfactory to any dissenting shareholder, that shareholder may, within
five days after being notified of the appraised value of such shareholder's
shares, 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 such
shares. If a shareholder dissents and, within 90 days from the date of
consummation of the Consolidation, one or more of the appraisers is not
selected as above provided for any reason, 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
surviving bank. The value of the shares ascertained shall be promptly paid to
the dissenting shareholder by the surviving bank.
The foregoing summary does not purport to be a complete statement of the
provisions of Section 215 and is qualified in its entirety by reference to the
relevant provisions of Section 215, the text of which is attached hereto as
Exhibit D. Any shareholder of the Bank who desires to exercise dissenters'
appraisal rights should carefully review and comply with the relevant
provisions of Section 215. DISSENTERS' RIGHTS OF APPRAISAL WILL BE LOST IF THE
PROCEDURAL REQUIREMENTS OF SECTION 215 ARE NOT FULLY AND PRECISELY SATISFIED.
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Attached hereto as Appendix E is a copy of Banking Circular 259 regarding
the valuation methods used by the Comptroller to estimate the value of a bank's
shares when the Comptroller is involved in the appraisal of shares held by
dissenting shareholders. The results of appraisals performed by the
Comptroller for transactions that were consummated in 1989 and 1986 are also
summarized in Appendix E. EACH SHAREHOLDER OF THE BANK SHOULD FULLY CONSIDER
APPENDIX E BEFORE DECIDING WHETHER TO EXERCISE DISSENTERS' RIGHTS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that each of the Reorganizations will be treated as a tax-
free reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code and that for federal income tax purposes no gain or
loss will be recognized by any shareholder of Bancshares or shareholder of the
Bank upon receipt of Norwest Common Stock pursuant to the Consolidations,
except upon the receipt of cash in lieu of fractional shares of Norwest Common
Stock. The Internal Revenue Service (the "Service") has not been and will not
be asked to rule upon the tax consequences of the Consolidations. Instead,
Bancshares and Bank will each rely upon the separate opinions of Maslon,
Edelman, Borman and Brand, its special outside legal counsel, as to certain
federal income tax consequences of the Reorganizations to the shareholders of
Bancshares and the shareholders of the Bank. It is a condition to the
consummation of the Reorganizations that each of Bancshares and the Bank
receive such an opinion from Maslon, Edelman, Borman and Brand. The opinions
of Maslon, Edelman, Borman and Brand will be based upon the facts which are
described herein and upon certain representations made by Bancshares and Bank,
Norwest, and certain of the principal shareholders of Bancshares and the Bank.
The opinions of Maslon, Edelman, Borman and Brand will also be based upon the
Code, regulations now in effect thereunder, current administrative rulings and
practice, and judicial authority, all of which are subject to change. An
opinion of counsel is not binding on the Service and there can be no assurance,
and none is hereby given, that the Service will not take a position contrary to
one or more positions reflected herein or that the opinion will be upheld by
the courts if challenged by the Service. Each holder of Bancshares Common
Stock or Bank Common Stock is urged to consult his or her own tax and financial
advisors as to the effect of such federal income tax consequences on his or her
own particular facts and circumstances and also as to any state, local,
foreign, or other tax consequences arising out of the Reorganizations.
Based upon the facts and representations provided to it, and subject to
various assumptions and qualifications, it is anticipated that Maslon, Edelman,
Borman and Brand will opine that the following federal income tax consequences
to the shareholders of Bancshares and Bank will result from the
Reorganizations.
(i) The Merger will qualify as a reorganization within the meaning of
Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code;
(ii) The Consolidation will qualify as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code.
(iii) No gain or loss will be recognized by the holders of Bank Common
Stock upon the exchange of Bancshares or Bank Common Stock solely for
Norwest Common Stock pursuant to the Reorganizations (but see clause (vi)
below for the tax consequences of payments in lieu of fractional shares);
(iv) The income tax basis of the Norwest Common Stock received by a
shareholders of Bancshares or Bank pursuant to a Consolidation, including
any fractional share interest
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deemed received as described in (vi) below, will be the same as the
income tax basis of Bancshares or Bank Common Stock surrendered in
exchange therefor;
(v) The holding period of the Norwest Common Stock received by a
shareholders of Bancshares or Bank pursuant to the Reorganizations will
include the period during which Bancshares or Bank Common Stock
surrendered therefor was held, provided that such Bancshares or Bank
Common Stock is a capital asset in the hands of the shareholder of the
Bank on the day of the Reorganizations; and
(vi) A holder of Bancshares Common Stock or Bank Common Stock
receiving cash in lieu of a fractional share of Norwest Common Stock will
be treated as having received the fractional share of Norwest Common Stock
in the Reorganizations and then having received the payment in lieu of the
fractional share as a distribution in full payment in exchange for the
fractional share as provided in Section 302(a) of the Code.
The opinion described above will be based upon certain assumptions,
including the assumption that the shareholders of Bancshares and the Bank do
not have any plan or intention to dispose of more than 50% of the Norwest
Common Stock received pursuant to the Reorganizations; the assumption that,
after the Reorganizations, Bancshares and the Bank will hold assets
representing at least 90% of the fair market value of the net assets and at
least 70% of the fair market value of the gross assets held by Bancshares and
the Bank immediately prior to the Reorganizations, the assumption that no
shareholder of the Bank will exercise statutory dissenters' rights, and that
the shareholders of Bancshares exercising dissenters' rights hold less than 20%
of the outstanding shares of Bancshares Common Stock, and the assumption that
the shareholders of the Bank do not directly or indirectly receive any
consideration for their shares of Bank Common Stock other than Norwest Common
Stock. For purposes of such assumptions, amounts paid by Bancshares and the
Bank to dissenting shareholders and amounts paid for reorganization expenses of
Bancshares and the Bank will be considered as assets held by Bancshares and the
Bank immediately prior to the Reorganizations.
The foregoing is only a general description of certain anticipated federal
income tax consequences of the Reorganizations without regard to the particular
facts and circumstances of the tax situation of each shareholder of Bancshares
or Bank. It does not discuss all of the consequences that may be relevant to
shareholders of Bancshares or the stockholders of the Bank entitled to special
treatment under the Code (such as insurance companies, dealers in securities,
exempt organizations, or foreign persons) or to shareholders of Bancshares or
stockholders of the Bank who acquired their Bank Common Stock pursuant to the
exercise of employee stock options or otherwise as compensation. The summary
set forth above does not purport to be a complete analysis of all potential tax
effects of the transactions contemplated by the Reorganizations Agreements or
the Reorganizations themselves. No information is provided herein with respect
to the tax consequences, if any, of the Reorganizations under state, local,
foreign, or other tax laws.
RESALE OF NORWEST COMMON STOCK
The shares of Norwest Common Stock issuable to shareholders of Bancshares
and stockholders of the Bank upon consummation of the Reorganizations have been
registered under the Securities Act of 1933 (the "Securities Act"). Such
shares may be traded freely and without restriction by those shareholders not
deemed to be "affiliates" of Bancshares, the Bank, or Norwest as that term is
defined in the rules under the Securities Act. Norwest Common Stock received
by those shareholders of Bancshares or stockholders of the Bank who are deemed
to be "affiliates" of Bancshares or the Bank, as the case may be, may be resold
without registration as provided for by Rule 145, or as otherwise permitted
under the Securities Act. In the Merger Agreement, Bancshares has agreed to
use its best efforts to cause each Bancshares shareholder who is an executive
officer or director of Bancshares or who may otherwise reasonably be deemed to
be an affiliate of Bancshares to enter into an agreement with Norwest providing
that such affiliate will not sell, transfer, or otherwise dispose of the
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shares
of Norwest Common Stock to be received by such person in the Merger except in
compliance with the applicable provisions of the Securities Act and the rules
and regulations promulgated thereunder. This Proxy Statement-Prospectus does
not cover any resales of Norwest Common Stock received by affiliates of
Bancshares or of the Bank.
The Merger Agreement provides for the filing by Norwest of listing
applications with the NYSE and the CSE covering the shares of Norwest Common
Stock issuable upon consummation of the Reorganizations. It is a condition to
the consummation of the Merger that such shares of Norwest Common Stock shall
have been authorized for listing on the NYSE and the CSE effective upon
official notice of issuance.
DIVIDEND REINVESTMENT AND OPTIONAL CASH PAYMENT PLAN
For those stockholders who elect to participate in Norwest's Dividend
Reinvestment and Optional Cash Payment Plan, dividends on Norwest Common Stock
will be reinvested in shares of Norwest Common Stock at market price (as
defined). The plan also permits participants to invest through voluntary cash
payments, within certain dollar limitations, in additional shares of Norwest
Common Stock at the market price (as defined) of such stock at the time of
purchase. It is anticipated that after the Effective Time of the Merger and
the Effective Time of the Bank Consolidation, Norwest will continue to offer
its Dividend Reinvestment and Optional Cash Payment Plan and that shareholders
of Bancshares and stockholders of the Bank who receive Norwest Common Stock in
the Reorganizations will have the right to participate in the Plan.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify as a pooling of interests for
accounting purposes. Under the pooling of interests method of accounting, the
historical basis of the assets and liabilities of Norwest and Bancshares will
be combined at the Effective Time of the Merger and carried forward at their
previously recorded amounts, and the shareholders' equity accounts of
Bancshares will be combined with Norwest's on Norwest's consolidated balance
sheet. Income and other financial statements of Norwest will not be restated
retroactively because the acquisition of Bancshares in the Merger is not
material to the financial statements of Norwest.
In order for the Merger to qualify for pooling of interest accounting
treatment, substantially all (90% or more) of the outstanding Bancshares Common
Stock must be exchanged for Norwest Common Stock. Bancshares has agreed not to
take any action which would disqualify the Merger from pooling of interests
treatment by Norwest.
The unaudited pro forma combined and pro forma equivalent per share data
contained in this Proxy Statement-Prospectus has been prepared using the
pooling of interests accounting method to account for the Merger. See
"SUMMARY--Comparative Unaudited Per Share Data."
EXPENSES
Norwest and Bancshares will each pay their own expenses in connection with
the Reorganizations, including fees and expenses of their respective
accountants and counsel; provided, however, that if the Reorganizations are not
consummated because all required regulatory approvals are not received, Norwest
will reimburse Bancshares for reasonable
43
<PAGE>
accounting fees incurred in the preparation of the audited financial
statements included in this Proxy Statement-Prospectus.
INFORMATION ABOUT BANCSHARES AND THE BANK
GENERAL
Bancshares is a one-bank holding company incorporated in Minnesota in
1982. It is registered with the Federal Reserve Board and is headquartered in
Minneapolis, Minnesota. It owns 95.24% of the stock of its sole subsidiary,
First National Bank of Detroit Lakes. As of September 30, 1993, Bancshares had
total consolidated assets of approximately $77.7 million and stockholders'
equity of approximately $3.4 million, and the Bank reported total assets of
$76.9 million, total deposits of $68.1 million, and net loans outstanding of
$45.9 million.
THE BANK
The Bank is headquartered in Detroit Lakes, Minnesota, the county seat of
Becker County, located in northwestern Minnesota. The Bank currently operates
a main office located at 211 West Holmes Street, and a branch office located at
1135 Washington Avenue, both of which offices are in the city of Detroit Lakes.
As of the 1990 U.S. Census, Detroit Lakes had a population of 6,635. The Bank
provides a full range of banking services at all of its offices including
checking and savings accounts, certificates of deposit, individual retirement
accounts, commercial, real estate, consumer, and agriculture loans, and safe
deposit boxes. The Bank owns all real estate and banking premises it uses.
The Bank was organized in 1927 as a national bank. It is subject to regulation
and supervision by the OCC.
44
<PAGE>
COMPETITION
The principal markets in which the Bank competes are Becker County and
contiguous counties located in northwestern Minnesota. For deposits or loans,
the Bank competes with other banks and with an industrial thrift company,
production credit associations, finance companies, insurance companies,
securities brokerage firms, and governmental agencies.
EMPLOYEES
At September 30, 1993, the Bank had 48 full-time equivalent employees.
The Bank is not a party to any collective bargaining agreement, and employee
relations are considered to be good by the Bank's management.
MARKET PRICE AND DIVIDENDS
There has never been an established public trading market for Bancshares
Common Stock or Bank Common Stock. At September 30, 1993, Bancshares had 8
shareholders of record and the Bank had 6 shareholders of record.
The following table sets forth the amount of cash dividends paid per share
of Class A and Bank Common Stock in each of the years indicated and for the
period ended September 30, 1993. No cash dividends were paid by Bancshares on
its Class A Common Stock or Class B Common Stock for such period. Dividends on
Bank Common Stock were paid in 1992 and 1993. During the period from January
1, 1991 through September 30, 1993, there were 8,805 shares (1991), 9,157
shares (1992) and 9,245 shares (as of September 30, 1993) of the Bank's Common
Stock outstanding as of the respective year or date indicated.
45
<PAGE>
Cash Dividends Paid per Share
<TABLE>
<CAPTION>
Period Bank Common Stock
- -------------------------------------- -----------------
<S> <C>
Year ended December 31, 1991 $ -0-
Year ended December 31, 1992 $32.75
Nine months ended September 30, 1993 $97.35
</TABLE>
REGULATION
Bancshares and the Bank are subject to extensive regulation by federal
bank regulatory agencies. The regulations governing bank and bank holding
companies encompass, among other things, products, services, community
involvement, deposits, lending, permitted activities, affiliate transactions
and financial reporting. For a description of federal regulations generally
applicable to bank holding companies and banks, see "CERTAIN REGULATORY
CONSIDERATIONS."
46
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF D.L. BANCSHARES, INC.
FINANCIAL REVIEW
GENERAL
The following is management's discussion and analysis of the significant factors
affecting D.L. Bancshares, Inc.'s results of operations and financial condition.
This should be read in conjunction with D.L. Bancshares, Inc.'s audited and
unaudited consolidated financial statements and accompanying footnotes and other
selected financial data presented elsewhere herein.
D.L. Bancshares, Inc. is a one-bank holding company, which owns 95.24% of the
common stock of First National Bank of Detroit Lakes.
FINANCIAL CONDITION
Total assets increased by $146,000 during the first nine months of 1993 to
$77,734,000 at September 30, 1993 following an increase of $4,700,000 during
1992 to $77,589,000 at December 31, 1992. The 1992 increase was primarily due
to an increase in securities available for sale and loans.
Loans increased in the first nine months of 1993 by $6,504,000 to $46,575,000 at
September 30, 1993 and increased $1,381,000 during 1992 to $40,071,000 at
December 31, 1992. The increase in loans was evenly balanced among commercial,
commercial real estate, consumer, and residential real estate.
Securities available for sale decreased $5,632,000 during the first nine months
of 1993 to $21,917,000 at September 30, 1993 and had increased $3,923,000 during
1992 to $27,549,000 at December 31, 1992. The decrease in 1993 was to fund
increased loan demand while in 1992 the increase was funded by deposit growth.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
EARNINGS PERFORMANCE
D.L. Bancshares, Inc. earned net income of $240,000 and $128,000 for the three
months ended September 30, 1993 and 1992, respectively. The increase in
earnings of $112,000 was primarily due to an increase in net interest income of
$138,000. The consolidated annualized return on average assets was 1.25% for
the third quarter of 1993, compared to .67% for the third quarter of 1992.
Annualized return on average stockholders' equity was 30.07% for the third
quarter of 1993, compared to 20.67% for the third quarter of 1992. On a per-
shared basis, net income for the third quarter of 1993 and 1992 were $2.60 and
$1.45 respectively.
The annualized return on average assets from First National Bank of Detroit
Lakes' earnings was 1.51% for the third quarter of 1993 and 0.97% for the third
quarter of 1992.
(continued)
47
<PAGE>
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended
September 30
------------
1993 1992
- --------------------------------------------------------- ---- ----
<S> <C> <C>
Net interest income $ 905 767
Provision for loan losses 0 0
Non-interest income 149 158
Non-interest expense 643 654
Net income 240 128
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expenses of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Three months
ended
September 30
(dollars in
thousands) Percentage
------------- increase
1993 1992 (decrease)
--------------------------
<S> <C> <C> <C>
Interest income:
Loans $1,146 1,004 14.1 %
Securities 338 447 (24.4)
Federal funds sold 22 36 (39.1)
- ------------------------------------------------------------
Total interest income 1,506 1,487 1.3
- ------------------------------------------------------------
Interest expense:
Deposits 511 618 (17.3)
Short-term borrowings 24 20 20.0
Notes payable 66 82 (19.9)
- ------------------------------------------------------------
Total interest expense 601 720 (16.5)
- ------------------------------------------------------------
Net interest income $ 905 767 18.0 %
============================================================
</TABLE>
48
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended
September 30, 1993-1992
--------------------------------------
Attributable to change
Total ----------------------
Interest-earning Assets change in volume in rate
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 142,019 568,933 (426,914)
Securities (109,297) 29,072 (138,369)
Federal funds sold (14,045) (8,221) (5,824)
- ------------------------------------------------------------------------------
Total interest income $ 18,677 589,784 (571,107)
==============================================================================
Interest-bearing Liabilities
- ------------------------------------------------------------------------------
Deposits (107,072) (6,292) (100,780)
Short-term borrowings 3,988 (1,707) 5,695
Notes payable (16,313) (15,447) (866)
- ------------------------------------------------------------------------------
Total interest expense $(119,397) (23,446) (95,951)
==============================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated
to the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Three months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
---------------- -----------
1993 1992 1993/92
-------- ------ -----------
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Loans $46,260 37,446 23.5 %
Securities 22,601 28,795 (21.5)
Federal funds sold 2,977 4,781 (37.7)
- -------------------------------------------------------------
Total average interest-earnings
assets 71,838 71,022 1.1
=============================================================
Deposits:
Non-interest bearing demand 8,599 7,422 15.9
Interest-bearing demand 13,206 12,193 8.3
Savings 18,743 18,311 2.4
Time 27,023 29,080 (7.1)
- -------------------------------------------------------------
Total average interest-bearing
deposits 58,972 59,584 (1.0)
- -------------------------------------------------------------
Short-term borrowings 2,000 2,026 (1.3)
Notes payable 3,260 4,136 (21.2)
- -------------------------------------------------------------
Total average interest-bearing
liabilities $64,232 65,746 (2.3)%
=============================================================
</TABLE>
(continued)
49
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Three months
ended
September 30
------------
1993 1992
-----------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 9.91% 10.73%
Securities 5.98 6.21
Federal funds sold 2.94 3.01
Total interest-earning assets 8.38 8.38
-----------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.47 4.15
Short-term borrowings 4.81 3.96
Notes payable 8.08 7.95
Total interest-bearing liabilities 3.74 4.39
-----------------------------------------------------------
Interest rate spread 4.64% 3.99%
===========================================================
</TABLE>
The following table shows the annualized net yield on interest-earning assets
for the three months ended September 30:
<TABLE>
<CAPTION>
1993 1992
---------------------------------------------------------
<S> <C> <C>
Average yield earned 8.38% 8.38%
Interest expense to average earning assets 3.34 4.05
---------------------------------------------------------
Net yield on interest-earning assets 5.04% 4.33%
=========================================================
</TABLE>
Net interest income was $905,000 for the third quarter of 1993, compared with
$767,000 for the third quarter of 1992. The increase is due primarily to higher
loan balances.
Total interest income increased to $1,506,000 or 1.3% for the third quarter of
1993 as compared to $1,487,000 for the third quarter of 1992. Average interest-
earning assets increased to $71,838,000 for the three months ended September 30,
1993 from $71,022,000 for the three months ended September 30, 1992. Earning
asset yields remained constant at 8.38% in 1993 and 1992.
Total interest expense for the third quarter of 1993 of $601,000 declined from
$720,000 for the third quarter of 1992. This decline was attributed primarily
to rates on interest-bearing liabilities declining to 3.74% in 1993, from 4.39%
in 1992. The 65 basis point decline from 1992 to 1993 was caused by the general
economic and market conditions which moved interest rates lower in 1992 and
1993.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. D.L. Bancshares Inc.'s provision for loan losses was $ -0-
and $ -0- for the third quarter of 1993 and 1992, respectively.
Net recoveries were $2,000 for the third quarter of 1993 and net charge-offs
were $12,000 for the third quarter of 1992. The loan loss reserve as a
percentage of loans was 1.48% and 1.78% at September 30, 1993 and 1992,
respectively.
(continued)
50
<PAGE>
NON-INTEREST INCOME
Non-interest income decreased to $149,000 for the third quarter of 1993 compared
to $158,000 for the third quarter of 1992. The decrease is due to a variety of
miscellaneous income items.
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1993 1992 (decrease)
---------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 326 315 3.5 %
Net occupancy expense 137 140 (2.2)
Other expenses 180 199 (9.5)
---------------------------------------------------------
$ 643 654 (1.6)%
=========================================================
</TABLE>
Total non-interest expenses decreased to $643,000 for the third quarter of 1993,
compared to $654,000 for the third quarter of 1992. The decrease is due
primarily to a $15,000 decrease in business development and advertising costs.
COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
EARNINGS PERFORMANCE
D.L. Bancshares, Inc. earned net income of $742,000 and $602,000 for the nine
months ended September 30, 1993 and 1992, respectively. The increase in
earnings of $140,000 was primarily due to a $450,000 increase in net interest
income offset by a $405,000 increase in income taxes. The consolidated
annualized return on average assets was 1.30% for the first nine months of 1993
compared to 1.08% for the first nine months of 1992. Annualized return on
average stockholders' equity was 31.83% for the first nine months of 1993
compared to 36.92% for the first nine months of 1992. On a per share basis, net
income for the first nine months of 1993 and 1992 were $8.03 and $6.13,
respectively.
The annualized return on average assets from First National Bank of Detroit
Lakes' earnings was 1.62% for the first nine months of 1993 and 1.26% for the
first nine months of 1992.
51
<PAGE>
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
Nine months
ended
September 30
--------------
1993 1992
------------------------------------------------------------------
<S> <C> <C>
Net interest income $2,687 2,237
Provision for loan losses 0 0
Non-interest income 526 439
Non-interest expense 1,914 1,940
Net income 742 540
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Nine months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
---------------------------
1993 1992 1993/92
------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $3,314 3,074 7.8 %
Securities 1,137 1,362 (16.5)
Federal funds sold 47 119 (60.5)
-----------------------------------------------
Total interest income 4,498 4,555 (1.2)
-----------------------------------------------
Interest expense:
Deposits 1,543 2,013 (23.3)
Short-term borrowings 86 72 19.4
Notes payable 182 233 (21.8)
-----------------------------------------------
Total interest expense 1,811 2,318 (21.9)
-----------------------------------------------
Net interest income $2,687 2,237 20.1 %
===============================================
</TABLE>
52
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1993-1992
---------------------------------
Attributable to change
Total ------------------------
Interest-earning Assets change in volume in rate
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 239,550 489,430 (249,880)
Securities (224,567) (165,015) (59,552)
Federal funds sold (71,842) (49,324) (22,518)
- -------------------------------------------------------------------------
Total interest income $ (56,859) 275,091 (331,950)
=========================================================================
Interest-bearing Liabilities
- -------------------------------------------------------------------------
Deposits (469,454) (36,355) (433,099)
Short-term borrowings 14,186 15,755 (1,569)
Notes payable (51,488) (30,213) (21,275)
- -------------------------------------------------------------------------
Total interest expense $(506,756) (50,813) (455,943)
=========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume time the prior period's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior period's
volume. The change due to combined rate/volume variance is allocated to the
change due to rate and the change due to volume on the basis of the percentage
of the total change excluding the combined rate/volume component.
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Nine months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
---------------------------
1993 1992 1993/92
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $43,540 37,274 16.8 %
Securities 24,992 27,141 (7.9)
Federal funds sold 2,181 4,628 (52.8)
- -------------------------------------------------------------
Total average interest-earnings
assets $70,713 69,043 2.4
=============================================================
Deposits:
Non-interest bearing demand 7,834 6,451 21.4
Interest-bearing demand 12,546 11,967 4.8
Savings 17,902 17,924 (0.1)
Time 27,425 29,065 (5.6)
- -------------------------------------------------------------
Total average interest-bearing
deposits 57,873 58,956 (1.8)
- -------------------------------------------------------------
Short-term borrowings 2,529 2,068 22.2
Notes payable 3,514 4,139 (15.1)
- -------------------------------------------------------------
Total average interest-bearing
liabilities $63,916 65,163 (1.9)%
=============================================================
</TABLE>
53
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Nine months
ended September 30
--------------------
1993 1992
--------------------------------------------------------------
<S> <C> <C>
Average yield earned
Loans 10.15% 11.00%
Securities 6.07 6.69
Federal funds sold 2.91 3.44
Total interest-earning assets 8.48 8.80
--------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.56 4.55
Short-term borrowings 4.55 4.65
Notes payable 6.90 7.52
Total interest-bearing liabilities 3.78 4.74
--------------------------------------------------------------
Interest rate spread 4.70 4.06%
==============================================================
</TABLE>
The following table shows the annualized net yield on interest-earning assets
for the nine months ended September 30:
<TABLE>
<CAPTION>
1993 1992
----------------------------------------------------------
<S> <C> <C>
Average yield earned 8.48% 8.80%
Interest expense to average earning assets 3.41 4.48
----------------------------------------------------------
Net yield on interest-earning assets 5.07% 4.32%
==========================================================
</TABLE>
Net interest income was $2,687,000 for the first nine months of 1993, compared
with $2,237,000 for the first nine months of 1992. The increase is due
primarily to higher loan balances.
Total interest income decreased to $4,498,000 or 1.2% for the first nine months
of 1993 as compared to $4,555,000 for the first nine months of 1992. Average
interest-earnings assets increased to $70,713,000 for the nine months ended
September 30, 1993 from $69,043,000 for the nine months ended September 30,
1992. Earning asset yields declined to 8.48% in 1993 as compared to 8.80% in
1992.
Total interest expense for the first nine months of 1993 of $1,811,000 declined
from $2,318,000 for the first nine months of 1992. This decline was attributed
primarily to rates on interest-bearing liabilities declining to 3.78% in 1993,
from 4.74% in 1992. The 96 basis point decline from 1992 to 1993 was caused by
the general economic and market conditions which moved interest rates lower in
1992 and 1993.
54
<PAGE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses in determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. D.L. Bancshares Inc.'s provision for loan losses was $ -0-
and $ -0- for the first nine months of 1993 and 1992, respectively.
Net recoveries were $7,000 for the first nine months of 1993 and net charge-offs
were $36,000 for the first nine months of 1992. The loan loss reserve as a
percentage of loan was 1.48% and 1.78% at September 30, 1993 and 1992,
respectively.
NON-INTEREST INCOME
Non-interest income increased to $526,000 for the first nine months of 1993
compared to $439,000 for the first nine months of 1992. The increase was due
primarily to income earned on the settlement of certain non-performing loans
offset by decreases in overdraft fees.
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
(decrease)
1993 1992 1993/92
-------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $ 992 964 2.9 %
Net occupancy expense 427 457 (6.6)
Other expenses 495 519 (4.6)
------------------------------------------------
$1,914 1,940 (1.3)%
================================================
</TABLE>
Total non-interest expenses decreased to 1,914,000 for the first nine months of
1993, compared to 1,940,000 for the first nine months of 1992. The decrease is
due to decreases in net occupancy and legal expenses offset by increases in a
variety of miscellaneous expense items.
55
<PAGE>
COMPARISONS OF YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
EARNINGS PERFORMANCE
D.L. Bancshares, Inc. earned net income of $926,000 in 1992, $320,000 in 1991
and $255,000 in 1990. The increase in earnings from 1991 to 1992 was primarily
due to an increase in net interest income. The increase in earnings from 1990
to 1991 was primarily due to a $241,000 increase in net interest income and a
$141,000 decrease in the provision for loan losses, offset by a $242,000
increase in non-interest expenses. The consolidated return on average assets
was 1.24% in 1992 compared to .45% in 1991 and .38% in 1990. Return on average
stockholders' equity was 46.30% in 1992 compared to 19.53% and 21.61% in 1991
and 1990, respectively. On a per share basis, net income for the years 1992,
1991 and 1990 were $10.01, $3.63 and $2.90, respectively.
The return on average assets from First National Bank of Detroit Lakes' earnings
was 1.30% in 1992, .65% in 1991 and .94% in 1990.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
1992 1991 1990
--------------------------------------------------
<S> <C> <C> <C>
Net interest income $3,137 2,570 2,329
Provision for loan losses 0 0 141
Operating income 569 453 515
Operating expense 2,617 2,677 2,435
Net income 926 320 255
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes is both interest rates and the volume
of average earnings assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
Percentage increase
Dollars (in thousands) (decrease)
----------------------- -------------------
1992 1991 1990 1992/91 1991/90
------------------------------------------------------------------------
[S] [C] [C] [C] [C] [C]
Interest income:
Loans $ 4,146 4,403 4,368 (5.8)% 0.8 %
Securities 1,816 1,872 1,902 (2.9) (1.6)
Federal funds sold 145 165 190 (12.1) (13.1)
-----------------------------------------------
Total interest
income 6,107 6,440 6,460 (5.2) (0.3)
-----------------------------------------------
Interest expense:
Deposits 2,587 3,286 3,417 (21.2)% (3.8)%
Short-term borrowings 87 195 278 (55.4) (29.8)
Notes payable 296 389 436 (23.9) (10.8)
-----------------------------------------------
Total interest
expense 2,970 3,870 4,131 (23.2) (6.3)
-----------------------------------------------
Net interest income $ 3,137 2,570 2,329 22.1 10.3 %
================================================
(continued)
56
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1992-1991
-----------------------------------
Attributable to change
Total -----------------------
Interest-earning Assets change in volume in rate
---------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(256,379) (160,028) (96,351)
Securities (56,017) 290,098 (346,115)
Federal funds sold (20,531) 57,092 (77,623)
---------------------------------------------------------------------------
Total interest income $(332,927) 187,162 (520,089)
===========================================================================
Interest-bearing Liabilities
---------------------------------------------------------------------------
Deposits (698,231) 247,648 (945,879)
Short-term borrowings (108,502) 9,839 (118,341)
Notes payable (93,319) 3,047 (96,366)
---------------------------------------------------------------------------
Total interest expense $(900,052) 260,534 (1,160,586)
===========================================================================
1991-1990
-----------------------------------
Attributable to change
Total -----------------------
Interest-earning Assets change in volume in rate
---------------------------------------------------------------------------
Loans $ 34,426 213,898 (179,472)
Securities (29,311) 111,473 (140,784)
Federal funds sold (25,034) 44,964 (69,998)
---------------------------------------------------------------------------
Total interest income $ (19,919) 370,335 (390,254)
===========================================================================
Interest-bearing Liabilities
---------------------------------------------------------------------------
Deposits (130,969) 267,491 (398,460)
Short-term borrowings (83,119) (67,918) (15,201)
Notes payable (46,674) 4,517 (51,191)
---------------------------------------------------------------------------
Total interest expense $(260,762) 204,090 (464,852)
===========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior year's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior year's volume.
The change due to combine rate/volume variance is allocated to the change due to
rate and the change due to volume on the basis of the percentage of the total
change excluding the combined rate/volume component.
(continued)
57
<PAGE>
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
------------------------ -------------------
1992 1991 1990 1992/91 1991/90
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $37,620 39,111 37,245 (3.8)% 5.0 %
Securities 27,616 23,617 22,267 16.9 6.0
Federal funds sold 4,332 3,017 2,362 43.5 27.7
--------------------------------------------------
Total average interest-
earning assets $69,568 65,745 61,874 5.8 6.2
==================================================
Deposits:
Non-interest-bearing
demand 6,524 5,812 5,700 12.2 1.9
Interest-bearing
demand 12,070 10,861 9,825 11.1 10.5
Savings 18,263 14,620 13,517 24.9 8.1
Time 28,953 29,982 28,721 (3.4) 4.4
--------------------------------------------------
Total average interest-
bearing deposits 59,286 55,463 52,063 6.9 6.5
Short-term borrowings 1,899 3,056 3,569 (37.8) (14.3)
Notes payable 4,147 4,115 4,073 0.8 1.0
--------------------------------------------------
Total average interest-
bearing liabilities $65,332 62,634 59,705 4.3 4.9
==================================================
</TABLE>
The following table shows the average interest yield on interest-earning assets
and the average interest rate paid on interest-bearing liabilities:
<TABLE>
<CAPTION>
1992 1991 1990
---------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned:
Loans 11.02% 11.26% 11.73%
Securities 6.58 7.93 8.54
Federal funds sold 3.34 5.47 8.05
Total interest-earning assets 8.78 9.80 10.44
---------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 4.36 5.92 6.56
Short-term borrowings 4.58 6.40 7.81
Notes payable 7.13 9.45 10.70
Total interest-bearing liabilities 4.55 6.18 6.92
---------------------------------------------------------------
Interest rate spread 4.23% 3.62% 3.52%
===============================================================
</TABLE>
Short-term borrowings consist of repurchase agreements with various bank
customers. These repurchase agreements are short term with a specific maturity
date and are generally issued for periods less than one year. They have a fixed
interest rate. Terms of the agreement require the sale and subsequent
repurchase of specified U.S. treasury or government agency securities at a fixed
price. Banks are not required to maintain reserves on repurchase agreements or
incur FDIC charges.
(continued)
58
<PAGE>
The following table shows the net yield on interest-earning assets:
<TABLE>
<CAPTION>
1992 1991 1990
----------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned 8.78% 9.80% 10.44%
Interest expense to
average earning assets 4.27 5.89 6.68
----------------------------------------------------------------
Net yield on interest-earning assets 4.51% 3.91% 3.76%
================================================================
</TABLE>
Net interest income was $3,137,000 in 1992, compared with $2,570,000 in 1991 and
$2,329,000 in 1990. During 1990 interest rates in the United States began a
general decline with short-term interest falling faster than long-term rates.
This trend continued throughout 1991 and 1992.
Total interest income decreased to $6,107,000 or 5.2% in 1992 as compared to
$6,440,000 in 1991, which was down from $6,460,000 in 1990. Earning asset
yields declined to 8.78% in 1992 as compared to 9.80% and 10.44% in 1991 and
1990, respectively.
Total interest expense in 1992 of $2,970,000 declined from $3,870,000 in 1991,
which was down from $4,131,000 in 1990. This decline was attributed primarily
to rates on interest-bearing liabilities declining to 4.55% in 1992, from 6.18%
in 1991 and 6.92% in 1990. The 163 basis point decline from 1991 to 1992 and
the 74 basis point decline from 1990 to 1991 were caused by the general economic
and market conditions which moved interest rates lower in 1992 and 1991.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. D.L. Bancshares, Inc.'s provision for loan losses was $-0-,
$-0- and $140,507 in 1992, 1991 and 1990, respectively.
The loan loss reserve as a percentage of loans was 1.71%, 1.84% and 2.06% at
December 31, 1992, 1991 and 1990, respectively.
NON-INTEREST INCOME
The following table presents a summary of non-interest income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage increase
(decrease)
--------------------
1992 1991 1990 1992/91 1991/90
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges
and fees $392 306 319 28.0% (4.0)%
Other 177 147 196 20.8 (25.0)%
----------------------------------------------
$569 453 515 25.6% (12.0)%
==============================================
</TABLE>
Non-interest income increased 25.6% in 1992 over 1991 due to an increase in
service fee rates plus an increase in brokerage fees. The decrease in non-
interest income from 1990 to 1991 was a result of an insurance settlement of
$114,000 in 1990, which resulted in higher than normal income for 1990 and a
decrease in overdraft activity.
59
<PAGE>
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
Percentage increase
(decrease)
--------------------
1992 1991 1990 1992/91 1991/90
---------------------------------------------------------------------
Salaries and employee
benefits $1,312 1,114 957 17.8 % 16.3%
Net occupancy expense 598 502 496 19.1 1.2
Other expenses 707 1,061 982 (33.4) 8.1
----------------------------------------------
$2,617 2,677 2,435 (2.3)% 9.9%
==============================================
Total non-interest expenses were $2,617,000 in 1992, compared to $2,677,000 in
1991 and $2,435,000 in 1990. The decrease in 1992 is largely attributable to
decreases in legal expenses and decreased losses on sales of securities
available for sale and premises and equipment, offset by increases in salaries
and employee benefits, and net occupancy expense. The increase in 1991 was a
result of increases in salaries and employee benefits, FDIC insurance
assessments, and losses on sales of premises and equipment, offset by decreases
in legal expenses and losses on sales of securities available for sale.
Salaries and employee benefits increased to $1,312,000 in 1992 from $1,114,000
in 1991 and $957,000 in 1990. The increase in salaries in 1992 and 1991 was
primarily the result of existing staff receiving annual increases and the hiring
of additional staff.
Net occupancy expense increased $96,000 or 19.1% in 1992 as a result of moving
into a new bank building in late 1991.
Legal expenses decreased $34,000 or 19.7% in 1992 and $104,000 or 37.5% in 1991
due to declining legal activity related to OCC supervision.
FDIC insurance assessments increased $19,000 or 15.1% in 1992 and $59,000 or
89.5% in 1991. The increase is due to the impact of increased premium rates as
well as increased levels of deposits in these periods.
Losses on sales of premises and equipment decreased $220,000 in 1992 following
an increase of $250,000 in 1991. These losses, recorded mostly in 1991, related
to the sale of the Bank's primary banking facility and related equipment.
Losses and gains on sales of securities available for sale decreased by $91,000
in 1992 and $27,000 in 1991. These decreases were the result of high levels of
losses in 1991 and 1990 related to the on-going sale of low quality investments
that began in 1989.
(continued)
60
<PAGE>
INCOME TAXES
In February 1992 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The
Company adopted SFAS No. 109 during 1993 and has elected to apply the provisions
retroactively beginning January 1, 1990. The effect on the consolidated
financial statements for 1992, 1991 and 1990 of applying the new method of
accounting retroactively was not material.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect of the change in the method of accounting for income taxes as
of January 1, 1990 was not material.
Income taxes for each of the years 1992, 1991 and 1990 was less than the
"expected" tax expense computed by applying the applicable federal and state tax
rates due to the utilization of net operating loss and investment credit carry
forwards. These carry forwards were fully utilized in the first half of 1992.
The difference from "expected" tax expense was also impacted by valuation
allowances recorded for deferred tax assets of D.L. Bancshares, Inc. due to
uncertainties regarding the realization of the deferred tax assets during these
periods. During the fourth quarter of 1992 it was determined, based in part on
the lifting of a Formal Agreement with the OCC, the final utilization of net
operating loss carry forwards and the establishment of a positive earnings
trend, that the valuation allowance was no longer needed, resulting in deferred
income tax benefits being recorded beginning in that quarter.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, which requires that certain impaired loans be measured to
reflect the time value of money. SFAS No. 114 is required to be adopted for
fiscal years beginning after December 15, 1994. The impact of adoption of the
new accounting standards on the D.L. Bancshares, Inc.'s financial statements has
not yet been determined.
In May 1993, the FASB issued SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. This statement addressed the accounting and
reporting for investments by classifying into three categories--securities held
to maturity, trading securities, and available for sale. The statement is
effective for fiscal years beginning after December 15, 1993. The impact of
adoption on the D.L. Bancshares, Inc.'s financial statements has not yet been
determined.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
D.L. Bancshares, Inc. relies primarily on First National Bank of Detroit Lakes
for its source of cash needs. The cash flow from the Bank to D.L. Bancshares,
Inc. comes in the form of dividends and tax benefits. First National Bank of
Detroit Lakes is restricted in paying dividends due to the general regulatory
capital requirements that apply to all banks. See "Capital Management of First
National Bank of Detroit Lakes."
(continued)
61
<PAGE>
The assets of First National Bank of Detroit Lakes are primarily funded through
the use of borrowings in the form of deposits and short-term borrowings. The
maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawals. The sources of asset liquidity consist of federal funds, maturing
loans and investment securities.
First National Bank of Detroit Lakes' investment committee is charged with the
responsibility of maintaining an adequate level of liquidity and managing the
risks associated with interest rate changes while sustaining stable growth in
net interest income. First National Bank of Detroit Lakes' basic strategy is to
minimize interest rate risk through matching the repricing periods of earning
assets and interest-bearing liabilities.
CAPITAL MANAGEMENT OF FIRST NATIONAL BANK OF DETROIT LAKES
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1992, all financial institutions are
required to maintain a level of core capital (known as tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders' equity less goodwill. Total capital is comprised
of tier 1 capital, certain debt instruments and a portion of the allowance for
loan losses. First National Bank of Detroit Lakes' actual risk-based capital
requirement and excess risk-based capital at September 30, 1993 and December 31,
1992 (dollars in thousands) are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1993 December 31, 1992
------------------- -------------------
Amount Percent(1) Amount Percent(1)
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 capital $6,074 $6,009
Allowable portion of allow-
ance for loan losses 642 573
-----------------------------------------------------------------------
Total risk-based capital $6,716 13.1% $6,582 14.4%
=======================================================================
Risk-based capital
requirement $4,104 8.0% $3,657 8.0%
=======================================================================
Excess risk-based capital $2,612 5.1% $2,925 6.4%
=======================================================================
</TABLE>
(1) Percentage based on risk-weighted assets of $51,303,000 and $45,710,000
at September 30, 1993 and December 31, 1992, respectively.
As a supplement to the risk-based capital guidelines, the Federal Reserve Board
has also adopted a minimum ratio of tier 1 capital to total assets known as the
tier 1 leverage ratio. The principal objective of this measure is to place a
constraint on the maximum degree to which a banking organization can leverage
its equity capital base. This regulation has established a minimum level of
tier 1 capital to total assets of 3.0%. First National Bank of Detroit Lakes'
actual tier 1 leverage ratio was 7.9% and 13.1% at September 30, 1993 and
December 31, 1992, respectively.
62
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of D.L.
Bancshares, Inc. and First National Bank (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30
-----------------------------------------------------------------------
1993 1992
---------------------------------- ----------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 46,260 1,146 9.91% 37,446 1,004 10.73%
Investment securities 22,601 338 5.98% 28,795 447 6.21%
Federal funds sold 2,977 22 2.94% 4,781 36 3.01%
- --------------------------------------------------------------------------------------------------------------
Total earning assets 71,838 1,506 8.38% 71,022 1,487 8.38%
- --------------------------------------------------------------------------------------------------------------
Allowance for loan losses (687) (684)
Cash and due from banks 2,539 2,346
Other assets 3,337 3,585
- --------------------------------------------------------------------------------------------------------------
Total Assets 77,027 76,269
==============================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 8,599 7,422
Interest bearing demand deposits 13,206 76 2.31% 12,193 81 2.67%
Saving deposits 18,743 120 2.56% 18,311 139 3.03%
Time deposits 27,023 315 4.66% 29,080 398 5.47%
Short-term borrowings 2,000 24 4.81% 2,026 20 3.96%
Notes payable 3,260 66 8.08% 4,136 82 7.95%
- --------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 64,232 601 3.74% 65,746 720 4.39%
- --------------------------------------------------------------------------------------------------------------
Other liabilities 717 512
Minority interest 282 116
Stockholders' equity 3,197 2,473
- --------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' 77,027 76,268
==============================================================================================================
Net interest income 905 767
==============================================================================================================
Interest rate spread 4.64% 3.98%
Net interest income to average
earning assets 5.04% 4.33%
</TABLE>
(1) Yield/rate is annualized
63
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of
D.L. Bancshares, Inc. and First National Bank (dollars in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30
----------------------------------------------------------------------
1993 1992
--------------------------------- -------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 43,540 3,314 10.15% 37,274 3,074 11.00%
Investment securities 24,992 1,137 6.07% 27,141 1,362 6.69%
Federal funds sold 2,181 47 2.90% 4,628 119 3.44%
- ------------------------------------------------------------------------------------------------------------
Total earning assets 70,713 4,498 8.48% 69,043 4,555 8.80%
- ------------------------------------------------------------------------------------------------------------
Allowance for loan losses (690) (699)
Cash and due from banks 2,342 2,322
Other assets 3,439 3,652
- ------------------------------------------------------------------------------------------------------------
Total Assets 75,804 74,318
============================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 7,834 6,451
Interest bearing demand deposits 12,546 222 2.36% 11,967 286 3.19%
Saving deposits 17,902 345 2.57% 17,924 463 3.44%
Time deposits 27,425 976 4.75% 29,065 1,264 5.80%
Short-term borrowings 2,529 86 4.55% 2,068 72 4.65%
Notes payable 3,514 182 6.90% 4,139 233 7.52%
- ------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 63,916 1,811 3.78% 65,163 2,318 4.74%
- ------------------------------------------------------------------------------------------------------------
Other liabilities 657 530
Minority interest 289 1
Stockholders' equity 3,108 2,173
- ------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 75,804 74,318
============================================================================================================
Net interest income 2,687 2,237
============================================================================================================
Interest rate spread 4.70% 4.06%
Net interest income to average
earning assets 5.07% 4.32%
</TABLE>
(1) Yield/rate is annualized
64
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the consolidated financial statements of D.L.
Bancshares, Inc. and First National Bank (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------------------------------------------------------------
1992 1991 1990
----------------------------- ----------------------------- -----------------------------
Average Average Average Average Average Average
Assets balance Interest yield/rate balance Interest yield/rate balance Interest yield/rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans 37,620 4,146 11.02% 39,111 4,403 11.26% 37,245 4,368 11.73%
Investment securities 27,616 1,816 6.58% 23,617 1,872 7.93% 22,267 1,902 8.54%
Federal funds sold 4,332 145 3.34% 3,017 165 5.47% 2,362 190 8.05%
- --------------------------------------------------------------------------------------------------------------------------------
Total earning assets 69,568 6,107 8.78% 65,745 6,440 9.80% 61,874 6,460 10.44%
- --------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (694) (823) (850)
Cash and due from banks 2,339 2,151 2,178
Other assets 3,591 3,754 3,921
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets 74,804 70,827 67,123
================================================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 6,524 5,812 5,700
Interest bearing demand deposits 12,070 363 3.01% 10,861 487 4.49% 9,825 503 5.12%
Saving deposits 18,263 594 3.25% 14,620 702 4.80% 13,517 720 5.33%
Time deposits 28,953 1,630 5.63% 29,982 2,097 6.99% 28,721 2,194 7.64%
Short-term borrowings 1,899 87 4.58% 3,056 195 6.39% 3,569 278 7.80%
Notes payable 4,147 296 7.13% 4,115 389 9.45% 4,073 436 10.70%
- --------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 65,332 2,970 4.55% 62,634 3,870 6.18% 59,705 4,131 6.92%
- --------------------------------------------------------------------------------------------------------------------------------
Other liabilities 832 744 536
Minority interest 117 0 0
Stockholders' equity 1,999 1,637 1,182
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 74,804 70,827 67,123
================================================================================================================================
Net interest income 3,137 2,570 2,329
================================================================================================================================
Interest rate spread 4.23% 3.62% 3.52%
Net interest income to average
earning assets 4.51% 3.91% 3.76%
</TABLE>
65
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Securities
Following is a table of the carrying value (dollars in thousands) of securities:
<TABLE>
<CAPTION>
December 31
September 30 --------------------------
1993 1992 1991 1990
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury 3,526 8,089 8,756 6,922
U.S. government agencies 16,102 16,081 9,178 8,394
Municipals 200 952 998 1,104
Corporate and other bonds 2,363 3,452 5,758 6,172
- ------------------------------------------------------------------------------
22,191 28,574 24,690 22,592
==============================================================================
</TABLE>
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average annual yield at September
30, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
-----------------------------------------------
Less
than 1-5 5-10 More than
1 year years years 10 years Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $3,027 $499 $3,526
Weighted average yield 5.34% 5.65% 5.38%
U.S. government agencies $2,782 $6,289 $2,994 $3,408 $15,473
Weighted average yield 7.71% 5.97% 5.38% 5.48% 6.06%
Municipals $200 $200
Weighted average yield 8.64% 8.64%
Corporate and other bonds $1,049 $1,869 $74 $2,992
Weighted average yield 7.32% 6.30% 6.00% 6.67%
- ------------------------------------------------------------------------------
Total securities $6,858 $8,857 $2,994 $3,482 $22,191
==============================================================================
Weighted average
yield 6.60% 6.07% 5.38% 5.50% 6.04%
==============================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
66
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Securities, Continued
The following table reflects the maturity distribution of each security category
and the approximate weighted-average yield at December 31, 1992 (dollars in
thousands):
<TABLE>
<CAPTION>
Maturing within
-----------------------------------------------------
Less
than 1-5 5-10 More than
1 year years years 10 years Total
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $4,530 $3,559 $8,089
Weighted average yield 5.99% 5.38% 5.72%
U.S. government agencies $2,503 $7,612 $3,490 $1,972 $15,577
Weighted average yield 7.40% 6.50% 5.59% 5.16% 6.27%
Municipals $120 $562 $215 $55 $952
Weighted average yield 10.17% 10.74% 10.74% 10.74% 10.66%
Corporate and other bonds $805 $3,079 $72 $3,956
Weighted average yield 7.48% 7.10% 6.00% 7.15%
- ---------------------------------------------------------------------------------------
Total securities $7,958 $14,812 $3,705 $2,099 $28,574
=======================================================================================
Weighted average
yield 6.63% 6.50% 5.58% 8.05% 6.34%
======================================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in excess
of 10% of stockholders' equity.
67
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Loan Portfolio
The following table classifies loans by major category (dollars in thousands):
<TABLE>
<CAPTION>
September 30 December 31
------------------------------------------------------------
1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial
business 10,305 11,592 11,346 12,310 10,879 8,534
Agricultural 3,901 3,302 3,618 3,006 2,868 2,366
Real Estate:
Commercial 8,767 5,540 5,129 6,183 6,091 6,094
Residential 11,498 9,799 8,793 8,064 7,621 7,107
Agricultural 806 745 579 872 851 815
Construction 359 158 225 0 30 164
Consumer 10,939 8,935 9,000 9,158 5,251 3,825
- ------------------------------------------------------------------------------
Total Loans 46,575 40,071 38,690 39,593 33,591 28,905
==============================================================================
</TABLE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of September 30, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business
and Agricultural 9,161 4,300 745 14,206
Real Estate 6,722 10,481 4,227 21,430
Consumer 3,281 7,658 0 10,939
- -----------------------------------------------------------------------------
19,164 22,439 4,972 46,575
=============================================================================
b. Amount of loans due after
five years which have:
Predetermined interest rates 1,099
Floating/adjustable rates 3,873
- -----------------------------------------------------------------------------
4,972
=============================================================================
</TABLE>
68
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Loan Portfolio, Continued
The following tables present maturities and sensitivities of loans to changes in
interest rates as of December 31, 1992 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business
and Agricultural 10,146 4,348 400 14,894
Real Estate 5,933 8,209 2,100 16,242
Consumer 2,680 6,255 0 8,935
- -----------------------------------------------------------------------------
18,759 18,812 2,500 40,071
=============================================================================
b. Amount of loans due after
five years which have:
Predetermined interest rates 992
Floating/adjustable rates 1,508
- -----------------------------------------------------------------------------
2,500
=============================================================================
</TABLE>
69
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Nonaccrual, Restructured and Past Due Loans
(dollars in thousands)
September 30 December 31
-----------------------------------------------
1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------
Nonaccrual loans 301 259 847 206 542 1,296
Restructured loans 74 101 215 505 453 182
Loans past due more than
90 days and still accruing 138 187 293 334 102 1,402
- -------------------------------------------------------------------------
513 547 1,355 1,045 1,097 2,880
=========================================================================
The impact on interest income for the nine months ended September 30, 1993 and
the year ended December 31, 1992 for nonaccrual and restructured loans was
approximately $20,000 and $23,000, respectively.
70
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
--------------------------------------------
September 30, 1993 1992 1991
--------------------- --------------------- ---------------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
Agricultural 14,206 359 14,894 253 14,964 306
Real estate 21,430 250 16,242 364 14,726 340
Consumer 10,939 82 8,935 67 9,000 67
- ------------------------------------------------------------------------------------
$46,575 $691 $40,071 $684 $38,690 $713
====================================================================================
December 31
--------------------------------------------------------------------
1990 1989 1988
--------------------- --------------------- ---------------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- ------------------------------------------------------------------------------------
Commercial &
Agricultural 15,316 393 13,747 537 10,900 900
Real estate 15,119 347 14,593 335 14,180 615
Consumer 9,158 68 5,251 39 3,825 28
- ------------------------------------------------------------------------------------
$39,593 $808 $33,591 $911 $28,905 $1,543
====================================================================================
</TABLE>
71
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Analysis of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
September 30 -----------------------------------
1993 1992 1991 1990 1989 1988
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance begining of period 684 713 808 911 1,515 412
Provision for loan losses 0 0 0 140 115 2,014
Charge-offs:
Commercial and
Agricultural 4 62 265 232 828 987
Consumer 24 16 17 21 13 2
Real Estate 0 6 27 0 11 0
- -----------------------------------------------------------------------------------------
Total loan losses 28 84 309 253 852 989
Recoveries:
Commercial and
Agricultural 7 49 208 6 125 70
Consumer 28 6 5 4 8 8
Real Estate 0 0 0 0 0 0
- -----------------------------------------------------------------------------------------
Total recoveries 35 55 214 10 133 78
- -----------------------------------------------------------------------------------------
Net (recoveries) charge-offs (7) 29 95 243 719 911
Balance end of period 691 684 713 808 911 1,515
=========================================================================================
Net charge-offs as a percent
of average loans 0.0% 0.1 0.2 0.6 2.7 3.1
Allowance for loan losses to:
Total loans at period-end 1.5% 1.7 1.8 2.1 2.7 3.2
Net charge-offs NM 23.5 7.5 3.3 1.3 1.6
Provision for loan losses to
average loans 0.0% 0.0 0.0 0.4 0.3 4.8
</TABLE>
NM = Not meaningful
72
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
Maturity of Time Deposits of $100,000 or More
At September 30, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time 414 107 602 401 1,524
</TABLE>
Maturity of Time Deposits of $100,000 or More
At December 31, 1992
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit and other time 375 105 367 875 1,722
</TABLE>
Short-term Borrowings
(dollars in thousands)
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30 Year ended December 31
------------------ ------------------ ------------------------
1993 1992 1993 1992 1992 1991 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average balance $2,000 2,026 2,529 2,068 1,899 3,057 3,569
Average interest
rate 4.81% 3.96% 4.55% 4.65% 4.58% 6.40% 7.81%
Maximum month-end
balance $2,000 2,000 3,500 2,918 3,000 4,195 4,696
</TABLE>
73
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Selected Statistical Information
<TABLE>
<CAPTION>
Three months Nine months
ended September 30 ended September 30 Year ended December 31
------------------ ------------------ ------------------------
1993 1992 1993 1992 1992 1991 1990
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on
average
assets 1.25%(1) 0.67%(1) 1.30%(1) 1.08%(1) 1.24% 0.45% 0.38%
Return on
average
equity 30.07%(1) 20.67%(1) 31.83%(1) 36.92%(1) 46.30% 19.53% 21.61%
Average
equity to
average
assets 4.15% 3.24% 4.10% 2.92% 2.67% 2.31% 1.76%
Dividends
paid per
share $0 $0 $0 $0 $0 $0 $0
(1) Annualized
</TABLE>
74
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF FIRST NATIONAL BANK OF DETROIT LAKES
FINANCIAL REVIEW
GENERAL
The following is management's discussion and analysis of the significant factors
affecting First National Bank of Detroit Lakes' results of operations and
financial condition. This should be read in conjunction with First National
Bank of Detroit Lakes' unaudited financial statements and accompanying footnotes
and other selected financial data presented elsewhere herein.
FINANCIAL CONDITION
Total assets increased by $229,000 during the first nine months of 1993 to
$76,942,000 at September 30, 1993 following an increase of $4,656,000 during
1992 to $76,712,000 at December 31, 1992. The 1992 increase was primarily due
to an increase in securities available for sale and loans.
Loans increased in the first nine months of 1993 by $6,504,000 to $46,575,000 at
September 30, 1993 and increased $1,381,000 during 1992 to $40,071,000 at
December 31, 1992. The increase in loans was evenly balanced in commercial,
commercial real estate, consumer, and residential real estate.
Securities available for sale decreased $5,632,000 during the first nine months
of 1993 to $21,917,000 at September 30, 1993 and had increased $3,923,000 during
1992 to $27,549,000 at December 31, 1992. The decrease in 1993 was to fund
increased loan demand while in 1992 the increase was funded by deposit growth.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
EARNINGS PERFORMANCE
First National Bank of Detroit Lakes earned net income of $291,000 and $187,000
for the three months ended September 30, 1993 and 1992, respectively. The
increase in earnings of $104,000 was primarily due to an increase in net
interest income of $121,000. The annualized return on average assets was 1.51%
for the third quarter of 1993, compared to .97% for the third quarter of 1992.
Annualized return on average stockholders' equity was 19.59% for the third
quarter of 1993, compared to 12.66% for the third quarter of 1992. On a per-
shared basis, net income for the third quarter of 1993 and 1992 were $31.45 and
$20.43 respectively.
The following is a condensed summary of the consolidated statements of
operations (dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended
September 30
------------
1993 1992
- ---------------------------------------------------------------------
<S> <C> <C>
Net interest income $971 849
Provision for loan losses 0 0
Non-interest income 149 158
Non-interest expense 635 642
Net income 291 187
</TABLE>
(continued)
75
<PAGE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expenses of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Three months
ended
September 30
(dollars in
thousands) Percentage
-------------- increase
1993 1992 (decrease)
------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $1,146 1,004 14.1 %
Securities 338 447 (24.4)
Federal funds sold 22 36 (39.1)
------------------------------------------------
Total interest income 1,506 1,487 1.3
------------------------------------------------
Interest expense:
Deposits 511 618 (17.3)
Short-term borrowings 24 20 20.0
------------------------------------------------
Total interest expense 535 638 (16.1)
------------------------------------------------
Net interest income $ 971 849 14.3 %
================================================
</TABLE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Three months ended
September 30, 1993-1992
--------------------------------
Attributable to change
Total ----------------------
Interest-earning Assets change in volume in rate
------------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 142,019 568,933 (426,914)
Securities (109,297) 29,072 (138,369)
Federal funds sold (14,045) (8,221) (5,824)
------------------------------------------------------------------------
Total interest income $ 18,677 589,784 (571,107)
========================================================================
Interest-bearing Liabilities
------------------------------------------------------------------------
Deposits (107,072) (6,292) (100,780)
Short-term borrowings 3,988 (1,707) 5,695
------------------------------------------------------------------------
Total interest expense $(103,084) (7,999) (95,085)
========================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior period's rate and the change in interest
income/expense attributable to rate reflects the change in rates times the prior
period's volume. The change due to combined rate/volume variance is allocated
to the change due to rate and the change due to volume on the basis of the
percentage of the total change excluding the combined rate/volume component.
(continued)
76
<PAGE>
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Three months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
-----------------------------
1993 1992 1993/92
--------------------------------------------------------------------
<S> <C> <C> <C>
Loans $46,260 37,446 23.5 %
Securities 22,601 28,795 (21.5)
Federal funds sold 2,977 4,781 (37.7)
-------------------------------------------------------
Total average
interest-earning assets 71,838 71,022 1.1
=======================================================
Deposits:
Non-interest bearing demand 8,599 7,422 15.9
Interest-bearing demand 13,289 12,210 8.8
Savings 18,743 18,311 2.4
Time 27,023 29,080 (7.1)
-------------------------------------------------------
Total average
interest-bearing deposits 59,055 59,601 (0.9)
-------------------------------------------------------
Short-term borrowings 2,000 2,026 (1.3)
-------------------------------------------------------
Total average
interest-bearing liabilities $61,055 61,627 (0.9)%
=======================================================
</TABLE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Three months
ended
September 30
-------------
1993 1992
----------------------------------------------------------------
<S> <C> <C>
Average yield earned:
Loans 9.91% 10.73%
Securities 5.98 6.21
Federal funds sold 2.94 3.01
Total interest-earning assets 8.38 8.38
----------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.47 4.15
Short-term borrowings 4.81 3.96
Total interest-bearing liabilities 3.51 4.15
----------------------------------------------------------------
Interest rate spread 4.88% 4.22%
================================================================
(continued)
</TABLE>
77
<PAGE>
The following table shows the annualized net yield on interest-earning assets
for the three months ended September 30:
<TABLE>
<CAPTION>
1993 1992
---------------------------------------------------------
<S> <C> <C>
Average yield earned 8.38% 8.38%
Interest expense to average earning assets 2.97 3.59
---------------------------------------------------------
Net yield on interest-earning assets 5.41% 4.79%
==========================================================
</TABLE>
Net interest income was $971,000 for the third quarter of 1993, compared with
$849,000 for the third quarter of 1992. The increase is due primarily to higher
loan balances.
Total interest income increased to $1,506,000 or 1.3% for the third quarter of
1993 as compared to $1,487,000 for the third quarter of 1992. Average interest-
earning assets increased to $71,838,000 for the three months ended September 30,
1993 from $71,022,000 for the three months ended September 30, 1992. Earning
asset yields remained constant at 8.38% in 1993 and 1992.
Total interest expense for the third quarter of 1993 of $535,000 declined from
$638,000 for the third quarter of 1992. This decline was attributed primarily
to rates on interest-bearing liabilities declining to 3.51% in 1993, from 4.15%
in 1992. The 64 basis point decline from 1992 to 1993 was caused by the general
economic and market conditions which moved interest rates lower in 1992 and
1993.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. First National Bank of Detroit Lakes' provision for loan
losses was $ -0- and $ -0- for the third quarter of 1993 and 1992,
respectively.
Net recoveries were $2,000 for the third quarter of 1993 and net charge-offs
were $12,000 for the third quarter of 1992. The loan loss reserve as a
percentage of loans was 1.48% and 1.78% at September 30, 1993 and 1992,
respectively.
NON-INTEREST INCOME
Non-interest income decreased to $149,000 for the third quarter of 1993 compared
to $158,000 for the third quarter of 1992. The decrease is due to a variety of
miscellaneous income items.
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
1993 1992 (decrease)
----------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $326 315 3.5 %
Net occupancy expense 137 140 (2.2)
Other expenses 172 186 (7.5)
----------------------------------------------------------
$635 641 (0.9)%
==========================================================
</TABLE>
(continued)
78
<PAGE>
Total non-interest expenses decreased to $635,000 for the third quarter of 1993,
compared to $641,000 for the third quarter of 1992. The decrease is due
primarily to a decrease in business development and advertising costs.
COMPARISONS OF NINE MONTHS ENDED SEPTEMBER 30, 1993 AND 1992
EARNINGS PERFORMANCE
First National Bank of Detroit Lakes earned net income of $907,000 and $692,000
for the nine months ended September 30, 1993 and 1992, respectively. The
increase in earnings of $215,000 was primarily due to a $396,000 increase in net
interest income. The annualized return on average assets was 1.62% for the
first nine months of 1993 compared to 1.26% for the first nine months of 1992.
Annualized return on average stockholders' equity was 19.64% for the first nine
months of 1993 compared to 12.51% for the first nine months of 1992. On a per
share basis, net income for the first nine months of 1993 and 1992 were $98.14
and $75.60, respectively.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
Nine months
ended
September 30
--------------
1993 1992
--------------------------------------------
<S> <C> <C>
Net interest income $2,869 2,470
Provision for loan losses 0 0
Non-interest income 526 439
Non-interest expense 1,882 1,907
Net income 907 692
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes in both interest rates and the volume
of average earning assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
<TABLE>
<CAPTION>
Nine months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
--------------------------
1993 1992 1993/92
-----------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $3,314 3,074 7.8 %
Securities 1,137 1,362 (16.5)
Federal funds sold 47 119 (60.5)
-----------------------------------------------
Total interest income 4,498 4,555 (1.2)
-----------------------------------------------
Interest expense:
Deposits 1,543 2,013 (23.3)
Short-term borrowings 86 72 19.4
-----------------------------------------------
Total interest expense 1,629 2,085 (21.9)
-----------------------------------------------
Net interest income $2,869 2,470 16.0 %
===============================================
</TABLE>
(continued)
79
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
Nine months ended
September 30, 1993-1992
---------------------------------
Attributable to change
Total ----------------------
Interest-earning Assets change in volume in rate
-----------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 239,550 489,430 (249,880)
Securities (224,567) (165,015) (59,552)
Federal funds sold (71,842) (49,324) (22,518)
-----------------------------------------------------------------------
Total interest income $ (56,859) 275,091 (331,950)
=======================================================================
Interest-bearing Liabilities
-----------------------------------------------------------------------
Deposits (469,454) (36,355) (433,099)
Short-term borrowings 14,186 15,755 (1,569)
-----------------------------------------------------------------------
Total interest expense $(455,268) (20,600) (434,668)
=======================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume time the prior period's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior period's
volume. The change due to combined rate/volume variance is allocated to the
change due to rate and the change due to volume on the basis of the percentage
of the total change excluding the combined rate/volume component.
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Nine months
ended
September 30 Percentage
(dollars in increase
thousands) (decrease)
---------------- -----------
1993 1992 1993/92
--------------------------------------------------------------------
<S> <C> <C> <C>
Loans $43,540 37,274 16.8 %
Securities 24,992 27,141 (7.9)
Federal funds sold 2,181 4,628 (52.8)
-------------------------------------------------------
Total average
interest-earnings assets $70,713 69,043 2.4
=======================================================
Deposits:
Non-interest bearing demand 7,834 6,451 21.4
Interest-bearing demand 12,493 11,926 4.8
Savings 17,902 17,924 (0.1)
Time 27,425 29,065 (5.6)
-------------------------------------------------------
Total average
interest-bearing deposits 57,820 58,915 (1.8)
-------------------------------------------------------
Short-term borrowings 2,529 2,068 22.2
-------------------------------------------------------
Total average
interest-bearing liabilities $60,349 60,983 (1.0)%
=======================================================
</TABLE>
(continued)
80
<PAGE>
The following table shows the annualized average interest yield on interest-
earning assets and the annualized average interest rate paid on interest-bearing
liabilities:
<TABLE>
<CAPTION>
Nine months
ended September 30
--------------------
1993 1992
--------------------------------------------------------------
<S> <C> <C>
Average yield earned
Loans 10.15% 11.00%
Securities 6.07 6.69
Federal funds sold 2.91 3.44
Total interest-earning assets 8.48 8.80
-------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 3.56 4.55
Short-term borrowings 4.55 4.65
-------------------------------------------------------------
Total interest-bearing liabilities 3.60 4.56
-------------------------------------------------------------
Interest rate spread 4.88 4.25%
=============================================================
</TABLE>
The following table shows the annualized net yield on interest-earning assets
for the nine months ended September 30:
<TABLE>
<CAPTION>
1993 1992
-------------------------------------------------------------
<S> <C> <C>
Average yield earned 8.48% 8.80%
Interest expense to average earning assets 3.07 4.03
-------------------------------------------------------------
Net yield on interest-earning assets 5.41% 4.77%
=============================================================
</TABLE>
Net interest income was $2,869,000 for the first nine months of 1993, compared
with $2,470,000 for the first nine months of 1992. The increase is due
primarily to higher loan balances.
Total interest income decreased to $4,498,000 or 1.2% for the first nine months
of 1993 as compared to $4,555,000 for the first nine months of 1992. Average
interest-earnings assets increased to $70,713,000 for the nine months ended
September 30, 1993 from $69,043,000 for the nine months ended September 30,
1992. Earning asset yields declined to 8.48% in 1993 as compared to 8.80% in
1992.
Total interest expense for the first nine months of 1993 of $1,629,000 declined
from $2,085,000 for the first nine months of 1992. This decline was attributed
primarily to rates on interest-bearing liabilities declining to 3.60% in 1993,
from 4.56% in 1992. The 96 basis point decline from 1992 to 1993 was caused by
the general economic and market conditions which moved interest rates lower in
1992 and 1993.
(continued)
81
<PAGE>
PROVISION FOR LOAN LOSSES
The allowance for loan losses in determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. First National Bank of Detroit Lakes' provision for loan
losses was $ -0- and $ -0- for the first nine months of 1993 and 1992,
respectively.
Net recoveries were $7,000 for the first nine months of 1993 and net charge-offs
were $36,000 for the first nine months of 1992. The loan loss reserve as a
percentage of loan was 1.48% and 1.78% at September 30, 1993 and 1992,
respectively.
NON-INTEREST INCOME
Non-interest income increased to $526,000 for the first nine months of 1993
compared to $439,000 for the first nine months of 1992. The increase was due
primarily to income earned on the settlement of certain non-performing loans
offset by decreases in overdraft fees.
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage
increase
(decrease)
1993 1992 1993/92
------- ----- ----------
<S> <C> <C> <C>
Salaries and employee benefits $ 992 964 2.9 %
Net occupancy expense 427 457 (6.6)
Other expenses 463 486 (4.7)
---------------------------------------------------
$1,882 1,907 (1.3)%
===================================================
</TABLE>
Total non-interest expenses decreased to 1,882,000 for the first nine months of
1993, compared to 1,907,000 for the first nine months of 1992. The decrease is
due to decreases in net occupancy and legal expenses offset by increases in a
variety of miscellaneous expense items.
(continued)
82
<PAGE>
COMPARISONS OF YEARS ENDED DECEMBER 31, 1992, 1991 AND 1990
EARNINGS PERFORMANCE
First National Bank of Detroit Lakes earned net income of $959,000 in 1992,
$457,000 in 1991 and $625,000 in 1990. The increase in earnings from 1991 to
1992 was primarily due to an increase in net interest income. The increase in
earnings from 1990 to 1991 was primarily due to a $241,000 increase in net
interest income and a $141,000 decrease in the provision for loan losses, offset
by a $242,000 increase in non-interest expenses. The return on average assets
was 1.30% in 1992 compared to .65% in 1991 and .74% in 1990. Return on average
stockholders' equity was 16.89% in 1992 compared to 9.17% and 14.27% in 1991 and
1990, respectively. On a per share basis, net income for the years 1992, 1991
and 1990 were $104.71, $51.92 and $70.95, respectively.
The following is a condensed summary of the statements of operations (dollars in
thousands):
<TABLE>
<CAPTION>
1992 1991 1990
------ ----- -----
<S> <C> <C> <C>
Net interest income $3,433 2,959 2,765
Provision for loan losses 0 0 141
Operating income 569 452 489
Operating expense 2,576 2,640 2,378
Net income 959 457 625
</TABLE>
NET INTEREST INCOME
Net interest income is affected by changes is both interest rates and the volume
of average earnings assets and interest-bearing liabilities.
The following table is provided to show the percentage of change in interest
income and expense of significant interest-bearing assets and liabilities:
Percentage increase
Dollars (in thousands) (decrease)
----------------------- -------------------
1992 1991 1990 1992/91 1991/90
--------------------------------------------------------------------------
Interest income:
Loans $4,146 4,403 4,368 (5.8)% 0.8 %
Securities 1,816 1,872 1,902 (2.9) (1.6)
Federal funds sold 145 165 190 (12.1) (13.1)
---------------------------------------------------
Total interest income 6,107 6,440 6,460 (5.2) (0.3)
---------------------------------------------------
Interest expense:
Deposits 2,587 3,286 3,417 (21.2)% (3.8)%
Short-term borrowings 87 195 278 (55.4) (29.8)
---------------------------------------------------
Total interest expense 2,674 3,481 3,695 (23.2) (5.7)
---------------------------------------------------
Net interest income $3,433 2,959 2,765 16.0 % 7.0 %
===================================================
83
<PAGE>
The following table is provided to show changes in interest income and expense
attributable to changes in volume and interest rates of significant interest-
earning assets and interest-bearing liabilities:
<TABLE>
<CAPTION>
1992-1991
---------------------------------
Attributable to change
Total -----------------------
Interest-earning Assets change in volume in rate
----------------------------------------------------------------------
<S> <C> <C> <C>
Loans $(256,379) (160,028) (96,351)
Securities (56,017) 290,098 (346,115)
Federal funds sold (20,531) 57,092 (77,623)
----------------------------------------------------------------------
Total interest income $(332,927) 187,162 (520,089)
======================================================================
Interest-bearing Liabilities
----------------------------------------------------------------------
Deposits (698,231) 247,648 (945,879)
Short-term borrowings (108,502) 9,839 (118,341)
----------------------------------------------------------------------
Total interest expense $(806,733) 257,487 (1,064,220)
======================================================================
1992-1991
---------------------------------
Attributable to change
Total -----------------------
Interest-earning Assets change in volume in rate
----------------------------------------------------------------------
<S> <C> <C> <C>
Loans $ 34,426 213,898 (179,472)
Securities (29,311) 111,473 (140,784)
Federal funds sold (25,034) 44,964 (69,998)
----------------------------------------------------------------------
Total interest income $ (19,919) 370,335 (390,254)
======================================================================
Interest-bearing Liabilities
----------------------------------------------------------------------
Deposits (130,969) 267,491 (398,460)
Short-term borrowings (83,119) (67,918) (15,201)
----------------------------------------------------------------------
Total interest expense $(214,088) 199,573 (413,661)
======================================================================
</TABLE>
The change in interest income/expense attributable to volume reflects the change
in volume times the prior year's rate and the change in interest income/expense
attributable to rate reflects the change in rates times the prior year's volume.
The change due to combined rate/volume variance is allocated to the change due
to rate and the change due to volume on the basis of the percentage of the total
change excluding the combined rate/volume component.
84
<PAGE>
The following table presents average asset and liability balances and percentage
changes:
<TABLE>
<CAPTION>
Percentage increase
Dollars (in thousands) (decrease)
---------------------- -------------------
1992 1991 1990 1992/91 1991/90
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $37,620 39,111 37,245 (3.8)% 5.0 %
Securities 27,616 23,617 22,267 16.9 6.0
Federal funds sold 4,332 3,017 2,362 43.5 27.7
----------------------------------------------------
Total average interest-
earning assets $69,568 65,745 61,874 5.8 6.2
====================================================
Deposits:
Non-interest-bearing
demand 6,569 5,834 5,703 12.6 2.3
Interest-bearing
demand 12,070 10,861 9,825 11.1 10.5
Savings 18,263 14,620 13,517 24.9 8.1
Time 28,953 29,982 28,721 (3.4) 4.4
----------------------------------------------------
Total average interest-
bearing deposits 59,286 55,463 52,063 6.9 6.5
Short-term borrowings 1,899 3,056 3,569 (37.8) (14.3)
----------------------------------------------------
Total average interest-
bearing liabilities $61,185 58,519 55,631 4.6 5.2
====================================================
</TABLE>
The following table shows the average interest yield on interest-earning assets
and the average interest rate paid on interest-bearing liabilities:
<TABLE>
<CAPTION>
1992 1991 1990
---------------------------------------------------------------
<S> <C> <C> <C>
Average yield earned:
Loans 11.02% 11.26% 11.73%
Securities 6.58 7.93 8.54
Federal funds sold 3.34 5.47 8.05
Total interest-earning assets 8.78 9.80 10.44
---------------------------------------------------------------
Average rates paid:
Interest-bearing deposits 4.36 5.92 6.56
Short-term borrowings 4.58 6.40 7.81
Total interest-bearing liabilities 4.37 5.95 6.64
---------------------------------------------------------------
Interest rate spread 4.41% 3.85% 3.80%
===============================================================
</TABLE>
Short-term borrowings consist of repurchase agreements with various bank
customers. These repurchase agreements are short term with a specific maturity
date and are generally issued for periods less than one year. They have a fixed
interest rate. Terms of the agreement require the sale and subsequent
repurchase of specified U.S. treasury or government agency securities at a fixed
price. Banks are not required to maintain reserves on repurchase agreements or
incur FDIC charges.
(continued)
85
<PAGE>
The following table shows the net yield on interest-earning assets:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- -----
<S> <C> <C> <C>
Average yield earned 8.78% 9.80% 10.44%
Interest expense to
average earning assets 3.85 5.30 5.97
---------------------------------------------------------------
Net yield on interest-earning assets 4.93% 4.50% 4.47%
===============================================================
</TABLE>
Net interest income was $3,433,000 in 1992, compared with $2,959,000 in 1991 and
$2,765,000 in 1990. During 1990 interest rates in the United States began a
general decline with short-term interest falling faster than long-term rates.
This trend continued throughout 1991 and 1992.
Total interest income decreased to $6,107,000 or 5.2% in 1992 as compared to
$6,440,000 in 1991, which was down from $6,460,000 in 1990. Earning asset
yields declined to 8.78% in 1992 as compared to 9.80% and 10.44% in 1991 and
1990, respectively.
Total interest expense in 1992 of $2,674,000 declined from $3,481,000 in 1991,
which was down from $3,695,000 in 1990. This decline was attributed primarily
to rates on interest-bearing liabilities declining to 4.37% in 1992, from 5.95%
in 1991 and 6.64% in 1990. The 158 basis point decline from 1991 to 1992 and
the 69 basis point decline from 1990 to 1991 were caused by the general economic
and market conditions which moved interest rates lower in 1992 and 1991.
PROVISION FOR LOAN LOSSES
The allowance for loan losses is determined based on management's evaluation of
the loan portfolio, economic conditions, prior loss experience, review of
specific problem loans, and other pertinent factors. Actual losses on loans are
charged against this allowance and recoveries on charged-off loans are credited
to this allowance. First National Bank of Detroit Lakes' provision for loan
losses was $-0-, $-0- and $140,507 in 1992, 1991 and 1990, respectively.
The loan loss reserve as a percentage of loans was 1.71%, 1.84% and 2.06% at
December 31, 1992, 1991 and 1990, respectively.
NON-INTEREST INCOME
The following table presents a summary of non-interest income (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage increase
(decrease)
--------------------
1992 1991 1990 1992/91 1991/90
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges
and fees $392 306 319 28.0% (4.0)%
Other 177 147 170 20.8 (13.5)%
------------------------------------------------
$569 453 489 25.6% (7.4)%
================================================
</TABLE>
Non-interest income increased 25.6% in 1992 over 1991 due to an increase in
service fee rates plus an increase in brokerage fees. The decrease in non-
interest income from 1990 to 1991 was a result of an insurance settlement of
$114,000 in 1990, which resulted in higher than normal income for 1990 and a
decrease in overdraft activity.
(continued)
86
<PAGE>
NON-INTEREST EXPENSES
The following table presents a summary of non-interest expenses (dollars in
thousands) and percentage changes:
<TABLE>
<CAPTION>
Percentage increase
(decrease)
-------------------
1992 1991 1990 1992/91 1991/90
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee
benefits $1,312 1,114 957 17.8% 16.3%
Net occupancy expense 598 502 470 19.1 6.8
Other expenses 666 1.024 951 (35.0) 7.7
-------------------------------------------------
$2,576 2,640 2,378 (2.4)% 11.0%
==================================================
</TABLE>
Total non-interest expenses were $2,576,000 in 1992, compared to $2,640,000 in
1991 and $2,378,000 in 1990. The decrease in 1992 is largely attributable to
decreases in legal expenses and decreased losses on sales of securities
available for sale and premises and equipment, offset by increases in salaries
and employee benefits, and net occupancy expense. The increase in 1991 was a
result of increases in salaries and employee benefits, FDIC insurance
assessments, and losses on sales of premises and equipment, offset by decreases
in legal expenses and losses on sales of securities available for sale.
Salaries and employee benefits increased to $1,312,000 in 1992 from $1,114,000
in 1991 and $957,000 in 1990. The increase in salaries in 1992 and 1991 was
primarily the result of existing staff receiving annual increases and the hiring
of additional staff.
Net occupancy expense increased $96,000 or 19.1% in 1992 as a result of moving
into a new bank building in late 1991.
Legal expenses decreased $34,000 or 19.7% in 1992 and $104,000 or 37.5% in 1991
due to declining legal activity related to OCC supervision.
FDIC insurance assessments increased $19,000 or 15.1% in 1992 and $59,000 or
89.5% in 1991. The increase is due to the impact of increased premium rates as
well as increased levels of deposits in these periods.
Losses on sales of premises and equipment decreased $220,000 in 1992 following
an increase of $250,000 in 1991. These losses, recorded mostly in 1991, related
to the sale of the Bank's primary banking facility and related equipment.
Losses and gains on sales of securities available for sale decreased by $91,000
in 1992 and $27,000 in 1991. These decreases were the result of high levels of
losses in 1991 and 1990 related to the on-going sale of low quality investments
that began in 1989.
(continued)
87
<PAGE>
INCOME TAXES
In February 1992 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. The
Company adopted SFAS No. 109 during 1993 and has elected to apply the provisions
retroactively beginning January 1, 1990. The effect on the consolidated
financial statements for 1992, 1991 and 1990 of applying the new method of
accounting retroactively was not material.
SFAS No. 109 requires the use of the asset and liability method of accounting
for income taxes. Under the asset and liability method of SFAS No. 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect of the change in the method of accounting for income taxes as
of January 1, 1990 was not material.
Income taxes for each of the years 1992 and 1990 was less than the "expected"
tax expense computed by applying the applicable federal and state tax rates due
to valuation allowances recorded for deferred tax assets of First National Bank
of Detroit Lakes due to uncertainties regarding the realization of the deferred
tax assets during these periods. During the fourth quarter of 1992 it was
determined, based in part on the lifting of a Formal Agreement with the OCC, the
final utilization of net operating loss carry forwards and the establishment of
a positive earnings trend, that the valuation allowance was no longer needed,
resulting in deferred income tax benefits being recorded beginning in that
quarter.
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In May 1993, the Financial Accounting Standard Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, which requires that certain impaired loans be measured to
reflect the time value of money. SFAS No. 114 is required to be adopted for
fiscal years beginning after December 15, 1994. The impact of adoption of the
new accounting standards on the First National Bank of Detroit Lakes' financial
statements has not yet been determined.
In May 1993, the FASB issued SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. This statement addressed the accounting and
reporting for investments by classifying into three categories--securities held
to maturity, trading securities, and available for sale. The statement is
effective for fiscal years beginning after December 15, 1993. The impact of
adoption on the First National Bank of Detroit Lakes' financial statements has
not yet been determined.
FUNDING SOURCES AND LIQUIDITY MANAGEMENT
The assets of First National Bank of Detroit Lakes are primarily funded through
the use of borrowings in the form of deposits and short-term borrowings. The
maintenance of an adequate level of liquidity is necessary to ensure that
sufficient funds are available to meet customers' loan demand and deposit
withdrawals. The sources of asset liquidity consist of federal funds, maturing
loans and investment securities.
(continued)
88
<PAGE>
First National Bank of Detroit Lakes' investment committee is charged with the
responsibility of maintaining an adequate level of liquidity and managing the
risks associated with interest rate changes while sustaining stable growth in
net interest income. First National Bank of Detroit Lakes' basic strategy is to
minimize interest rate risk through matching the repricing periods of earning
assets and interest-bearing liabilities.
CAPITAL MANAGEMENT OF FIRST NATIONAL BANK OF DETROIT LAKES
Bank regulatory agencies measure capital adequacy through standardized risk-
based capital guidelines which compare different levels of capital (as defined
by such guidelines) to risk-weighted assets and off-balance sheet obligations.
Under the rules effective December 31, 1992, all financial institutions are
required to maintain a level of core capital (known as tier 1 capital) which
must be at least 4.0% of risk-weighted assets, and a minimum level of total
capital of at least 8.0% of risk-weighted assets. Tier 1 capital consists
principally of stockholders' equity less goodwill. Total capital is comprised
of tier 1 capital, certain debt instruments and a portion of the allowance for
loan losses. First National Bank of Detroit Lakes' actual risk-based capital
requirement and excess risk-based capital at September 30, 1993 and December 31,
1992 (dollars in thousands) are summarized as follows:
September 30, 1993 December 31, 1992
------------------- -------------------
Amount Percent(1) Amount Percent(1)
------------------------------------------------------------------------
Tier 1 capital $6,074 $6,009
Allowable portion of allow-
ance for loan losses 642 573
------------------------------------------------------------------------
Total risk-based capital $6,716 13.1% $6,582 14.4%
========================================================================
Risk-based capital
requirement $4,104 8.0% $3,657 8.0%
========================================================================
Excess risk-based capital $2,612 5.1% $2,925 6.4%
========================================================================
(1) Percentage based on risk-weighted assets of $51,303,000 and $45,710,000
at September 30, 1993 and December 31, 1992, respectively.
As a supplement to the risk-based capital guidelines, the Federal Reserve Board
has also adopted a minimum ratio of tier 1 capital to total assets known as the
tier 1 leverage ratio. The principal objective of this measure is to place a
constraint on the maximum degree to which a banking organization can leverage
its equity capital base. This regulation has established a minimum level of
tier 1 capital to total assets of 3.0%. First National Bank of Detroit Lakes'
actual tier 1 leverage ratio was 7.9% and 13.1% at September 30, 1993 and
December 31, 1992, respectively.
89
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Select Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of the First
National Bank of Detroit Lakes (dollars in thousands):
<TABLE>
<CAPTION>
Three months ended September 30
------------------------------------------------------------------
1993 1992
------------------------------ ------------------------------
Average Average
Average yield/ Average yield/
Assets balance Interest rate(1) balance Interest rate(1)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 46,260 1,146 9.91% 37,446 1,004 10.73%
Investment securities 22,601 338 5.98% 28,795 447 6.21%
Federal funds sold 2,977 22 2.94% 4,781 36 3.01%
- ---------------------------------------------------------------------------------------------------------
Total earning assets 71,838 1,506 8.38% 71,022 1,487 8.38%
- ---------------------------------------------------------------------------------------------------------
Allowance for loan losses (687) (684)
Cash and due from banks 2,539 2,346
Other assets 2,538 2,769
- ---------------------------------------------------------------------------------------------------------
Total Assets 76,228 75,453
=========================================================================================================
Liabilities and Stockholders'
Equity
- ---------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 8,599 7,422
Interest bearing demand deposits 13,289 76 2.30% 12,210 81 2.66%
Saving deposits 18,743 120 2.56% 18,311 139 3.03%
Time deposits 27,023 315 4.66% 29,080 398 5.47%
Short-term borrowings 2,000 24 4.81% 2,026 20 3.96%
- ---------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 61,055 535 3.51% 61,627 638 4.15%
- ---------------------------------------------------------------------------------------------------------
Other liabilities 636 495
Stockholders' equity 5,938 5,909
- ---------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity 76,228 75,453
=========================================================================================================
Net interest income 971 849
=========================================================================================================
Interest rate spread 4.88% 4.22%
Net interest income to average
earning assets 5.41% 4.79%
</TABLE>
(1) Yield/rate is annualized
90
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of the First
National Bank of Detroit Lakes (dollars in thousands):
<TABLE>
<CAPTION>
Nine months ended September 30
--------------------------------------------------------------------
1993 1992
--------------------------------- ---------------------------------
Average Average Average Average
Assets balance Interest yield/rate(1) balance Interest yield/rate(1)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans 43,540 3,314 10.15% 37,274 3,074 11.00%
Investment securities 24,992 1,137 6.07% 27,141 1,362 6.69%
Federal funds sold 2,181 47 2.90% 4,628 119 3.44%
- -------------------------------------------------------------------------------------------------------
Total earning assets 70,713 4,498 8.48% 69,043 4,555 8.80%
- -------------------------------------------------------------------------------------------------------
Allowance for loan losses (690) (699)
Cash and due from banks 2,342 2,322
Other assets 2,640 2,832
- -------------------------------------------------------------------------------------------------------
Total Assets 75,005 73,497
=======================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 7,834 6,451
Interest bearing demand deposits 12,493 222 2.37% 11,926 286 3.20%
Saving deposits 17,902 345 2.57% 17,924 463 3.44%
Time deposits 27,425 976 4.75% 29,065 1,264 5.80%
Short-term borrowings 2,529 86 4.53% 2,068 72 4.65%
- -------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 60,349 1,629 3.60% 60,983 2,085 4.56%
- -------------------------------------------------------------------------------------------------------
Other liabilities 664 530
Stockholders' equity 6,158 5,534
- -------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 75,005 73,498
=======================================================================================================
Net interest income 2,869 2,470
=======================================================================================================
Interest rate spread 4.88% 4.25%
Net interest income to average earning assets 5.41% 4.77%
</TABLE>
(1) Yield/rate is annualized
91
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Average Balance Sheets And Average Yields Earned And Rate Paid
The following table sets forth certain selected statistical information and
should be read in conjunction with the financial statements of the First
National Bank of Detroit Lakes (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------------------------------------------------------------------
1992 1991 1990
-------------------------------- ------------------------------ ------------------------------
Average Average Average Average Average Average
Assets balance Interest yield/rate balance Interest yield/rate balance Interest yield/rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loans 37,620 4,146 11.02% 39,111 4,403 11.26% 37,245 4,368 11.73%
Investment securities 27,616 1,816 6.58% 23,617 1,872 7.93% 22,267 1,902 8.54%
Federal funds sold 4,332 145 3.34% 3,017 165 5.47% 2,362 190 8.05%
- ------------------------------------------------------------------------------------------------------------------------------------
Total earning assets 69,568 6,107 8.78% 65,745 6,440 9.80% 61,874 6,460 10.44%
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (694) (823) (850)
Cash and due from banks 2,339 2,151 2,178
Other assets 2,783 2,907 3,046
Total Assets 73,996 69,980 66,248
====================================================================================================================================
Liabilities and Stockholders' Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Non-interest-bearing deposits 6,569 5,834 5,703
Interest bearing demand deposit 12,070 363 3.01% 10,861 487 4.49% 9,825 503 5.12%
Saving deposits 18,263 594 3.25% 14,620 702 4.80% 13,517 720 5.33%
Time deposits 28,953 1,630 5.63% 29,982 2,097 6.99% 28,721 2,194 7.64%
Short-term borrowings 1,899 87 4.58% 3,056 195 6.39% 3,569 278 7.80%
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 61,185 2,674 4.37% 58,519 3,481 5.95% 55,631 3,695 6.64%
- ------------------------------------------------------------------------------------------------------------------------------------
Other liabilities 565 642 536
Stockholders' equity 5,677 4,985 4,377
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity 73,996 69,980 66,248
====================================================================================================================================
Net interest income 3,433 2,959 2,765
====================================================================================================================================
Interest rate spread 4.41% 3.85% 3.80%
Net interest income to average
earning assets 4.93% 4.50% 4.47%
</TABLE>
92
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Securities
Following is a table of the carrying value (dollars in thousands) of
securities:
<TABLE>
<CAPTION>
December 31
September 30 ---------------------------
1993 1992 1991 1990
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury 3,526 8,089 8,756 6,922
U.S. government agencies 16,102 16,081 9,178 8,394
Municipals 200 952 998 1,104
Corporate and other bonds 2,363 3,452 5,758 6,172
- -------------------------------------------------------------------------------
22,191 28,574 24,690 22,592
===============================================================================
</TABLE>
The following table reflects the maturity distribution of each investment
security category and the approximate weighted-average annual yield at
September 30, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
- -------------------------------------------------------------------------------
Less
than 1-5 5-10 More than
1 year years years 10 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $3,027 $ 499 $ 3,526
Weighted average yield 5.34% 5.65% 5.38%
U.S. government agencies $2,782 $6,289 $2,994 $3,408 $15,473
Weighted average yield 7.71% 5.97% 5.38% 5.48% 6.06%
Municipals $ 200 $ 200
Weighted average yield 8.64% 8.64%
Corporate and other bonds $1,049 $1,869 $ 74 $ 2,992
Weighted average yield 7.32% 6.30% 6.00% 6.67%
- -------------------------------------------------------------------------------
Total securities $6,858 $8,857 $2,994 $3,482 $22,191
===============================================================================
Weighted average
yield 6.60% 6.07% 5.38% 5.50% 6.04%
===============================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in
excess of 10% of stockholders' equity.
93
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Securities, Continued
The following table reflects the maturity distribution of each security
category and the approximate weighted-average yield at December 31, 1992
(dollars in thousands):
<TABLE>
<CAPTION>
Maturing within
- -------------------------------------------------------------------------------
Less
than 1-5 5-10 More than
1 year years years 10 years Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury $4,530 $ 3,559 $ 8,089
Weighted average yield 5.99% 5.38% 5.72%
U.S. government agencies $2,503 $ 7,612 $3,490 $1,972 $15,577
Weighted average yield 7.40% 6.50% 5.59% 5.16% 6.27%
Municipals $ 120 $ 562 $ 215 $ 55 $ 952
Weighted average yield 10.17% 10.74% 10.74% 10.74% 10.66%
Corporate and other bonds $ 805 $ 3,079 $ 72 $ 3,956
Weighted average yield 7.48% 7.10% 6.00% 7.15%
- -------------------------------------------------------------------------------
Total securities $7,958 $14,812 $3,705 $2,099 $28,574
===============================================================================
Weighted average
yield 6.63% 6.50% 5.58% 8.05% 6.34%
===============================================================================
</TABLE>
The portfolio does not include any issuer with an aggregate book value in
excess of 10% of stockholders' equity.
94
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Loan Portfolio
The following table classifies loans by major category (dollars in thousands):
<TABLE>
<CAPTION>
December 31
September 30 -----------------------------------------------
1993 1992 1991 1990 1989 1988
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial business 10,305 11,592 11,346 12,310 10,879 8,534
Agricultural 3,901 3,302 3,618 3,006 2,868 2,366
Real Estate:
Commercial 8,767 5,540 5,129 6,183 6,091 6,094
Residential 11,498 9,799 8,793 8,064 7,621 7,107
Agricultural 806 745 579 872 851 815
Construction 359 158 225 0 30 164
Consumer 10,939 8,935 9,000 9,158 5,251 3,825
- ----------------------------------------------------------------------------------------
Total Loans 46,575 40,071 38,690 39,593 33,591 28,905
========================================================================================
</TABLE>
The following tables present maturities and sensitivities of loans to changes in
interest rates as of September 30, 1993 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business and Agricultural 9,161 4,300 745 14,206
Real Estate 6,722 10,481 4,227 21,430
Consumer 3,281 7,658 0 10,939
- --------------------------------------------------------------------------------------
19,164 22,439 4,972 46,575
======================================================================================
b. Amount of loans due after five years
which have:
Predetermined interest rates 1,099
Floating/adjustable rates 3,873
- --------------------------------------------------------------------------------------
4,972
======================================================================================
</TABLE>
95
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Loan Portfolio, Continued
The following tables present maturities and sensitivities of loans to changes in
interest rates as of December 31, 1992 (dollars in thousands):
<TABLE>
<CAPTION>
Less than 1-5 More than
1 year years 5 years Total
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Maturities
a. Commercial business
and Agricultural 10,146 4,348 400 14,894
Real Estate 5,933 8,209 2,100 16,242
Consumer 2,680 6,255 0 8,935
- -----------------------------------------------------------------------
18,759 18,812 2,500 40,071
=======================================================================
b. Amount of loans due
after five years
which have:
Predetermined
interest rates 992
Floating/adjustable
rates 1,508
- -----------------------------------------------------------------------
2,500
=======================================================================
</TABLE>
96
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Nonaccrual, Restructured and Past Due Loans
(dollars in thousands)
<TABLE>
<CAPTION> December 31
September 30 -----------------------------------------
1993 1992 1991 1990 1989 1988
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nonaccrual loans 301 259 847 206 542 1,296
Restructured loans 74 101 215 505 451 182
Loans past due more than 90 days and still accruing 138 187 293 334 102 1,402
- -------------------------------------------------------------------------------------------------------------
513 547 1,355 1,045 1,097 2,880
=============================================================================================================
</TABLE>
The impact on interest income for the nine months ended September 30, 1993 and
the year ended December 31, 1992 for nonaccrual and restructured loans was
approximately $20,000 and $23,000, respectively.
97
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Allocation of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
-----------------------------------------------
September 30, 1993 1992 1991
---------------------- ---------------------- -----------------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
Agricultural 14,206 359 14,894 253 14,964 306
Real estate 21,430 250 16,242 364 14,726 340
Consumer 10,939 82 8,935 67 9,000 67
- ----------------------------------------------------------------------------------------
$46,575 $691 $40,071 $684 $38,690 $713
========================================================================================
</TABLE>
<TABLE>
<CAPTION>
December 31
----------------------------------------------------------------------
1990 1989 1988
---------------------- ---------------------- -----------------------
Allowance Allowance Allowance
Loans for loan Loans for loan Loans for loan
outstanding losses outstanding losses outstanding losses
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial &
Agricultural 15,316 393 13,747 537 10,900 900
Real estate 15,119 347 14,593 335 14,180 615
Consumer 9,158 68 5,251 39 3,825 28
- ----------------------------------------------------------------------------------------
$39,593 $808 $33,591 $911 $28,905 $1,543
========================================================================================
</TABLE>
98
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Analysis of Allowance for Loan Losses
(dollars in thousands)
<TABLE>
<CAPTION>
December 31
September 30 --------------------------------------------
1993 1992 1991 1990 1989 1988
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance begining of period 684 713 808 911 1,515 412
Provision for loan losses 0 0 0 140 115 2,014
Charge-offs:
Commercial and Agricultural 4 62 265 232 828 987
Consumer 24 16 17 21 13 2
Real Estate 0 6 27 0 11 0
- ------------------------------------------------------------------------------------------------
Total loan losses 28 84 309 253 852 989
Recoveries:
Commercial and Agricultural 7 49 208 6 125 70
Consumer 28 6 5 4 8 8
Real Estate 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------
Total recoveries 35 55 214 10 133 78
- ------------------------------------------------------------------------------------------------
Net (recoveries) charge-offs (7) 29 95 243 719 911
- ------------------------------------------------------------------------------------------------
Balance end of period 691 684 713 808 911 1,515
================================================================================================
Net charge-offs as a percent
of average loans 0.0% 0.1 0.2 0.6 2.7 3.1
Allowance for loan losses to:
Total loans at period-end 1.5% 1.7 1.8 2.1 2.7 3.2
Net charge-offs NM 23.5 7.5 3.3 1.3 1.6
Provision for loan losses to
average loans 0.0% 0.0 0.0 0.4 0.3 4.8
</TABLE>
NM = Not meaningful
99
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
Maturity of Time Deposits of $100,000 or More
At September 30, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit
and other time 414 107 602 401 1,524
</TABLE>
Maturity of Time Deposits of $100,000 or More
At December 31, 1992
(dollars in thousands)
<TABLE>
<CAPTION>
Within 3-6 6-12 Over 12
3 months months months months Total
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit
and other time 375 105 367 875 1,722
</TABLE>
Short-term Borrowings
(dollars in thousands)
<TABLE>
<CAPTION>
Three months Nine months
ended ended Year ended
September 30 September 30 December 31
-------------- ------------- ----------------------
1993 1992 1993 1992 1992 1991 1990
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Average balance $2,000 2,026 2,529 2,068 1,899 3,057 3,569
Average interest
rate 4.81% 3.96% 4.55% 4.65% 4.58% 6.40% 7.81%
Maximum month-end
balance $2,000 2,000 3,500 2,918 3,000 4,195 4,696
</TABLE>
100
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Selected Statistical Information
<TABLE>
<CAPTION>
Three months Nine months
ended ended Year ended
September 30 September 30 December 31
--------------------- -------------------- -----------------------
1993 1992 1993 1992 1992 1991 1990
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Return on average
assets 1.51%(1) 0.97%(1) 1.62%(1) 1.26%(1) 1.30% 0.65% 0.94%
Return on average
equity 19.59%(1) 12.66%(1) 19.64%(1) 12.51%(1) 16.89% 9.17% 14.27%
Average equity to
average assets 7.79% 7.83% 8.21% 7.53% 7.67% 7.12% 6.61%
Dividends paid per
share $0 $0 $97 $0 $32 $0 $0
</TABLE>
(1) Annualized
101
<PAGE>
RECENT OPERATING RESULTS OF NORWEST
Norwest's net income was $653.6 million for the year ended December 31,
1993, an increase of 48.5% over the $440.1 million earned in 1992. Net income
per common share was $2.13 for the year ended December 31, 1993, compared with
$1.42 in 1992, an increase of 50.4%. Return on common equity was 20.9% and
return on assets was 1.38% for the year ended December 31, 1993, compared with
15.2% and 1.03%, respectively, in 1992.
Norwest reported net income of $175.0 million for the quarter ended
December 31, 1993, a 167.1% increase over the $65.6 million earned in the
fourth quarter of 1992. Net income per common share was $0.57 for the fourth
quarter of 1993, compared with $0.20 for the same quarter of 1992. Return on
assets was 1.37% and return on common equity was 21.3% for the quarter ended
December 31, 1993, compared with 0.59% and 8.3%, respectively, for the fourth
quarter of 1992.
The 1992 results have been restated for the 2-for-1 stock split (effected
in the form of a 100% stock dividend) distributed on June 28, 1993, and include
Lincoln Financial Corporation (Lincoln), acquired on February 9, 1993, in a
pooling of interests transaction. The fourth quarter of 1992 results include
$93.5 million pre-tax charges taken by Lincoln to conform their credit and
accounting practices to those of Norwest and other restructuring-related
charges. The 1992 annual results, for comparative purposes, do not include a
one-time special charge of $76.0 million, or $0.26 per common share, related to
Norwest's early adoption of Statement of Financial Accounting Standards No.
106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
Consolidated tax-equivalent net interest income was $2,408.7 million and
$627.4 million for the year and quarter ended December 31, 1993, compared with
$2,114.7 million and $575.4 million, respectively, in 1992, increases of 13.9
percent and 9.0 percent, respectively. The increase for the year is primarily
due to an 11.3% increase in average earning assets and a 13 basis point
increase in net interest margin. The increase from the fourth quarter of 1992
is due to a 14.2 percent increase in average earnings assets, partially offset
by a 25 basis point decrease in net interest margin.
Norwest provided $140.1 million and $40.5 million for credit losses for
the year and quarter ended December 31, 1993, or 0.56% and 0.61% of average
loans and leases, compared with $266.7 million and $112.2 million,
respectively, or 1.22% and 1.95% of average loans and leases, for the same
periods in 1992. The 1992 provision includes $60.0 million for credit losses
taken by Lincoln during the fourth quarter. Net credit losses totaled $173.6
million and $61.9 million for the year and quarter ended December 31, 1993,
compared with $217.6 million and $64.3 million, respectively, for the same
periods in 1992.
As a percent of average loans and leases, net credit losses were 0.70% and
0.93% for the year and quarter ended December 31, 1993, compared with 1.00% and
1.12% for the same periods in 1992.
Non-performing assets, including non-accrual, restructured, and 90-day
past due loans and leases, and other real estate owned, totaled $285.5 million,
or 0.6% of total assets, at December 31, 1993, compared with $372.7 million, or
0.8%, at December 31, 1992. The decrease is primarily due to a $29.6 million,
$23.5 million and $36.2 million reduction in real estate non-accrual loans,
commercial non-accrual loans and other real estate owned, respectively,
partially offset by a $5.1 million increase in restructured loans. The
allowance for credit losses was $744.9 million at December 31, 1993, and
represents 260.9% of non-performing assets.
102
<PAGE>
Norwest consolidated non-interest income was $1,542.5 million and $426.0
million for the year and quarter ended December 31, 1993, compared with
$1,228.8 million and $305.0 million, respectively, for the same periods in
1992. The full year increase from 1992 reflects growth in mortgage banking
revenues, net venture capital gains and various fee-based services, partially
offset by decreases in credit card fees, trading account gains and net gains on
investment securities available for sale. Excluding gains on
investment/mortgage-backed securities, venture capital gains, and gains on
investment/mortgage-backed securities available for sale, non-interest income
was up 26.1% over 1992.
Non-interest expenses were $2,840.8 million and $750.4 million for the
year and quarter ended December 31, 1993, compared with $2,436.6 million and
$660.8 million, respectively, for the same periods in 1992. The increase for
the year ended December 31, 1993 is primarily attributable to an increase in
salaries and benefits at both the mortgage banking operations to support large
volume increases in originations and servicing, and at Norwest Financial
Services, Inc., due to the acquisition in the fourth quarter of 1992 of Trans
Canada Credit Corporation, Ltd., and increased charitable contributions.
Norwest's banking group reported earnings of $397.2 million and $108.6
million for the year and quarter ended December 31, 1993, compared with $227.7
million and $8.0 million respectively, for the same periods in 1992. Included
in the fourth quarter of 1992 banking group results are Lincoln's special
provision for credit losses, merger and transition related expenses and
restructuring costs totaling $93.5 million before income taxes. Mortgage
banking operations earned $56.3 million and $10.2 million for the year and
quarter ended December 31, 1993, compared with $53.4 million and $9.4 million,
respectively, for the same periods in 1992. Norwest Financial Services, Inc.
(commercial and consumer finance) reported earnings of $200.1 million and $56.2
million for the year and quarter ended December 31, 1993, compared with $159.0
million and $48.2 million, respectively, for the same periods in 1992.
At December 31, 1993, total assets were $50.8 billion, compared with $46.7
billion at December 31, 1992. The increase is primarily due to a $4.3 billion
increase in loans and leases, and student loans and mortgages held for sale,
including $2.6 billion of loans and leases acquired in acquisitions completed
during 1993. This increase was partially offset by a $0.4 billion decrease in
investment securities and investment securities available for sale. Total long-
term debt at December 31, 1993, was $6.8 billion compared with $4.5 billion at
December 31, 1992. This increase is primarily due to a net increase of $1.0
billion of Federal Home Loan Bank advances by subsidiary banks of Norwest and a
net increase of $1.0 billion of long-term debt issued by Norwest. Total
stockholders' equity was $3.6 billion at December 31, 1993, compared with $3.1
billion at December 31, 1992. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
103
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
As a bank holding company, Norwest is subject to the supervision of the
Federal Reserve Board. Norwest's banking subsidiaries are subject to
supervision and examination by applicable federal and state banking agencies.
All of Norwest's banking subsidiaries are insured, and therefore are subject to
regulation, by the FDIC. In addition to the impact of regulation, commercial
banks are affected significantly by the actions of the Federal Reserve Board as
it attempts to control the money supply and credit availability in order to
influence the economy.
Norwest is a legal entity separate and distinct from its banking and
nonbanking subsidiaries. Accordingly, the right of Norwest, and thus the right
of Norwest's creditors, to participate in any distribution of the assets or
earnings of any subsidiary is necessarily subject to the prior claims of
creditors of such subsidiary, except to the extent that claims of Norwest in
its capacity as a creditor may be recognized. The principal sources of
Norwest's revenues are dividends and fees from its subsidiaries.
DIVIDEND RESTRICTIONS
Various federal and state statutes and regulations limit the amount of
dividends the subsidiary banks can pay to Norwest without regulatory approval.
The approval of the OCC is required for any dividend by a national bank if the
total of all dividends declared by the Bank in any calendar year would exceed
the total of its net profits, as defined by regulation, for that year combined
with its retained net profits for the preceding two years less any required
transfers to surplus or a fund for the retirement of any preferred stock. In
addition, a national bank may not pay a dividend in an amount greater than its
net profits then on hand after deducting its losses and bad debts. For this
purpose, bad debts are defined to include, generally, loans which have matured
and are in arrears with respect to interest by six months or more, other than
such loans which are well secured and in the process of collection. Under
these provisions Norwest's national bank subsidiaries could have declared, as
of September 30, 1993, without obtaining prior regulatory approval, aggregate
dividends of approximately $136.3 million. The payment of dividends by any
subsidiary bank may also be affected by other factors, such as the maintenance
of adequate capital for such subsidiary bank.
If, in the opinion of the applicable regulatory authority, a bank under
its jurisdiction is engaged in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition of the bank, could
include the payment of dividends), such authority may require, after notice and
hearing, that such bank cease and desist from such practice. The Federal
Reserve Board, the OCC, and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
HOLDING COMPANY STRUCTURE
Norwest's banking subsidiaries are subject to restrictions under federal
law which limit the transfer of funds by the subsidiary banks to Norwest and
its nonbanking subsidiaries, whether in the form of loans, extensions of
credit, investments, or asset purchases. Such transfers by any subsidiary bank
to Norwest or any nonbanking subsidiary are limited in amount to 10% of the
bank's capital and surplus and, with respect to Norwest and all such nonbanking
subsidiaries, to an aggregate of 20% of such bank's capital and surplus.
Furthermore, such loans and extensions of credit are required to be secured in
specified amounts.
104
<PAGE>
The Federal Reserve Board has a policy to the effect that a bank holding
company is expected to act as a source of financial and managerial strength to
each of its subsidiary banks and to commit resources to support each such
subsidiary bank. This support may be required at times when Norwest may not
have the resources to provide it. Any capital loans by Norwest to any of the
subsidiary banks are subordinate in right of payment to deposits and to certain
other indebtedness of such subsidiary bank. In addition, the Crime Control Act
of 1990 provides that in the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment.
A depository institution insured by the FDIC can be held liable for any
loss incurred by, or reasonably expected to be incurred by, the FDIC after
August 9, 1989, in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the FDIC
to a commonly controlled FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the
absence of regulatory assistance.
Federal law (12 U.S.C. (S)55) permits the OCC to order the pro rata
assessment of shareholders of a national bank whose capital stock has become
impaired, by losses or otherwise, to relieve a deficiency in such national
bank's capital stock. This statute also provides for the enforcement of any
such pro rata assessment of shareholders of such national bank to cover such
impairment of capital stock by sale, to the extent necessary, of the capital
stock of any assessed shareholder failing to pay the assessment. Similarly,
the laws of certain states provide for such assessment and sale with respect to
banks chartered by such states. Norwest, as the sole shareholder of certain of
its subsidiary banks, is subject to such provisions.
CAPITAL REQUIREMENTS
In January 1989, the Federal Reserve Board issued final risk-based capital
guidelines for bank holding companies, such as Norwest. The new guidelines,
which became effective December 31, 1990, were phased in over two years. The
minimum ratio of total capital to risk-adjusted assets (including certain off-
balance sheet items, such as stand-by letters of credit) is 8%. At least half
of the total capital is to be comprised of common equity, retained earnings,
and a limited amount of noncumulative perpetual preferred stock ("Tier 1
capital"). The remainder ("Tier 2 capital") may consist of hybrid capital
instruments, perpetual debt, mandatory convertible debt securities, a limited
amount of subordinated debt, other preferred stock, and a limited amount of
loan and lease loss reserves. In addition, the Federal Reserve Board approved
in August 1990 final minimum "leverage ratio" (the ratio of Tier 1 capital to
quarterly average total assets) guidelines for bank holding companies and state
member banks. These guidelines provide for a minimum leverage ratio of 3% for
bank holding companies and state member banks that meet certain specified
criteria, including that they have the highest regulatory rating. All other
bank holding companies and state member banks will be required to maintain a
leverage ratio of 3% plus an additional cushion of 100 to 200 basis points.
The guidelines also provide that banking organizations experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels, without
significant reliance on intangible assets. Furthermore, the guidelines
indicate that the Federal Reserve Board will continue to consider a "tangible
Tier 1 leverage ratio" in evaluating proposals for expansion or new activities.
The tangible Tier 1 leverage ratio is the ratio of a banking organization's
Tier 1 capital, less all intangibles, to total assets, less all intangibles.
Each of Norwest's banking subsidiaries is also subject to capital requirements
adopted by applicable regulatory agencies which are substantially similar to
the foregoing. At September 30, 1993, Norwest's Tier 1 and total capital (the
sum of Tier 1 and Tier 2 capital) to risk-adjusted assets ratios were 9.80% and
105
<PAGE>
12.42%, respectively, and Norwest's leverage ratio for the quarter ended
September 30, 1993, was 6.81%. Neither Norwest nor any subsidiary bank has
been advised by the appropriate federal regulatory agency of any specific
leverage ratio applicable to it.
The Federal Reserve Board has adopted changes to its risk-based and
leverage ratio requirements applicable to bank holding companies and state
chartered member banks that require that all intangibles, including core
deposit intangibles, purchased mortgage servicing rights ("PMSRs"), and
purchased credit card relationships ("PCCRs") be deducted from Tier 1 capital.
The changes, however, grandfather identifiable assets (other than PMSRs and
PCCRs) acquired on or before February 19, 1992, and permit the inclusion of
readily marketable PMSRs and PCCRs in Tier 1 capital to the extent that (i)
PMSRs and PCCRs do not exceed 50% of Tier 1 capital and (ii) PCCRs do not
exceed 25% of Tier 1 capital. For such purposes, PMSRs and PCCRs each would be
included in Tier 1 capital only up to the lesser of (i) 90% of their fair
market value (which must be determined quarterly) and (ii) 100% of the
remaining unamortized book value of such assets. The OCC has adopted
substantially similar regulations. Management does not expect the foregoing
changes to have a material impact on the results of operations of Norwest.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revises the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
makes revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements. FDICIA establishes five capital tiers:
"well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized." A
depository institution's capital tier will depend upon where its capital levels
are in relation to various relevant capital measures, which will include a
risk-based capital measure and a leverage ratio capital measure, and certain
other factors.
A depository institution is well capitalized if it significantly exceeds
the minimum level required by regulation for each relevant capital measure,
adequately capitalized if it meets each such measure, undercapitalized if it
fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure, and critically undercapitalized if it
fails to meet any critical capital level set forth in regulations. The
critical capital level must be a level of tangible equity equal to not less
than 2% of total assets and not more than 65% of the minimum leverage ratio to
be prescribed by regulation (except to the extent that 2% would be higher than
such 65% level). An institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if,
among other things, it receives an unsatisfactory examination rating.
Under regulations adopted pursuant to the foregoing provisions, for an
institution to be well capitalized it must have a Tier 1 risk-based capital
ratio of a least 6%, a total risk-based capital ratio of at least 10%, and a
leverage ratio of at least 5%, and not be subject to any specific capital order
or directive. For an institution to be adequately capitalized it must have a
Tier 1 risk-based capital ratio of at least 4%, a total risk-based capital
ratio of at least 8%, and a leverage ratio of a least 4% (and in some cases
3%). As of September 30, 1993, all of Norwest's banking subsidiaries were well
capitalized.
FDICIA generally prohibits a depository institution from making any
capital distribution (including payment of a dividend) or paying any management
fee to its holding company if the
106
<PAGE>
depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to a
wide range of limitations on operations and activities, including growth
limitations, and are required to submit a capital restoration plan. The
federal banking agencies may not accept a capital plan without determining,
among other things, that the plan is based on realistic assumptions and is
likely to succeed in restoring the depository institution's capital. In
addition, for a capital restoration plan to be acceptable, the depository
institution's parent holding company must guarantee that the institution will
comply with such capital restoration plan. The aggregate liability of the
parent holding company is limited to the lesser of (i) an amount equal to 5% of
the depository institution's total assets at the time it became
undercapitalized and (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all capital standards
applicable with respect to such institution as of the time it fails to comply
with the plan. If a depository institution fails to submit an acceptable plan,
it is treated as if it were significantly undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets, and cessation of receipt of deposits from correspondent banks.
Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating
to internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth,
compensation, a maximum ratio of classified assets to capital, minimum earnings
sufficient to absorb losses, a minimum ratio of market value to book value for
publicly traded shares, and such other standards as the agency deems
appropriate. The impact of such standards on Norwest cannot be ascertained.
FDICIA also contains a variety of other provisions that may affect the
operations of Norwest, including new reporting requirements, revised regulatory
standards for real estate lending, "truth in savings" provisions, and the
requirement that a depository institution give 90 days' notice to customers and
regulatory authorities before closing any branch.
Under other regulations promulgated under FDICIA a bank cannot accept
brokered deposits (that is, deposits obtained through a person engaged in the
business of placing deposits with insured depository institutions or with
interest rates significantly higher than prevailing market rates) unless (i) it
is "well capitalized" or (ii) it is "adequately capitalized" and receives a
waiver from the FDIC. A bank is defined to be well capitalized if it maintains
a leverage ratio of at least 5%, a ratio of Tier 1 capital to risk-adjusted
assets of at least 6%, and a ratio of total capital to risk-adjusted assets of
at least 10%, and is not otherwise in a "troubled condition" as specified by
the appropriate federal regulatory agency. A bank is defined to be "adequately
capitalized" if it meets all of its minimum capital requirements. A bank that
cannot receive brokered deposits also cannot offer "pass-through" insurance on
certain employee benefit accounts, unless it provides certain notices to
affected depositors. In addition, a bank that is "adequately capitalized" and
that has not received a waiver from the FDIC may not pay an interest rate on
any deposits in excess of 75 basis points over certain prevailing market rates.
There are no such restrictions on a bank that is "well capitalized." At
September 30, 1993, all of Norwest's banking subsidiaries were well capitalized
and therefore were not subject to these restrictions.
107
<PAGE>
FDIC INSURANCE
Effective January 1, 1993, the deposit insurance assessment rate for the
Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF")
increased as part of the adoption by the FDIC of a transitional risk-based
assessment system. In June 1993, the FDIC published final regulations making
the transitional system permanent effective January 1, 1994, but left open the
possibility that it may consider expanding the range between the highest and
lowest assessment rates at a later date. An institution's risk category is
based upon whether the institution is well capitalized, adequately capitalized,
or less than adequately capitalized. Each insured depository institution is
also to be assigned to one of the following "supervisory subgroups": Subgroup
A, B, or C. Subgroup A institutions are financially sound institutions with
few minor weaknesses; Subgroup B institutions are institutions that demonstrate
weaknesses which, if not corrected, could result in significant deterioration;
and Subgroup C institutions are institutions for which there is a substantial
probability that the FDIC will suffer a loss in connection with the institution
unless effective action is taken to correct the areas of weakness. Based on
its capital and supervisory subgroups, each BIF or SAIF member institution will
be assigned an annual FDIC assessment rate ranging from 0.23% per annum (for
well capitalized Subgroup A institutions) to 0.31% (or undercapitalized
Subgroup C institutions). Adequately capitalized institutions will be assigned
assessment rates ranging from 0.26% to 0.30%. Norwest incurred $66.2 million
of FDIC insurance expense in 1992. Because of decreases in the reserves of the
BIF and SAIF due to the increased number of bank failures in recent years, it
is possible the BIF and SAIF premiums will be further increased and it is
possible that there may be a special assessment. Any such further increase or
special assessment would also decrease net income, and a special assessment
could have a material adverse effect on the results of operations of Norwest.
108
<PAGE>
EXPERTS
The consolidated financial statements of Norwest and subsidiaries as of
December 31, 1992 and 1991, and for each of the years in the three-year period
ended December 31, 1992, incorporated by reference herein, have been
incorporated herein in reliance upon the report of KPMG Peat Marwick,
independent certified public accountants, incorporated by reference herein and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Bancshares and subsidiary as of
and for the year ended December 31, 1992 have been included herein in reliance
upon the report of KPMG Peat Marwick, independent certified public accountants,
included herein and upon the authority of said firm as experts in accounting
and auditing.
LEGAL OPINION
A legal opinion to the effect that the shares of Norwest Common Stock
offered hereby, when issued in accordance with the Merger Agreement, will be
validly issued and fully paid and nonassessable, has been rendered by Stanley
S. Stroup, Executive Vice President and General Counsel of Norwest. At
December 31, 1993, Mr. Stroup was the beneficial owner of approximately 102,183
shares and held options to acquire 215,931 additional shares of Norwest Common
Stock.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the executive compensation, voting
securities and the principal holders thereof, certain relationships and related
transactions, and other related matters concerning Norwest is included or
incorporated by reference in its Annual Report on Form 10-K for the year ended
December 31, 1992, and Amendment No. 1 on Form 8 dated March 3, 1993, which are
incorporated in this Proxy Statement-Prospectus by reference. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Shareholders of Bancshares
desiring copies of such documents may contact Norwest at its address or phone
number indicated under "AVAILABLE INFORMATION" above.
109
<PAGE>
INDEX TO FINANCIAL STATEMENTS
OF
D.L. BANCSHARES, INC. AND SUBSIDIARY
AND FIRST NATIONAL BANK OF DETROIT LAKES
<TABLE>
<CAPTION>
Beginning
Page
---------
<S> <C>
D.L. BANCSHARES, INC. AND SUBSIDIARY, CONSOLIDATED
FINANCIAL STATEMENTS:
Independent Auditor's Report F-2
Consolidated Statements of Financial Condition as of
September 30, 1993 (unaudited), December 31, 1992 and
December 31, 1991 (unaudited) F-3
Consolidated Statements of Operations for the three- and
nine-month periods ended September 30, 1993 (unaudited)
and 1992 (unaudited) F-4
Consolidated Statements of Operations for the year ended
December 31, 1992 and the years ended December 31, 1991
(unaudited) and 1990 (unaudited) F-5
Consolidated Statements of Changes in Stockholders' Equity
for the nine-month period ended September 30, 1993 (unaudited),
the year ended December 31, 1992 and the years ended December
31, 1991 (unaudited) and 1990 (unaudited). F-6
Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1993 (unaudited) and 1992 (unaudited) F-7
Consolidated Statements of Cash Flows for the year ended
December 31, 1992 and the years ended December 31, 1991
(unaudited) and 1990 (unaudited) F-9
Notes to Consolidated Financial Statements F-11
FIRST NATIONAL BANK OF DETROIT LAKES, FINANCIAL STATEMENTS (UNAUDITED):
Verification F-32
Statements of Financial Condition as of September 30, 1993,
December 31, 1992 and December 31, 1991 F-33
Statements of Operations for the three- and nine-month periods
ended September 30, 1993 and 1992 F-34
Statements of Operations for the years ended December 31,
1992, 1991 and 1990 F-35
Statements of Changes in Stockholders' Equity for the nine-
month period ended September 30, 1993, and the years ended
December 31, 1992, 1991 and 1990 F-36
Statements of Cash Flows for the nine-month periods ended
September 30, 1993 and 1992 F-37
Statements of Cash Flows for the years ended December 31,
1992, 1991 and 1990 F-39
Notes to Financial Statements F-41
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
D.L. Bancshares, Inc.:
We have audited the accompanying consolidated statement of financial condition
of D.L. Bancshares, Inc. and subsidiary (the Company) as of December 31, 1992,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the 1992 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of D.L.
Bancshares, Inc. and subsidiary as of December 31, 1992, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
Minneapolis, Minnesota
November 12, 1993
F-2
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31
September 30 -------------------------
Assets 1993 1992 1991
- -----------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash and cash equivalents $ 2,917,755 2,737,410 2,981,560
Federal funds sold 3,460,000 3,360,000 3,425,000
Securities available for sale, market
value of $22,363,977 (unaudited), $27,845,847,
and $24,234,086 (unaudited), respectively. 21,916,859 27,549,344 23,626,048
Investment securities, market value of
$284,164 (unaudited), $1,054,558 and
$1,215,982 (unaudited), respectively 273,950 1,024,400 1,064,197
Loans 46,574,819 40,071,121 38,690,338
Less allowance for loan losses (691,472) (684,415) (712,949)
- -----------------------------------------------------------------------------------------------------------------
Loans, net 45,883,347 39,386,706 37,977,389
Premises and equipment, net 1,053,502 1,099,109 1,096,554
Accrued interest receivable 616,332 695,526 811,864
Other real estate owned 593,219 675,859 830,998
Excess of cost over fair value of net assets acquired 785,302 806,029 833,664
Other assets 233,774 254,743 242,342
- -----------------------------------------------------------------------------------------------------------------
Total assets $77,734,040 77,589,126 72,889,616
=================================================================================================================
Liabilities and Stockholders' Equity
- -----------------------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Non-interest-bearing 9,010,019 7,496,344 5,427,309
Interest-bearing 59,068,254 59,290,045 57,863,348
- -----------------------------------------------------------------------------------------------------------------
Total deposits 68,078,273 66,786,389 63,290,657
- -----------------------------------------------------------------------------------------------------------------
Short-term borrowings 2,000,000 3,000,000 2,918,593
Notes payable 3,230,374 4,133,428 4,160,961
Accrued interest payable 293,824 460,011 740,107
Other liabilities 481,382 356,726 126,656
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 74,083,853 74,736,554 71,236,974
- -----------------------------------------------------------------------------------------------------------------
Minority interest 289,058 233,415 0
Stockholders' equity:
Common stock, Class A--$0.01 par value; 1,000,000 shares authorized;
9,245; 9,245 and 8,805 issued and outstanding, respectively 92 92 88
Common stock, Class B--$0.01 par value; 100,000 shares authorized;
83,205; 83,205 and 0 issued and outstanding, respectively 832 832 0
Paid-in capital 1,711,622 1,711,622 1,671,509
Retained earnings (deficit) 1,648,583 906,611 (18,955)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 3,361,129 2,619,157 1,652,642
- -----------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $77,734,040 77,589,126 72,889,616
=================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three-months Nine-months
ended Sept 30 ended Sept 30
------------------------ ----------------------
1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $1,146,057 1,004,038 3,313,699 3,074,149
Securities:
Taxable 337,096 445,296 1,134,009 1,355,915
Nontaxable 842 1,939 3,171 5,832
Federal funds sold 21,885 35,930 47,562 119,404
- -----------------------------------------------------------------------------------------------------
Total interest income 1,505,880 1,487,203 4,498,441 4,555,300
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits 510,987 618,059 1,543,192 2,012,646
Notes payable 65,842 82,155 181,944 233,432
Short-term borrowings 24,045 20,057 86,345 72,159
- -----------------------------------------------------------------------------------------------------
Total interest expense 600,874 720,271 1,811,481 2,318,237
- -----------------------------------------------------------------------------------------------------
Net interest income 905,006 766,932 2,686,960 2,237,063
Provision for loan losses 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 905,006 766,932 2,686,960 2,237,063
- -----------------------------------------------------------------------------------------------------
Non-interest income:
Service charges and fees 87,831 91,362 265,472 298,739
Other 60,840 66,152 260,112 140,475
- -----------------------------------------------------------------------------------------------------
Total non-interest income 148,671 157,514 525,584 439,214
- -----------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 325,584 314,587 992,157 963,755
Net occupancy expense 137,083 140,155 426,807 456,891
FDIC insurance assessment 36,292 36,710 111,742 108,172
Business development and advertising 40,262 55,013 122,293 113,043
Professional fees 31,874 34,720 81,951 103,417
Insurance 10,834 13,693 35,706 42,894
Goodwill amortization 6,909 6,909 20,727 20,727
Losses (gains) on sales of securities available
for sale 3,824 (417) 2,576 (4,223)
Other 50,696 52,640 120,122 135,410
- -----------------------------------------------------------------------------------------------------
Total non-interest expenses 643,358 654,010 1,914,081 1,940,086
- -----------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 410,319 270,436 1,298,463 736,191
Income taxes (148,599) (128,953) (513,311) (107,879)
Minority interest (21,322) (13,716) (43,180) (26,612)
- -----------------------------------------------------------------------------------------------------
Net income $ 240,398 127,767 741,972 601,700
=====================================================================================================
Net income per share $ 2.60 1.45 8.03 6.83
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Interest income:
Loans $4,146,496 4,402,875 4,368,449
Securities:
Taxable 1,808,540 1,856,898 1,883,007
Nontaxable 7,766 15,425 18,627
Federal funds sold 144,543 165,074 190,108
- -------------------------------------------------------------------------------------------------
Total interest income 6,107,345 6,440,272 6,460,191
- -------------------------------------------------------------------------------------------------
Interest expense:
Deposits 2,587,475 3,285,706 3,416,675
Notes payable 295,693 389,012 435,686
Short-term borrowings 87,038 195,540 278,659
- -------------------------------------------------------------------------------------------------
Total interest expense 2,970,206 3,870,258 4,131,020
- -------------------------------------------------------------------------------------------------
Net interest income 3,137,139 2,570,014 2,329,171
Provision for loan losses 0 0 140,507
- -------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,137,139 2,570,014 2,188,664
- -------------------------------------------------------------------------------------------------
Non-interest income:
Service charges and fees 391,705 306,130 318,557
Other 177,347 146,800 196,550
- -------------------------------------------------------------------------------------------------
Total non-interest income 569,052 452,930 515,107
- -------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 1,312,343 1,113,665 956,713
Net occupancy expense 598,097 502,017 496,090
FDIC insurance assessment 144,882 125,914 66,452
Business development and advertising 149,802 131,684 142,061
Professional Fees 138,462 172,537 276,785
Insurance 54,413 53,159 52,984
Goodwill amortization 27,635 27,635 27,635
(Gains) losses on sales of securities available for sale (2,342) 88,559 115,752
Losses on sales of premises and equipment 30,080 250,141 0
Other 163,301 211,946 300,384
- -------------------------------------------------------------------------------------------------
Total non-interest expenses 2,616,673 2,677,257 2,434,856
- -------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 1,089,518 345,687 268,915
Income taxes (124,678) (25,963) (13,513)
Minority interest (39,274) 0 0
- -------------------------------------------------------------------------------------------------
Net income $ 925,566 319,724 255,402
=================================================================================================
Net income per share $ 10.01 3.63 2.90
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Common stock Retained Total
----------------- Paid-in earnings stockholders'
Class A Class B capital (deficit) equity
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1989 (unaudited) $ 88 0 1,671,509 (594,081) 1,077,516
Net income (unaudited) 0 0 0 255,402 255,402
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 (unaudited) 88 0 1,671,509 (338,679) 1,332,918
Net income (unaudited) 0 0 0 319,724 319,724
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 (unaudited) 88 0 1,671,509 (18,955) 1,652,642
Class A shares issued 4 0 40,945 0 40,949
Class B shares issued 0 832 (832) 0 0
Net income 0 0 0 925,566 925,566
- ------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 92 832 1,711,622 906,611 2,619,157
Net income (unaudited) 0 0 0 741,972 741,972
- ------------------------------------------------------------------------------------------------------------
Balance, September 30, 1993 (unaudited) $ 92 832 1,711,622 1,648,583 3,361,129
============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1993 1992
- --------------------------------------------------------------------------------
(unaudited) (unaudited)
Cash flows from operating activities:
Net income $ 741,972 601,700
- -------------------------------------------------------------------------------
<S> <C> <C>
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 131,908 151,098
Amortization of net premiums on investments 104,427 64,565
Loss on sale of premises and equipment 0 30,080
Change in accrued interest receivable 79,194 91,642
Change in accrued interest payable (166,187) (194,264)
Change in other assets 20,969 18,521
Change in other liabilities 124,656 130,269
Other 43,311 22,392
- -------------------------------------------------------------------------------
Total adjustments 338,278 314,303
- -------------------------------------------------------------------------------
Net cash provided by operating activities 1,080,250 916,003
- -------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold (100,000) (1,090,000)
Proceeds from sales of securities available for sale 1,260,459 1,748,789
Proceeds from maturities of and principal
payments received on securities 7,922,468 13,735,867
Purchases of securities (2,906,995) (19,533,391)
Loan (originations) repayments, net (6,496,641) 675,763
Proceeds from sales of other real estate owned 82,640 174,593
Purchases of premises and equipment, net (65,574) (179,397)
- -------------------------------------------------------------------------------
Net cash used by investing activities (303,643) (4,467,777)
- -------------------------------------------------------------------------------
(Continued)
</TABLE>
F-7
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1993 1992
- ----------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from financing activities:
Change in deposits $ 1,291,884 4,209,764
Change in short-term borrowings (1,000,000) (1,918,593)
Repayments of notes payable (903,054) (257,834)
Proceeds from borrowings on notes payable 0 235,467
Proceeds from issuance of Bank stock to minority interest 57,742 205,568
Dividends paid by Bank to minority interest (42,834) 0
- ----------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (596,262) 2,474,372
- ----------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 180,345 (1,077,402)
Cash and cash equivalents at beginning of period 2,737,410 2,981,560
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,917,755 1,904,157
===================================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 1,977,668 2,512,501
Income taxes 331,976 7,510
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 925,566 319,724 255,402
- -------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 162,992 152,722 138,531
Provision for loan losses 0 0 140,507
Amortization of net premiums on
investments 94,132 55,717 9,637
Losses on sales of premises and equipment 30,080 250,141 0
(Gains) losses on sales of securities (2,342) 88,559 106,115
Change in accrued interest receivable 116,338 145,227 83,975
Change in accrued interest payable (280,096) 143,710 130,421
Change in other assets (12,401) 216,765 (311,818)
Change in other liabilities 230,070 3,470 35,434
Other 4,125 0 (2)
- -------------------------------------------------------------------------------------------------
Total adjustments 342,898 1,056,311 332,800
- -------------------------------------------------------------------------------------------------
Net cash provided by operating
activities 1,268,464 1,376,035 588,202
- -------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold 65,000 (445,000) (1,715,000)
Proceeds from sales of securities available for sale 1,770,624 2,003,750 1,491,094
Proceeds from maturities of and principal
payments received on securities 17,411,393 12,013,896 22,175,892
Purchases of securities (23,157,306) (16,260,527) (22,923,975)
Loan (originations) repayments, net (1,409,317) 385,417 (5,001,362)
Proceeds from sales of other real estate owned 190,389 76,493 295,977
Purchases of premises and equipment, net (167,992) (659,729) (273,526)
- -------------------------------------------------------------------------------------------------
Net cash used by
investing activities (5,297,209) (2,885,700) (5,950,900)
- -------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
F-9
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
-------------------------------------
1992 1991 1990
- --------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from financing activities:
Change in deposits $3,495,732 2,471,557 4,444,963
Change in short-term borrowings 81,407 (1,076,284) 273,919
Repayments of notes payable (263,000) 0 0
Proceeds from borrowings on notes payable 235,467 91,500 312,100
Proceeds from issuance of Bank stock to minority interest 205,568 0 0
Proceeds from issuance of common stock 40,949 0 0
Dividends paid by Bank to minority interest (11,528) 0 0
- --------------------------------------------------------------------------------------------------
Net cash provided by
financing activities 3,784,595 1,486,773 5,030,982
- --------------------------------------------------------------------------------------------------
Net decrease in cash
and cash equivalents (244,150) (22,892) (331,716)
Cash and cash equivalents at beginning of period 2,981,560 3,004,452 3,336,168
- --------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,737,410 2,981,560 3,004,452
==================================================================================================
Supplemental disclosures of cash flow information:
Cash paid (received) for:
Interest on deposits and borrowings $3,250,302 3,726,548 4,000,599
Income taxes (1,299) 24,458 3,931
Supplemental disclosures of noncash investing
activities:
Transfer of loans to other real estate owned 35,250 28,000 60,992
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
D.L. Bancshares, Inc. (the Company) is a one-bank holding company organized
in 1982. The Company owns 95.24% of the common stock of the First National
Bank of Detroit Lakes (the Bank) which is consolidated in the accompanying
financial statements. The Bank provides traditional community banking
services.
The consolidated statements of financial condition as of September 30, 1993
and December 31, 1991 and the consolidated statements of operations,
stockholders' equity and cash flows for the three- and nine-month periods
ended September 30, 1993 and 1992 and the years ended December 31, 1991 and
1990 are unaudited. However, in the opinion of management, these financial
statements include all adjustments, which consist only of normal recurring
adjustments, necessary for fair presentation of the Company's financial
position. The results of operations for the unaudited three- and
nine-month periods ended September 30, 1993 are not necessarily indicative
of the results which may be expected for the entire year 1993.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiary. All intercompany accounts and transactions have been
eliminated in consolidation.
BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions that
affect the reported amounts of assets and liabilities as of the date of the
balance sheet and revenues and expenses for the period. Actual results
could differ from those estimates. Material estimates that are
particularly susceptible to change in the near-term relate to the
determination of the allowance for loan losses and the carrying value of
other real estate owned.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
Investment securities are recorded at amortized cost because the Bank has
the ability and intent to hold these securities to maturity. These
securities are stated at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method. Gains and losses
on the sale of investment securities are computed on the specific
identification basis.
Securities available for sale include investments that management intends
to use as part of its asset/liability strategy or that may be sold in
response to changes in prepayment risk or other similar factors.
Securities available for sale are stated at the lower of aggregate
amortized cost or market. Realized gains and losses on sales of securities
are determined using the specific identification method.
(continued)
F-11
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based
upon reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
allowances for losses on loans and real estate. Such agencies may require
additions to the allowances based on their judgment about information
available to them at the time of their examination. Loans deemed
uncollectible are charged to the allowance. Provisions for loan losses and
recoveries on loans previously charged off are added to the allowance.
Management believes the allowance for loan losses is adequate.
INTEREST INCOME ON LOANS
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when
a loan has been past due for 90 days. Upon such discontinuance, all unpaid
accrued interest is reversed. Interest is subsequently recognized as
income to the extent cash is received when, in management's judgment,
principal is collectible.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method.
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure and in-substance foreclosures are
recorded at the lesser of the balance of the loan at the date of
acquisition plus costs of acquisition or fair value less estimated costs to
sell. Operating expenses of such properties, gains and losses on their
disposition or further reductions in the carrying value resulting from a
decline in fair value are charged against operating expenses as incurred.
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED
Excess of cost over fair value of net assets acquired represents the amount
paid for the net assets of the Bank in excess of their fair value, net of
accumulated amortization of $320,138, $299,411 and $271,776 at September
30, 1993 and December 31, 1992 and 1991, respectively. The balance is
being amortized on a straight-line basis over 40 years.
(continued)
F-12
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
INCOME TAXES
The Company and its wholly owned subsidiary file a consolidated income tax
return. Income taxes of the subsidiary are allocated on a separate return
basis with current taxes payable being accrued in the period they arise.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. The Company adopted SFAS No. 109 during 1993 and has elected to
apply the provisions retroactively beginning January 1, 1990. The effect
on the consolidated financial statements for 1992, 1991 and 1990 of
applying the new method of accounting retroactively was not material.
SFAS No. 109 requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The cumulative effect of the change in the method of
accounting for income taxes as of January 1, 1990 was not material.
NET INCOME PER SHARE
Net income per share is calculated as net income divided by the number of
shares of Class A and Class B common stock outstanding. Net income per
share for years prior to 1992 has been retroactively adjusted for the
issuance of Class B common stock in 1992. (See note 11.)
(2) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents include cash on hand, cash clearings, and demand deposits
with banks.
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The reserve balance required at September 30, 1993 and
December 31, 1992 was approximately $478,000 and $410,000, respectively.
(continued)
F-13
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(3) INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The amortized cost and market values of investment securities and
securities available for sale are as follows:
<TABLE>
<CAPTION>
September 30, 1993
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 3,526,089 54,766 0 3,580,855
U. S. government agency
securities 6,640,962 95,726 940 6,735,748
Collateralized mortgage
obligations 9,461,281 181,593 6,553 9,697,161
Corporate debt securities 2,192,049 61,686 0 2,253,735
Money market and
certificates of deposit 96,478 0 0 96,478
- --------------------------------------------------------------------------------
Securities available
for sale 21,916,859 393,771 7,493 22,363,977
- --------------------------------------------------------------------------------
Obligations of state
and political
subdivisions 200,000 10,214 0 210,214
Federal Reserve stock 73,950 0 0 73,950
- --------------------------------------------------------------------------------
Investment securities 273,950 10,214 0 284,164
- --------------------------------------------------------------------------------
$22,190,809 403,985 7,493 22,648,141
================================================================================
</TABLE>
(continued)
F-14
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
<TABLE>
<CAPTION>
December 31, 1992
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,088,868 113,594 2,228 8,200,234
U.S. government agency
securities 5,710,510 85,381 0 5,795,891
Collateralized mortgage
obligations 10,370,917 131,949 54,107 10,448,759
Corporate debt securities 3,283,080 32,426 10,512 3,304,994
Money market and
certificates of deposit 95,969 0 0 95,969
- -------------------------------------------------------------------------------
Securities available
for sale 27,549,344 363,350 66,847 27,845,847
- -------------------------------------------------------------------------------
Obligations of state and
political subdivisions 952,150 30,158 0 982,308
Federal Reserve stock 72,250 0 0 72,250
- -------------------------------------------------------------------------------
Investment securities 1,024,400 30,158 0 1,054,558
- -------------------------------------------------------------------------------
$28,573,744 393,508 66,847 28,900,405
===============================================================================
</TABLE>
(continued)
F-15
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
<TABLE>
<CAPTION>
December 31, 1991
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,756,284 220,231 0 8,976,515
U.S. government agency
securities 2,839,149 90,065 0 2,929,214
Collateralized mortgage
obligations 6,338,383 222,001 0 6,560,384
Corporate debt securities 2,890,396 46,311 0 2,936,707
Money market and
certificates of deposit 2,801,836 29,430 0 2,831,266
- -------------------------------------------------------------------------------
Securities available
for sale 23,626,048 608,038 0 24,234,086
- -------------------------------------------------------------------------------
Obligations of state and
political subdivisions 998,147 151,785 0 1,149,932
Federal Reserve stock 66,050 0 0 66,050
- -------------------------------------------------------------------------------
Investment securities 1,064,197 151,785 0 1,215,982
- -------------------------------------------------------------------------------
$24,690,245 759,823 0 25,450,068
===============================================================================
</TABLE>
(continued)
F-16
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
Proceeds from sales and gross gains and losses realized from sales of securities
available for sale were as follows:
<TABLE>
<CAPTION>
Three-months Nine-months Year
ended September 30 ended September 30 ended December 31
-------------------------------------------------------------------------------
1993 1992 1993 1992 1992 1991 1990
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds
from sales $ 250,000 250,000 1,260,459 1,748,789 1,770,624 2,003,750 1,491,094
Gross
realized
gains 223 694 5,283 6,689 3,868 615 0
Gross
realized
losses 4,047 277 7,859 2,466 1,526 89,174 115,752
Investment securities and securities available for sale with a carrying amount
of $11,078,901, $11,720,813 and $11,113,556 at September 30, 1993 and December
31, 1992 and 1991, respectively, were pledged to secure public deposits or for
other purposes required or permitted by law.
The amortized cost and market value of securities by contractual maturity
(including investment securities and securities available for sale) are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties:
</TABLE>
<TABLE>
<CAPTION>
September 30, 1993 December 31, 1992
-------------------------------------------------
Amortized Market Amortized Market
cost value cost value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,858,287 6,870,197 7,958,271 8,072,039
Due after one year
through five years 8,856,917 9,119,646 14,810,889 14,940,762
Due after five years
through ten years 2,994,252 3,012,757 3,705,293 3,757,665
Due after ten years 3,481,353 3,645,541 2,099,291 2,129,939
- --------------------------------------------------------------------------------
$22,190,809 22,648,141 28,573,744 28,900,405
================================================================================
</TABLE>
Accrued interest receivable on securities aggregated $275,553, $400,116 and
$417,179 at September 30, 1993 and December 31, 1992 and 1991, respectively.
(continued)
F-17
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(4) LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31
------------------------------------------
1993 1992 1991
- ------------------------------------------------------------------
<S> <C> <C> <C>
Commercial business $10,305,204 11,592,011 11,346,030
Agricultural 3,901,067 3,302,551 3,618,136
Real Estate:
Commercial 8,766,924 5,539,975 5,129,184
Residential 11,498,426 9,798,653 8,792,762
Agricultural 805,949 745,008 578,717
Construction 358,766 157,697 224,966
Consumer 10,938,483 8,935,226 9,000,543
- ------------------------------------------------------------------
$46,574,819 40,071,121 38,690,338
==================================================================
</TABLE>
Included above are loans on nonaccrual status of $300,804, $258,867 and $847,191
at September 1993 and December 31, 1992 and 1991, respectively, and troubled
debt restructurings of $73,878 and $101,230 at September 30, 1993 and December
31, 1992. The impact on interest income in 1992 for nonaccrual and restructured
loans was approximately $23,000. There are no material commitments to lend
additional funds to customers whose loans are classified as nonaccrual or
restructured at September 30, 1993 or December 31, 1992.
The Bank has sold loan participations with aggregate unpaid principal balances
of $6,158,619, $4,259,012 and $3,068,346 at September 30, 1993, December 31,
1992 and December 31, 1991, respectively.
Accrued interest receivable on loans aggregated $340,779, $295,410 and $394,685
at September 30, 1993 and December 31, 1992 and 1991, respectively.
The Bank generally grants commercial business loans, agricultural loans,
residential, agricultural and commercial real estate loans, consumer loans and
real estate construction loans to customers throughout northwestern Minnesota.
A substantial proportion of the Bank's debtors' ability to honor their contracts
is dependent upon the general economic conditions in Minnesota.
(continued)
F-18
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(5) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30 Year ended December 31
------------------------------------------------------------------------------------------
1993 1992 1993 1992 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of period $689,474 688,729 684,415 712,949 712,949 808,103 911,074
Provision for
losses 0 0 0 0 0 0 140,507
Net charge-offs:
Loans charged-
off (13,698) (32,986) (27,947) (66,444) (83,404) (308,767) (253,939)
Less
recoveries 15,696 21,473 35,004 30,711 54,870 213,613 10,461
- --------------------------------------------------------------------------------------------------------------
1,998 (11,513) 7,057 (35,733) (28,534) (95,154) (243,478)
- --------------------------------------------------------------------------------------------------------------
Balance at end
of period $691,472 677,216 691,472 677,216 684,415 712,949 808,103
==============================================================================================================
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31
------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 30,000 30,000 30,000
Buildings 825,822 834,236 819,729
Furniture, fixtures and equipment 640,454 588,560 597,670
- --------------------------------------------------------------------------
1,496,276 1,452,796 1,447,399
Less accumulated depreciation and
amortization 442,774 353,687 350,845
- --------------------------------------------------------------------------
Premises and equipment, net $1,053,502 1,099,109 1,096,554
==========================================================================
</TABLE>
(continued)
F-19
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(7) OTHER REAL ESTATE OWNED
Other real estate owned is summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31
------------------------------
1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
Real estate acquired
through foreclosures $593,219 675,859 715,998
Former banking premises 0 0 115,000
- ---------------------------------------------------------------
$593,219 675,859 830,998
===============================================================
</TABLE>
Included in other real estate owned is the Oak Ridge Golf Course and RV
Campgrounds in the amount of $481,814 as of September 30, 1993. This
property has been sold, but the terms of the sale do not meet certain
requirements necessary to recognize the sale of real estate.
(8) DEPOSITS
The Company had certificates of deposit over $100,000 of approximately
$1,524,216, $1,722,396, and $1,640,277 at September 30, 1993 and December
31, 1992 and 1991, respectively. Interest expense on certificates of
deposit over $100,000 was $14,428 and $23,687 for the three-month periods
ended September 30, 1993 and 1992, respectively, $47,298 and $70,197 for
the nine-month periods ended September 30, 1993 and 1992, respectively, and
$89,930, and $99,705 and $118,433 for the years ended December 31, 1992,
1991 and 1990, respectively.
Accrued interest payable on deposits aggregated $170,600, $211,475 and
$354,955 at September 30, 1993 and December 31, 1992 and 1991,
respectively.
(9) SHORT-TERM BORROWINGS
Short-term borrowings consist of sales of securities under agreements to
repurchase the identical securities. The agreements generally mature
within one year and bear a weighted average interest rate of 4.69% and
4.29% at September 30, 1993 and December 31, 1992. The agreements are
treated as financings with the obligations to repurchase securities
reflected as a liability and the dollar amount of the securities
collateralizing the agreements remaining in the asset accounts. The
agreements are collateralized by U.S. Treasury and government agency
securities with par value in excess of 110% of the agreements.
(continued)
F-20
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(10) NOTES PAYABLE
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31 December 31
1993 1992 1991
--------------------------------------
<S> <C> <C> <C>
Norwest Bank Minneapolis NA, 6% 250,000 0 0
Payable through January 31, 1998
Suntree Limited Partnership, 6% 1,376,594 1,371,428 1,135,961
Payable on demand
Exclusion Trusts, 7% 1,603,780 1,729,000 1,842,000
Payable on demand
First Bank Minneapolis, 7.25% 0 1,033,000 1,183,000
Due January 31, 1993
- ----------------------------------------------------------------------------
$3,230,374 4,133,428 4,160,961
============================================================================
</TABLE>
Suntree Limited Partnership and the Exclusion Trusts are affiliated parties of
the Company through common ownership. The notes payable are secured by all
property of the Company including capital stock in the Bank with a subordination
to Norwest.
Accrued interest payable on notes payable aggregated $123,224, $248,536 and
$385,152 at September 30, 1993 and December 31, 1992 and 1991, respectively.
(11) STOCKHOLDERS' EQUITY
On December 31, 1992 the Company issued 9 shares of Class B common stock
for each share of Class A common stock outstanding. The holders of Class B
common stock are entitled to the same rights as the holders of Class A
common stock, except Class B common stock is nonvoting.
(12) INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 in 1993 and has
elected to apply the provisions retroactively beginning January 1, 1990.
The cumulative effect of this change in accounting for income taxes was not
material.
(continued)
F-21
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Three-months ended September 30, 1993:
Federal $128,896 (16,000) 112,896
State 40,703 (5,000) 35,703
- --------------------------------------------------------------------------
$169,599 (21,000) 148,599
==========================================================================
Three-months ended September 30, 1992:
Federal 107,741 0 107,741
State 21,212 0 21,212
- --------------------------------------------------------------------------
$128,953 0 128,953
==========================================================================
Nine-months ended September 30, 1993:
Federal 353,636 36,480 390,116
State 111,675 11,520 123,195
- --------------------------------------------------------------------------
$465,311 48,000 513,311
==========================================================================
Nine-months ended September 30, 1992:
Federal 73,241 0 73,241
State 34,638 0 34,638
- --------------------------------------------------------------------------
$107,879 0 107,879
==========================================================================
Year ended December 31, 1992:
Federal 136,555 (41,800) 94,755
State 43,123 (13,200) 29,923
- --------------------------------------------------------------------------
$179,678 (55,000) 124,678
==========================================================================
Year ended December 31, 1991:
Federal 19,732 0 19,732
State 6,231 0 6,231
- --------------------------------------------------------------------------
$ 25,963 0 25,963
==========================================================================
Year ended December 31, 1990:
Federal 10,270 0 10,270
State 3,243 0 3,243
- --------------------------------------------------------------------------
$ 13,513 0 13,513
==========================================================================
</TABLE>
(continued)
F-22
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to income before taxes and minority
interest as a result of the following:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30 Year ended December 31
------------------ -------------------- ------------------------------
1993 1992 1993 1992 1992 1991 1990
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computed
"expected"
tax expense $139,508 91,948 441,477 250,305 370,437 117,534 91,431
Increase
(reduction)
in income
tax expense
resulting from:
Tax-exempt
income (2,000) (3,000) (5,000) (8,000) (10,000) (14,000) (31,000)
Goodwill
amortization 2,349 2,349 7,047 7,047 9,396 9,396 9,396
Change in
valuation
allowance for
deferred tax
assets 0 21,100 0 (130,200) (233,200) 101,200 (46,000)
Utilization of
net operating
loss and
investment
credit carry
forwards 0 0 0 (62,000) (83,000) (218,000) (31,000)
State income
tax net of
federal in-
come tax
benefit 24,000 14,000 81,000 36,000 57,000 27,000 19,000
Other, net (15,258) 2,556 (11,213) 14,727 14,045 2,833 1,686
- ---------------------------------------------------------------------------------------------
$148,599 128,953 513,311 107,879 124,678 25,963 13,513
=============================================================================================
</TABLE>
(continued)
F-23
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
September 30 December 31
-------------------------------
1993 1992 1991
- -------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $25,600 25,600 25,600
Premises and equipment 0 0 60,400
Accrued interest on debt with
affiliated parties 46,400 94,400 147,200
- -------------------------------------------------------------------
Deferred tax assets 72,000 120,000 233,200
Valuation allowance 0 0 (233,200)
- -------------------------------------------------------------------
Deferred tax assets, net 72,000 120,000 0
- -------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment 52,000 52,000 0
Other 13,000 13,000 0
- -------------------------------------------------------------------
Deferred tax liabilities 65,000 65,000 0
- -------------------------------------------------------------------
Net deferred tax assets $ 7,000 55,000 0
===================================================================
</TABLE>
(continued)
F-24
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(13) EMPLOYEE BENEFIT PLAN
The Company offers a 401(k) plan which is available to all full-time
employees who have attained age eighteen and have met the one year
eligibility requirement, as defined. Under the 401(k) plan, an employee
may defer up to 15% of his or her compensation as defined, with
discretionary matching Company contributions. The 401(k) plan was amended
effective January 1, 1991 to provide for the Company to make discretionary
profit sharing contributions. The total company expenses under the plan
for the three-months ended September 30, 1993 and 1992 were $8,045 and
$5,837, respectively, and for the nine-months ended September 30, 1993 and
1992 were $25,236 and $18,275, respectively. The total expense under the
plan for the years ended December 31, 1992, 1991 and 1990 was $25,535,
$23,183 and $23,627, respectively.
(14) COMMITMENTS AND CONTINGENCIES
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.
These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit, interest rate, and liquidity risk in excess of the
amount recognized in the accompanying statements of financial condition.
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
and standby letters of credit written is represented by the contractual
amount of those instruments. The Bank used the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer provided
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 certain of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
had outstanding commitments to extend credit of approximately $4,759,000,
$3,277,000 and $4,317,000, at September 30, 1993 and December 31, 1992 and
1991, respectively.
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. The standby
letters of credit are primarily issued to support private borrowing
arrangements, and expire during 1993. The credit risk involved in issuing
standby letters of credit is essentially the same as that involved in
making loans to customers. The amount of collateral the Bank obtains to
support standby letters of credit is based on management's credit
evaluation of the borrower. Since the conditions under which the Bank is
required to fund standby letters of credit may not materialize, the cash
requirements are expected to be less than the total outstanding
commitments. The Bank had outstanding standby letters of credit of
approximately $1,182,000, $884,000 and $533,000, at September 30, 1993 and
December 31, 1992 and 1991, respectively.
(continued)
F-25
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
(15) RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, officers,
significant stockholders and their affiliates. Such transactions were made
in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and did not, in
the opinion of management, involve more than normal credit risk or present
other favorable or unfavorable features.
Activity with respect to directors', officers' and significant
stockholders' loans is summarized as follows:
<TABLE>
<CAPTION>
Nine-months
ended Year ended December 31
September 30, ---------------------------
1993 1992 1991 1990
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
beginning of period $1,887,639 886,570 462,161 460,597
New loans 793,200 1,670,624 814,738 913,937
Repayments 398,609 669,555 390,329 912,373
- -----------------------------------------------------------------------
Balance at end of period 2,282,229 1,887,639 886,570 462,161
=======================================================================
</TABLE>
The Bank has sold loan participations to affiliates with aggregate unpaid
principal balances of $22,957 and $31,997 at September 30, 1993 and
December 31, 1992, respectively.
The Bank services loans for affiliates with aggregate unpaid principal
balances of $2,584,147, $2,682,984 and $2,860,312 at September 30, 1993,
December 31, 1992 and December 31, 1991, respectively.
(16) SUBSEQUENT EVENT
On September 23, 1993, the Company and Norwest Corporation (Norwest)
entered into an Agreement and Plan of Reorganization (the Agreement)
whereby the Company would be merged into Norwest. All of the Company's
outstanding common stock will be exchanged for Norwest common stock. The
number of shares of Norwest common stock to be received in exchange for the
Company's common stock will be equal to 310,269 shares plus or minus the
share equivalent of the amount of Bank equity in excess of or less than
$5,995,000 as of the last day of the month before closing, as defined in
the Agreement. The outstanding common stock of the Bank that is not owned
by the Company is to be exchanged for 14,786 shares of Norwest common stock
plus or minus the share equivalent of the net liabilities or the net
assets of the Company, excluding its investment in the Bank, as defined in
the Agreement. The Agreement also requires Norwest to pay off the
Company's notes payable to affiliated parties.
(continued)
F-26
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
The Agreement requires that, prior to the effective date of the merger, the
Company shall ensure that certain loans aggregating $640,800 and $811,190
at September 30, 1993 and December 31, 1992, respectively, are paid off;
establish additional accruals and loan loss reserves as may be necessary to
conform to the accounting and loan loss reserve practices of Norwest; and
provide for costs and expenses anticipated in the consummation of the
merger. The Company will incur expenses of $897,942, prior to closing,
which represents additional compensation to executive officers, as provided
by the Agreement. This amount had not been accrued by the Company as of
September 30, 1993. No further costs pursuant to the Agreement are
anticipated.
(17) CONDENSED FINANCIAL INFORMATION--PARENT COMPANY ONLY
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31
September 30 ------------------------
Assets 1993 1992 1991
- ------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash on deposit with the Bank $ 53,006 222,903 29,478
Investment in the Bank 5,784,463 5,777,533 5,144,042
Excess of cost over fair value
of net assets acquired 785,302 806,029 833,664
Deferred taxes 46,400 94,400 0
Other assets 45,555 100,256 191,571
- -------------------------------------------------------------------------
$6,714,726 7,001,121 6,198,755
=========================================================================
Liabilities and Shareholders' Equity
- ------------------------------------------------------------------------
Notes Payable 3,230,374 4,133,428 4,160,961
Accrued interest payable 123,223 248,536 385,152
- -------------------------------------------------------------------------
Total liabilities 3,353,597 4,381,964 4,546,113
- -------------------------------------------------------------------------
Common stock 924 924 88
Paid-in capital 1,711,622 1,711,622 1,671,509
Retained earnings 1,648,583 906,611 (18,955)
- -------------------------------------------------------------------------
Total stockholders' equity 3,361,129 2,619,157 1,652,642
- -------------------------------------------------------------------------
$6,714,726 7,001,121 6,198,755
=========================================================================
</TABLE>
(continued)
F-27
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30
---------------------------------------------
1993 1992 1993 1992
- --------------------------------------------------------------------------
(unaudited)(unaudited) (unaudited)(unaudited)
<S> <C> <C> <C> <C>
Income:
Dividends from
the Bank $ 0 0 857,166 0
Other income 0 0 2,132 14
- --------------------------------------------------------------------------
0 0 859,298 14
- --------------------------------------------------------------------------
Expenses:
Interest expense 65,842 82,155 181,944 233,432
Other expense 8,192 12,405 32,312 33,568
- --------------------------------------------------------------------------
74,034 94,564 214,256 267,000
- --------------------------------------------------------------------------
(Loss) income before
income tax benefit
and equity in
undistributed
earnings of the Bank (74,034) (94,560) 645,042 (266,986)
Income tax benefit 45,000 49,000 90,000 203,000
- --------------------------------------------------------------------------
(Loss) income before
equity in
undistributed
earnings of the Bank (29,034) (45,560) 735,042 (63,986)
Equity in undistributed
earnings of the Bank 269,432 173,327 6,930 665,686
- --------------------------------------------------------------------------
Net income $240,398 127,767 741,972 601,700
==========================================================================
</TABLE>
(continued)
F-28
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------
1992 1991 1990
- --------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Income:
Dividends from the Bank $288,364 0 0
Other income 17 545 0
- --------------------------------------------------------------------
288,381 545 0
- --------------------------------------------------------------------
Expenses:
Interest expense 295,693 389,012 435,686
Other expense 40,476 36,941 30,771
- --------------------------------------------------------------------
336,169 425,953 466,457
- --------------------------------------------------------------------
Loss before income
tax benefit and equity
in undistributed
earnings of the Bank (47,788) (425,408) (466,457)
Income tax benefit 342,207 287,972 97,152
- --------------------------------------------------------------------
Income (loss) before
equity in
undistributed
earnings of the Bank 294,419 (137,436) (369,305)
Equity in undistributed
earnings of the Bank 631,147 457,160 624,707
- --------------------------------------------------------------------
Net income $925,566 319,724 255,402
====================================================================
</TABLE>
(continued)
F-29
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Nine-months
ended September 30
-------------------------
1993 1992
- ---------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C>
Net Income $ 741,972 $ 601,700
- ---------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed
earnings of the Bank (6,930) (665,686)
Amortization 20,727 20,727
Change in accrued interest payable (125,313) (52,904)
Change in deferred taxes 48,000 0
Change in other assets 54,701 129,572
- ---------------------------------------------------------------------
(8,815) (568,291)
- ---------------------------------------------------------------------
Net cash provided by
operating activities 733,157 33,409
- ---------------------------------------------------------------------
Cash flows used in financing activities:
Repayments of notes payable (903,054) (22,367)
- ---------------------------------------------------------------------
Net cash used in
financing activities (903,054) (22,367)
- ---------------------------------------------------------------------
Net (decrease) increase in cash (169,897) 11,042
Cash at beginning of period 222,903 29,478
- ---------------------------------------------------------------------
Cash at end of period $ 53,006 $ 40,520
=====================================================================
</TABLE>
(continued)
F-30
<PAGE>
D.L. BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Data as of and for the three- and nine-month periods ended September 30, 1993
and 1992 and as of and for the years ended December 31, 1991 and 1990 is
unaudited)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------
1992 1991 1990
- -----------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Net Income $925,566 319,724 255,402
- -----------------------------------------------------------------------
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Equity in undistributed
earnings of the Bank (694,047) (394,160) (624,707)
Amortization 27,635 27,635 27,635
Change in accrued interest
payable (136,616) 182,895 84,514
Change in deferred taxes (94,400) 0 0
Change in other assets 151,871 (227,620) (26,952)
- -----------------------------------------------------------------------
(745,557) (411,250) (539,510)
- -----------------------------------------------------------------------
Net cash provided by
operating activities 180,009 (91,526) (284,108)
- -----------------------------------------------------------------------
Cash flows used in financing
activities:
Repayments of notes payable (27,533) 0 (75,000)
Proceeds from borrowings
on notes payable 0 91,500 387,100
Proceeds from issuance
of common stock 40,949 0 0
- -----------------------------------------------------------------------
Total cash flows used in
financing activities 13,416 91,500 312,100
- -----------------------------------------------------------------------
Net increase (decrease)
in cash 193,425 (26) 27,992
Cash at beginning of period 29,478 29,504 1,512
- -----------------------------------------------------------------------
Cash at end of period $222,903 29,478 29,504
=======================================================================
</TABLE>
The payment of dividends to the Company by the Bank is subject to various
federal and state regulatory limitations. The Bank must obtain the approval of
bank regulatory agencies if the dividends declared in any year exceed these
limitations.
(continued)
F-31
<PAGE>
November 12, 1993
VERIFICATION
------------
The statement of financial condition of First National Bank of Detroit Lakes, a
95.2% owned subsidiary of D.L. Bancshares Inc., as of September 30, 1993 and
1992, and December 31, 1992, 1991 and 1990, and the related statements of
operations, changes in stockholders' equity, and cash flows for each of the
nine-month periods ended September 30, 1993 and 1992, and for each of the years
in the three-year period ended December 31, 1992, have been prepared under our
control.
In our opinion, the aforementioned financial statements present fairly the
financial position of First National Bank of Detroit Lakes at September 30, 1993
and 1992, and at December 31, 1992, 1991 and 1990, and the results of
operations, changes in stockholders' equity, and cash flows for each of the
nine-month periods ended September 30, 1993 and 1992, and for each of the years
in the three-year period ended December 31, 1992, in conformity with generally
accepted accounting principles applied on a consistent basis.
(SIGNATURE OF ROBERT A. HARRIS)
/s/Robert A. Harris
- -------------------
President and CEO
(SIGNATURE OF RAYMOND J. SCHIRMER)
/s/Raymond J. Schirmer
- ------------------------------------
Executive Vice President and Cashier
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statement of Financial Condition
(unaudited)
<TABLE>
<CAPTION>
December 31
September 30 -----------------------
Assets 1993 1992 1991
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,917,755 2,737,410 2,981,560
Federal funds sold 3,460,000 3,360,000 3,425,000
Securities available for sale, market
value of $22,363,977 (unaudited), $27,845,847,
and $24,234,086 (unaudited), respectively 21,916,859 27,549,344 23,626,048
Investment securities, market value of
$284,164 (unaudited), $1,054,558 and
$1,215,982 (unaudited), respectively 273,950 1,024,400 1,064,197
Loans 46,574,819 40,071,121 38,690,338
Less allowance for loan losses (691,472) (684,415) (712,949)
- -------------------------------------------------------------------------------------------------------
Loans, net 45,883,347 39,386,706 37,977,389
Premises and equipment, net 1,053,502 1,099,109 1,096,554
Accrued interest receivable 616,332 695,526 811,864
Other real estate owned 593,219 675,859 830,998
Other assets 226,774 183,949 242,342
- -------------------------------------------------------------------------------------------------------
Total assets $76,941,738 76,712,303 72,055,952
=======================================================================================================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Non-interest-bearing 9,010,019 7,496,344 5,427,309
Interest-bearing 59,121,260 59,512,948 57,892,826
- -------------------------------------------------------------------------------------------------------
Total deposits 68,131,279 67,009,292 63,320,135
- -------------------------------------------------------------------------------------------------------
Short-term borrowings 2,000,000 3,000,000 2,918,593
Accrued interest payable 170,601 211,475 354,955
Other liabilities 566,337 483,033 318,228
- -------------------------------------------------------------------------------------------------------
Total liabilities 70,868,217 70,703,800 66,911,911
- -------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $100.00 par value; 10,000 shares authorized;
9,245, 9,157 and 8,805 issued and outstanding, respectively 924,500 915,700 880,500
Paid-in capital 1,540,060 1,491,118 1,320,750
Retained earnings 3,608,961 3,601,685 2,942,791
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 6,073,521 6,008,503 5,144,041
Commitments and contingencies
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $76,941,738 76,712,303 72,055,952
=======================================================================================================
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Operations
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
Three-months Nine-months
ended Sept 30 ended Sept 30
----------------------- ----------------------
1993 1992 1993 1992
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans $1,146,057 1,004,038 3,313,699 3,074,149
Securities:
Taxable 337,102 445,292 1,131,877 1,355,901
Nontaxable 842 1,939 3,171 5,832
Federal funds sold 21,885 35,930 47,562 119,404
- -----------------------------------------------------------------------------------------------------
Total interest income 1,505,886 1,487,199 4,496,309 4,555,286
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits 510,987 618,059 1,543,192 2,012,646
Short-term borrowings 24,045 20,057 86,345 72,159
- -----------------------------------------------------------------------------------------------------
Total interest expense 535,032 638,116 1,629,537 2,084,805
- -----------------------------------------------------------------------------------------------------
Net interest income 970,854 849,083 2,866,772 2,470,481
Provision for loan losses 0 0 0 0
- -----------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 970,854 849,083 2,866,772 2,470,481
- -----------------------------------------------------------------------------------------------------
Non-interest income:
Service charges and fees 87,832 91,363 265,472 298,740
Other 60,839 66,151 260,112 140,474
- -----------------------------------------------------------------------------------------------------
Total non-interest income 148,671 157,514 525,584 439,214
- -----------------------------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 325,584 314,587 992,157 963,755
Net occupancy expense 137,083 140,155 426,807 456,891
FDIC insurance assessment 36,292 36,710 111,742 108,172
Business development and advertising 40,262 55,013 122,293 113,043
Professional fees 30,597 29,220 70,366 90,576
Insurance 10,834 13,693 35,706 42,894
Losses (gains) on sales of securities available
for sale 3,824 (417) 2,576 (4,223)
Other 50,696 52,640 120,122 135,410
- -----------------------------------------------------------------------------------------------------
Total non-interest expenses 635,172 641,601 1,881,769 1,906,518
- -----------------------------------------------------------------------------------------------------
Income before income taxes 484,353 364,996 1,510,587 1,003,177
Income taxes (193,599) (177,953) (603,311) (310,879)
- -----------------------------------------------------------------------------------------------------
Net income $ 290,754 187,043 907,276 692,298
=====================================================================================================
Net income per share $ 31.45 20.43 98.14 75.60
=====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Operations
(unaudited)
Year ended December 31
---------------------------------
1992 1991 1990
- ------------------------------------------------------------------------------
Interest income:
Loans $4,146,496 4,402,875 4,368,449
Securities:
Taxable 1,808,523 1,856,893 1,883,007
Nontaxable 7,766 15,425 18,627
Federal funds sold 144,543 165,074 190,108
- ------------------------------------------------------------------------------
Total interest income 6,107,328 6,440,267 6,460,191
- ------------------------------------------------------------------------------
Interest expense:
Deposits 2,587,475 3,285,706 3,416,675
Short-term borrowings 87,038 195,540 278,659
- ------------------------------------------------------------------------------
Total interest expense 2,674,513 3,481,246 3,695,334
- ------------------------------------------------------------------------------
Net interest income 3,432,815 2,959,021 2,764,857
Provision for loan losses 0 0 140,507
- ------------------------------------------------------------------------------
Net interest income after provision
for loan losses 3,432,815 2,959,021 2,624,350
- ------------------------------------------------------------------------------
Non-interest income:
Service charges and fees 391,706 306,130 318,557
Other 177,346 146,260 170,524
- ------------------------------------------------------------------------------
Total non-interest income 569,052 452,390 489,081
- ------------------------------------------------------------------------------
Non-interest expenses:
Salaries and employee benefits 1,312,343 1,113,665 956,713
Net occupancy expense 598,097 502,017 470,064
FDIC insurance assessment 144,882 125,914 66,452
Business development and advertising 149,802 131,684 142,061
Professional fees 125,621 163,231 273,649
Insurance 54,413 53,159 52,984
(Gains) losses on sales of securities
available for sale (2,342) 88,559 115,752
Losses on sales of premises and equipment 30,080 250,141 0
Other 163,301 211,946 300,384
- ------------------------------------------------------------------------------
Total non-interest expenses 2,576,197 2,640,316 2,378,059
- ------------------------------------------------------------------------------
Income before income taxes 1,425,670 771,095 735,372
Income taxes (466,885) (313,935) (110,665)
- ------------------------------------------------------------------------------
Net income $ 958,785 457,160 624,707
- ------------------------------------------------------------------------------
Net income per share $ 104.71 51.92 70.95
==============================================================================
See accompanying notes to consolidated financial statements.
F-35
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statement of Changes in Stockholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Common Total
--------- Paid-in Retained stockholders'
Stock capital earnings equity
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1989 $ 880,500 1,320,750 1,860,924 4,062,174
Net income 0 0 624,707 624,707
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1990 880,500 1,320,750 2,485,631 4,686,881
Net income 0 0 457,160 457,160
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1991 880,500 1,320,750 2,942,791 5,144,041
Dividend 0 0 (299,892) (299,892)
Shares issued 35,200 170,369 0 205,569
Net income 0 0 958,785 958,785
- -------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 915,700 1,491,119 3,601,684 6,008,503
Dividend 0 0 (900,000) (900,000)
Shares issued 8,800 48,942 0 57,742
Net income 0 0 907,276 907,276
- -------------------------------------------------------------------------------------------------------
Balance, September 30, 1993 $ 924,500 1,540,061 3,608,960 6,073,521
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-36
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1993 1992
- ------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 907,276 692,298
- ------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 111,181 100,371
Amortization of net premiums on investments 104,427 64,565
Loss on sale of premises and equipment 0 30,080
(Gains) losses on sales of securities 2,576 (4,223)
Change in accrued interest receivable 79,194 91,642
Change in accrued interest payable (141,359) (40,874)
Change in other assets (24,304) 18,521
Change in other liabilities 83,304 (62,303)
Other (87,932) 3,557
- ------------------------------------------------------------------------------------
Total adjustments 127,086 201,336
- ------------------------------------------------------------------------------------
Net cash provided by operating activities 1,034,362 893,634
- ------------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold (100,000) (1,090,000)
Proceeds from sales of securities available for sale 1,260,459 1,748,789
Proceeds from maturities of and principal
payments received on securities 7,922,468 13,735,867
Purchases of securities (2,906,995) (19,533,391)
Loan (originations) repayments, net (6,496,641) 675,763
Proceeds from sale of other real estate owned 82,640 174,593
Purchase of premises and equipment, net (65,574) (179,397)
- ------------------------------------------------------------------------------------
Net cash used by investing activities (303,643) (4,467,776)
- ------------------------------------------------------------------------------------
(Continued)
</TABLE>
F-37
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine-months ended September 30
------------------------------
1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Change in deposits $ 1,291,884 4,209,764
Change in short-term borrowings (1,000,000) (1,918,593)
Dividends paid (900,000) 0
Proceeds from issuance of stock 57,742 205,568
- -------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (550,374) 2,496,739
- -------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 180,345 (1,077,403)
Cash and cash equivalents at beginning of period 2,737,410 2,981,560
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,917,755 1,904,157
===========================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $ 1,629,537 2,084,805
Income taxes 603,310 310,879
</TABLE>
See accompanying notes to consolidated financial statements.
F-38
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1992 1991 1990
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 958,785 457,160 624,707
- -------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 135,445 125,087 110,896
Provision for loan losses 0 0 140,507
Amortization of net premiums on
investments 94,132 55,717 9,637
Loss on sale of premises and equipment 30,080 250,141 0
(Gains) losses on sales of securities (2,342) 88,559 106,115
Change in accrued interest receivable 116,338 145,227 83,975
Change in accrued interest payable (143,480) (39,185) 44,395
Change in other assets 58,393 216,765 (311,818)
Change in other liabilities 164,805 168,090 62,386
Other (35,337) 0 (2)
- -------------------------------------------------------------------------------------
Total adjustments 418,034 1,010,401 246,091
- -------------------------------------------------------------------------------------
Net cash provided by operating
activities 1,376,819 1,467,561 870,798
- -------------------------------------------------------------------------------------
Cash flows from investing activities:
Change in federal funds sold 65,000 (445,000) (1,715,000)
Proceeds from sales of securities 1,770,624 2,003,750 1,491,094
Proceeds from maturities of and principal
payments received on securities 17,411,393 12,013,896 22,175,892
Purchases of securities (23,157,306) (16,260,527) (22,923,975)
Loan (originations) repayments, net (1,409,317) 385,417 (5,001,362)
Proceeds from sale of other real estate owned 190,389 76,493 295,977
Purchase of premises and equipment, net (167,992) (659,729) (273,526)
- -------------------------------------------------------------------------------------
Net cash used by
investing activities (5,297,209) (2,885,700) (5,950,900)
- -------------------------------------------------------------------------------------
(Continued)
</TABLE>
F-39
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Year ended December 31
------------------------------------
1992 1991 1990
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Change in deposits $3,689,157 2,471,531 4,474,467
Change in short-term borrowings 81,407 (1,076,284) 273,919
Dividends Paid (299,892) 0 0
Stock Issued 205,568 0 0
- -----------------------------------------------------------------------------------------
Net cash provided by
financing activities 3,676,240 1,395,247 4,748,386
- -----------------------------------------------------------------------------------------
Net decrease in
cash and cash equivalents (244,150) (22,892) (331,716)
Cash and cash equivalents at beginning of period 2,981,560 3,004,452 3,336,168
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $2,737,410 2,981,560 3,004,452
=========================================================================================
Supplemental disclosures of cash flow information:
Cash paid for:
Interest on deposits and borrowings $1,508,718 1,927,563 1,873,731
Income taxes 312,795 80,895 74,234
Supplemental disclosures of noncash investing
activities:
Transfer of loans to other real estate owned 35,250 28,000 60,992
</TABLE>
See accompanying notes to consolidated financial statements.
F-40
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First National Bank of Detroit Lakes (the Bank) provides traditional
community banking services. D.L. Bancshares, Inc. (the Parent Company), a
one-bank holding company, owns 95.24% of the Bank's common stock.
The statements of financial condition as of September 30, 1993 and December
31, 1992 and 1991 and the statements of operations, stockholders' equity
and cash flows for the three- and nine-month periods ended September 30,
1993 and 1992 and the years ended December 31, 1992, 1991 and 1990 are
unaudited. However, in the opinion of management, these financial
statements include all adjustments, which consist only of normal recurring
adjustments, necessary for fair presentation of the Company's financial
position. The results of operations for the unaudited three- and nine-month
periods ended September 30, 1993 are not necessarily indicative of the
results which may be expected for the entire year 1993.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the period. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to change in the near-term relate to the determination of the
allowance for loan losses and the carrying value of other real estate
owned.
INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
Investment securities are recorded at amortized cost because the Bank has
the ability and intent to hold these securities to maturity. These
securities are stated at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method. Gains and losses
on the sale of investment securities are computed on the specific
identification basis.
Securities available for sale include investments that management intends
to use as part of its asset/liability strategy or that may be sold in
response to changes in prepayment risk or other similar factors.
Securities available for sale are stated at the lower of aggregate
amortized cost or market. Realized gains and losses on sales of securities
are determined using the specific identification method
(Continued)
F-41
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based
upon reviews of individual loans, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
allowances for losses on loans and real estate. Such agencies may require
additions to the allowances based on their judgment about information
available to them at the time of their examination. Loans deemed
uncollectible are charged to the allowance. Provisions for loan losses and
recoveries on loans previously charged off are added to the allowance.
Management believes the allowance for loan losses is adequate.
INTEREST INCOME ON LOANS
Interest on loans is accrued and credited to income based on the principal
amount outstanding. The accrual of interest on loans is discontinued when
a loan has been past due for 90 days. Upon such discontinuance, all unpaid
accrued interest is reversed. Interest is subsequently recognized as
income to the extent cash is received when, in management's judgment,
principal is collectible.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed principally by the straight-line method.
OTHER REAL ESTATE OWNED
Real estate acquired through foreclosure and in-substance foreclosures are
recorded at the lesser of the balance of the loan at the date of
acquisition plus costs of acquisition or fair value less estimated costs to
sell. Operating expenses of such properties, gains and losses on their
disposition or further reductions in the carrying value resulting from a
decline in fair value less estimate costs to sell are charged against
operating expenses as incurred.
(Continued)
F-42
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
INCOME TAXES
The Bank and the Parent Company file a consolidated income tax return.
Income taxes of the Bank are allocated on a separate return basis with
current taxes payable being due to the Parent Company.
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. The Bank adopted SFAS No. 109 during 1993 and has elected to apply
the provisions retroactively beginning January 1, 1990. The effect on the
consolidated financial statements for 1992, 1991 and 1990 of applying the
new method of accounting retroactively was not material.
SFAS No. 109 requires the use of the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS
No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS No. 109, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. The cumulative effect of the change in the method of
accounting for income taxes as of January 1, 1990 was not material.
NET INCOME PER SHARE
Net income per share is calculated as net income divided by the number of
shares of common stock outstanding.
(2) CASH AND CASH EQUIVALENTS
For the purpose of presentation in the statements of cash flows, cash and
cash equivalents include cash on hand, cash clearings, and demand deposits
with banks.
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank. The reserve balance required at September 30, 1993 and
December 31, 1992 was approximately $478,000 and $410,000, respectively.
(Continued)
F-43
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(3) INVESTMENT SECURITIES AND SECURITIES AVAILABLE FOR SALE
The amortized cost and market values of investment securities and
securities available for sale are as follows:
<TABLE>
<CAPTION>
September 30, 1993
---------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 3,526,089 54,766 0 3,580,855
U. S. government agency
securities 6,640,962 95,726 940 6,735,748
Collateralized mortgage
obligations 9,461,281 181,593 6,553 9,697,161
Corporate debt securities 2,192,049 61,686 0 2,253,735
Money market and
certificates of deposit 96,478 0 0 96,478
- --------------------------------------------------------------------------------
Securities available
for sale 21,916,859 393,771 7,493 22,363,977
- --------------------------------------------------------------------------------
Obligations of state and
political subdivisions 200,000 10,214 0 210,214
Federal Reserve stock 73,950 0 0 73,950
- --------------------------------------------------------------------------------
Investment securities 273,950 10,214 0 284,164
- --------------------------------------------------------------------------------
$22,190,809 403,985 7,493 22,648,141
================================================================================
</TABLE>
(Continued)
F-44
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
December 31, 1992
-------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,088,868 113,594 2,228 8,200,234
U.S. government agency
securities 5,710,510 85,381 0 5,795,891
Collateralized mortgage
obligations 10,370,917 131,949 54,107 10,448,759
Corporate debt securities 3,283,080 32,426 10,512 3,304,994
Money market and
certificates of deposit 95,969 0 0 95,969
- ------------------------------------------------------------------------------
Securities available
for sale 27,549,344 363,350 66,847 27,845,847
- ------------------------------------------------------------------------------
Obligations of state and
political subdivisions 952,150 30,158 0 982,308
Federal Reserve stock 72,250 0 0 72,250
- ------------------------------------------------------------------------------
Investment securities 1,024,400 30,158 0 1,054,558
- ------------------------------------------------------------------------------
$28,573,744 393,508 66,847 28,900,405
=============================================================================
</TABLE>
(Continued)
F-45
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
<TABLE>
<CAPTION>
December 31, 1991
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 8,756,284 220,231 0 8,976,515
U.S. government agency
securities 2,839,149 90,065 0 2,929,214
Collateralized mortgage
obligations 6,338,383 222,001 0 6,560,384
Corporate debt securities 2,890,396 46,311 0 2,936,707
Money market and
certificates of deposit 2,801,836 29,430 0 2,831,266
- -----------------------------------------------------------------------------
Securities available
for sale 23,626,048 608,038 0 24,234,086
- -----------------------------------------------------------------------------
Obligations of state and
political subdivisions 998,147 151,785 0 1,149,932
Federal Reserve stock 66,050 0 0 66,050
- -----------------------------------------------------------------------------
Investment securities 1,064,197 151,785 0 1,215,982
- -----------------------------------------------------------------------------
$24,690,245 759,823 0 25,450,068
=============================================================================
</TABLE>
(Continued)
F-46
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
Proceeds from sales and gross gains and losses realized from sales of securities
available for sale were as follows:
<TABLE>
<CAPTION>
Three-months Nine-months Year ended
September 30 ended September 30 ended December 31
------------------- -------------------- -----------------------------
1993 1992 1993 1992 1992 1991 1990
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Proceeds
from sales $ 250,000 250,000 1,260,459 1,748,789 1,770,624 2,003,750 1,491,094
Gross
realized
gains 223 694 5,283 6,689 3,868 615 0
Gross
realized
losses 4,047 277 7,859 2,466 1,526 89,174 115,752
</TABLE>
Investment securities and securities available for sale with a carrying amount
of $11,078,901, $11,720,813 and $11,113,556 at September 30, 1993 and December
31, 1992 and 1991, respectively, were pledged to secure public deposits or for
other purposes required or permitted by law.
The amortized cost and market value of securities by contractual maturity
(including investment securities and securities available for sale) are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties:
<TABLE>
<CAPTION>
September 30, 1993 December 31, 1992
------------------------ ---------------------
Amortized Market Amortized Market
cost value cost value
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 6,858,287 6,870,197 7,958,271 8,072,039
Due after one year
through five years 8,856,917 9,119,646 14,810,889 14,940,762
Due after five years
through ten years 2,994,252 3,012,757 3,705,293 3,757,665
Due after ten years 3,481,353 3,645,541 2,099,291 2,129,939
- -----------------------------------------------------------------------------
$22,190,809 22,648,141 28,573,744 28,900,405
============================================================================
</TABLE>
Accrued interest receivable on securities aggregated $275,553, $400,116 and
$417,179 at September 30, 1993 and December 31, 1992 and 1991, respectively.
(continued)
F-47
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(4) LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31
September 30 -----------------------
1993 1992 1991
- -----------------------------------------------------------------
<S> <C> <C> <C>
Commercial business $10,305,204 11,592,011 11,346,030
Agricultural 3,901,067 3,302,551 3,618,136
Real Estate:
Commercial 8,766,924 5,539,975 5,129,184
Residential 11,498,426 9,798,653 8,792,762
Agricultural 805,949 745,008 578,717
Construction 358,766 157,697 224,966
Consumer 10,938,483 8,935,226 9,000,543
- -----------------------------------------------------------------
$46,574,819 40,071,121 38,690,338
=================================================================
</TABLE>
Included above are loans on nonaccrual status of $300,804, $258,867 and $847,191
at September 1993 and December 31, 1992 and 1991, respectively, and troubled
debt restructurings of $73,878 and $101,230 at September 30, 1993 and December
31, 1992. The impact on interest income in 1992 for nonaccrual and restructured
loans was approximately $23,000. There are no material commitments to lend
additional funds to customers whose loans are classified as nonaccrual or
restructured at September 30, 1993 or December 31, 1992.
The Bank has sold loan participations with aggregate unpaid principal balances
of $6,158,619, $4,259,012 and $3,068,346 at September 30, 1993, December 31,
1992 and December 31, 1991, respectively.
Accrued interest receivable on loans aggregated $340,779, $295,410 and $394,685
at September 30, 1993 and December 31, 1992 and 1991, respectively.
The Bank generally grants commercial business loans, agricultural loans,
residential, agricultural and commercial real estate loans, consumer loans and
real estate construction loans to customers throughout northwestern Minnesota.
A substantial proportion of the Bank's debtors' ability to honor their contracts
is dependent upon the general economic conditions in Minnesota.
(continued)
F-48
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(5) ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30 Year ended December 31
------------------ ------------------- ---------------------------
1993 1992 1993 1992 1992 1991 1990
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
beginning
of period $689,474 688,729 684,415 712,949 712,949 808,103 911,074
Provision for
losses 0 0 0 0 0 0 140,507
Net charge-offs:
Loans charged-
off (13,698) (32,986) (27,947) (66,444) (83,404) (308,767) (253,939)
Less
recoveries 15,696 21,473 35,004 30,711 54,870 213,613 10,461
- -----------------------------------------------------------------------------------------------
1,998 (11,513) 7,057 (35,733) (28,534) (95,154) (243,478)
- -----------------------------------------------------------------------------------------------
Balance at end
of period $691,472 677,216 691,472 677,216 684,415 712,949 808,103
===============================================================================================
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31
September 30 ----------------------
1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Land and improvements $ 30,000 30,000 30,000
Buildings 825,822 834,236 819,729
Furniture, fixtures and equipment 640,454 588,560 597,670
- ---------------------------------------------------------------------------
1,496,276 1,452,796 1,447,399
Less accumulated depreciation and
amortization 442,774 353,687 350,845
- --------------------------------------------------------------------------
Premises and equipment, net $1,053,502 1,099,109 1,096,554
==========================================================================
</TABLE>
(continued)
F-49
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(7) OTHER REAL ESTATE OWNED
Other real estate owned is summarized as follows:
<TABLE>
<CAPTION>
September 30 December 31
------------ ----------------
1993 1992 1991
- ---------------------------------------------------------------
<S> <C> <C> <C>
Real estate acquired
through foreclosures $593,219 675,859 715,998
Former banking premises 0 0 115,000
- ---------------------------------------------------------------
$593,219 675,859 830,998
===============================================================
</TABLE>
Included in other real estate owned is the Oak Ridge Golf Course and RV
Campgrounds in the amount of $481,814 as of September 30, 1993. This
property has been sold, but the terms of the sale do not meet certain
requirements necessary to recognize the sale of real estate.
(8) DEPOSITS
The Bank had certificates of deposit over $100,000 of approximately
$1,524,216, $1,722,396, and $1,640,277 at September 30, 1993 and December
31, 1992 and 1991, respectively. Interest expense on certificates of
deposit over $100,000 was $14,428 and $23,687 for the three-month periods
ended September 30, 1993 and 1992, respectively, $47,298 and $70,197 for
the nine-month periods ended September 30, 1993 and 1992, respectively, and
$89,930, and $99,705 and $118,433 for the years ended December 31, 1992,
1991 and 1990, respectively.
Accrued interest payable on deposits aggregated $170,600, $211,475 and
$354,955 at September 30, 1993 and December 31, 1992 and 1991,
respectively.
(9) SHORT-TERM BORROWINGS
Short-term borrowings consist of sales of securities under agreements to
repurchase the identical securities. The agreements generally mature
within one year and bear a weighted average interest rate of 4.69% and
4.29% at September 30, 1993 and December 31, 1992. The agreements are
treated as financings with the obligations to repurchase securities
reflected as a liability and the dollar amount of the securities
collateralizing the agreements remaining in the asset accounts. The
agreements are collateralized by U.S. Treasury and government agency
securities with par value in excess of 110% of the agreements.
(continued)
F-50
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
(10) INCOME TAXES
As discussed in note 1, the Bank adopted SFAS No. 109 in 1993 and has
elected to apply the provisions retroactively beginning January 1, 1990.
The cumulative effect of this change in accounting for income taxes was not
material.
Income tax expense (benefit) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
--------- --------- -------
<S> <C> <C> <C>
- --------------------------------------------------------------------------
Three-months ended September 30, 1993:
Federal $147,135 0 147,135
State 46,464 0 46,464
- --------------------------------------------------------------------------
$193,599 0 193,599
==========================================================================
Three-months ended September 30, 1992:
Federal 135,244 0 135,244
State 42,709 0 42,709
- --------------------------------------------------------------------------
$177,953 0 177,953
==========================================================================
Nine-months ended September 30, 1993:
Federal 458,516 0 458,516
State 152,795 0 152,795
- --------------------------------------------------------------------------
$603,311 0 603,311
==========================================================================
Nine-months ended September 30, 1992:
Federal 211,062 0 211,062
State 99,817 0 99,817
- --------------------------------------------------------------------------
$310,879 0 310,879
=========================================================================
Year ended December 31, 1992:
Federal 324,433 (30,400) 354,833
State 102,452 (9,600) 112,052
- --------------------------------------------------------------------------
$426,885 (40,000) 466,885
==========================================================================
Year ended December 31, 1991:
Federal 238,591 0 238,591
State 75,344 0 75,344
- --------------------------------------------------------------------------
$313,935 0 313,935
==========================================================================
Year ended December 31, 1990:
Federal 84,105 0 84,105
State 26,560 0 26,560
- --------------------------------------------------------------------------
$110,665 0 110,665
==========================================================================
</TABLE>
(continued)
F-51
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
Income tax expense differed from the amounts computed by applying the U.S.
federal income tax rate of 34 percent to income before taxes and minority
interest as a result of the following:
<TABLE>
<CAPTION>
Three-months Nine-months
ended September 30 ended September 30 Year ended December 31
------------------ ------------------ ---------------------------
1993 1992 1993 1992 1992 1991 1990
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Computed
"expected"
tax expense $164,680 124,099 513,600 341,080 484,728 262,172 250,026
Increase
(reduction)
in income
tax expense
resulting from:
Tax-exempt
income (2,000) (3,000) (5,000) (8,000) (10,000) (14,000) (31,000)
Change in
valuation
allowance for
deferred tax
assets 0 0 0 (86,000) (86,000) 12,000 (81,200)
Utilization of
net operating
loss and
investment
credit carry
forwards 0 0 0 0 0 0 (31,000)
State income
tax net of
federal in-
come tax
benefit 30,700 28,200 100,800 65,900 74,000 49,700 17,500
Other, net 219 28,654 (6,089) (2,101) (4,157) 4,063 (13,661)
- ----------------------------------------------------------------------------------------
$193,599 177,953 603,311 310,879 466,885 313,935 110,665
========================================================================================
F-52
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
The tax effects of temporary differences that give rise to the deferred tax
assets and deferred tax liabilities are as follows:
</TABLE>
<TABLE>
<CAPTION>
September 30 December 31
------------------
1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 25,600 25,600 25,600
Premises and equipment 0 0 60,400
- -------------------------------------------------------------------------------
Deferred tax assets 25,600 25,600 86,000
Valuation allowance 0 0 (86,000)
- -------------------------------------------------------------------------------
Deferred tax assets, net 25,600 25,600 0
- -------------------------------------------------------------------------------
Deferred tax liabilities:
Premises and equipment 52,000 52,000 0
Other 13,600 13,600 0
- -------------------------------------------------------------------------------
Deferred tax liabilities 65,000 65,000 0
- -------------------------------------------------------------------------------
Net deferred tax liabilities $(40,000) (40,000) 0
===============================================================================
</TABLE>
(11) EMPLOYEE BENEFIT PLAN
The Parent Company offers a 401(k) plan which is available to all full-time
employees of the Bank who have attained age eighteen and have met the one
year eligibility requirement, as defined. Under the 401(k) plan, an
employee may defer up to 15% of his or her compensation as defined, with
discretionary matching Company contributions. The 401(k) plan was amended
effective January 1, 1991 to provide for the Company to make discretionary
profit sharing contributions. The total company expenses under the plan
for the three-months ended September 30, 1993 and 1992 were $8,045 and
$5,837, respectively, and for the nine-months ended September 30, 1993 and
1992 were $25,236 and $18,275, respectively. The total expense under the
plan for the years ended December 31, 1992, 1991 and 1990 was $25,535,
$23,183 and $23,627, respectively.
(12) COMMITMENTS AND CONTINGENCIES
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.
These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit, interest rate, and liquidity risk in excess of the
amount recognized in the accompanying statements of financial condition.
F-53
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
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
and standby letters of credit written is represented by the contractual
amount of those instruments. The Bank used the same credit policies in
making commitments and conditional obligations as it does for on-balance
sheet instruments.
Commitments to extend credit are agreements to lend to a customer provided
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 certain of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
had outstanding commitments to extend credit of approximately $4,759,000,
$3,277,000 and $4,317,000, at September 30, 1993 and December 31, 1992 and
1991, respectively.
Standby letters of credit are conditional commitments issued by the Bank
guaranteeing the performance of a customer to a third party. The standby
letters of credit are primarily issued to support private borrowing
arrangements, and expire during 1993. The credit risk involved in issuing
standby letters of credit is essentially the same as that involved in
making loans to customers. The amount of collateral the Bank obtains to
support standby letters of credit is based on management's credit
evaluation of the borrower. Since the conditions under which the Bank is
required to fund standby letters of credit may not materialize, the cash
requirements are expected to be less than the total outstanding
commitments. The Bank had outstanding standby letters of credit of
approximately $1,182,000, $884,000 and $533,000, at September 30, 1993 and
December 31, 1992 and 1991, respectively.
(13) RELATED PARTY TRANSACTIONS
The Bank has entered into transactions with its directors, officers,
significant stockholders and their affiliates. Such transactions were made
in the ordinary course of business on substantially the same terms and
conditions, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and did not, in
the opinion of management, involve more than normal credit risk or present
other favorable of unfavorable features.
Activity with respect to directors', officers' and significant
stockholders' loans is summarized as follows:
<TABLE>
<CAPTION>
Nine-months
ended
September 30, Year ended December 31
-------------------------
1993 1992 1991 1990
------------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance at
beginning of period $1,887,639 886,570 462,161 460,597
New loans 793,200 1,670,624 814,738 913,937
Repayments 398,609 669,555 390,329 912,373
- -----------------------------------------------------------------------
Balance at end of period $2,282,229 1,887,639 886,570 462,161
=======================================================================
</TABLE>
continue
F-54
<PAGE>
FIRST NATIONAL BANK OF DETROIT LAKES
Notes to Financial Statements
(unaudited)
The Bank has sold loan participations to affiliates with aggregate unpaid
principal balances of $22,957 and $31,997 at September 30, 1993 and
December 31, 1992, respectively.
The Bank services loans for affiliates with aggregate unpaid principal
balances of $2,584,147, $2,682,984 and $2,860,312 at September 30, 1993,
December 31, 1992 and December 31, 1991, respectively.
(14) SUBSEQUENT EVENT
On September 23, 1993, the Parent Company and Norwest Corporation (Norwest)
entered into an Agreement and Plan of Reorganization (the Agreement)
whereby the Parent Company would be merged into Norwest. All of the Parent
Company's outstanding common stock will be exchanged for Norwest common
stock. The number of shares of Norwest common stock to be received in
exchange for the Parent Company's common stock will be equal to 310,269
shares plus or minus the share equivalent of the amount of Bank equity in
excess of or less than $5,995,000 as of the last day of the month before
closing, as defined in the Agreement. The outstanding common stock of the
Bank that is not owned by the Parent Company is to be exchanged for 14,786
shares of Norwest common stock plus or minus the share equivalent of the
net liabilities or the net assets of the Parent Company, excluding its
investment in the Bank, as defined in the Agreement. The Agreement also
requires Norwest to pay off the Parent Company's notes payable to
affiliated parties.
The Agreement requires that, prior to the effective date of the merger, the
Bank shall ensure that certain loans aggregating $640,800 and $811,190 at
September 30, 1993 and December 31, 1992, respectively, are paid off;
establish additional accruals and loan loss reserves as may be necessary to
conform to the accounting and loan loss reserve practices of Norwest; and
provide for costs and expenses anticipated in the consummation of the
merger. The Bank will incur expenses of $897,942, prior to closing, which
represents additional compensation to executive officers, as provided by
the Agreement. This amount had not been accrued by the Bank as of
September 30, 1993. No further costs pursuant to the Agreement are
anticipated.
F-55
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF
REORGANIZATION AND
AGREEMENT AND PLAN OF MERGER
<PAGE>
AGREEMENT
AND
PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") entered into as of the
23rd day of September, 1993, by and between D.L. Bancshares, Inc. ("Company"), a
Minnesota corporation, First National Bank of Detroit Lakes, a national banking
association ("Bank"), and NORWEST CORPORATION ("Norwest"), a Delaware
corporation.
WHEREAS, the parties hereto desire to effect a reorganization whereby a
wholly-owned subsidiary of Norwest will merge with and into Company (the
"Merger") pursuant to an agreement of merger (the "Merger Agreement") in
substantially the form attached hereto as Exhibit A, which provides, among other
things, for the conversion and exchange of the shares of all of the common stock
of Company of the par value of $.01 per share ("Company Common Stock")
outstanding immediately prior to the time the Merger becomes effective in
accordance with the provisions of the Merger Agreement (the "Effective Time of
the Merger") into shares of voting Common Stock of Norwest of the par value of
$1-2/3 per share ("Norwest Common Stock"),
WHEREAS, Norwest desires that, immediately following the Merger, the Bank will
consolidate with a wholly-owned subsidiary of Norwest ("Norwest Bank") under the
charter of Bank (the "Consolidation") pursuant to an agreement of consolidation
(the "Consolidation Agreement") in substantially the form attached hereto as
Exhibit B, which provides, among other things, for the conversion and exchange
of the shares of voting common stock of the Bank, of the par value of $100 per
share, outstanding immediately prior to the time the Consolidation becomes
effective in accordance with the provisions of the Consolidation Agreement and
owned by shareholders other than Norwest ("Bank Common Stock") into shares of
Norwest Common Stock.
NOW, THEREFORE, to effect such reorganization and in consideration of the
premises and the mutual covenants and agreements contained herein, the parties
hereto do hereby represent, warrant, covenant and agree as follows:
1. BASIC PLAN OF REORGANIZATION
(a) Exchange of Shares. Shares of Company Common Stock and Bank Common
Stock outstanding immediately prior to the Effective Time of the Merger and the
Effective Time of the Consolidation (as defined below), as the case may be
(other than shares as to which statutory dissenters' appraisal rights have been
exercised) will be converted into and exchanged for 310,269 shares of Norwest
Common Stock
A-1
<PAGE>
which number of shares of Norwest Common Stock shall be (i) increased by
dividing the amount by which the Bank Equity as of the last day of the month
immediately preceding the Closing Date (defined in Section 1(f) below) exceeds
$5,995,000 by the Norwest Measurement Price (defined below), or (ii) decreased
by dividing the amount by which the Bank Equity as of the last day of the month
immediately preceding the Closing Date is less than $5,995,000 by the Norwest
Measurement Price (the adjusted total of Norwest Common Stock being referred to
herein as the "Aggregate Norwest Shares"). "Bank Equity" is defined as equity
of Bank as determined in accordance with generally accepted accounting
principles(excluding any adjustments for investments available for sale and
adjustments for marketable equity securities). The "Norwest Measurement Price"
is defined as the average of the closing prices of a share of Norwest Common
Stock as reported on the consolidated tape of the New York Stock Exchange for
the ten (10) trading days ending at the end of the tenth trading day immediately
preceding the Measurement Date. For purposes of the foregoing, the Measurement
Date shall be the first business day immediately preceding the Closing Date.
(b) Merger. Subject to the terms and conditions contained herein on the
Closing Date, a wholly owned subsidiary of Norwest (the "Merger Co.") will be
merged by statutory merger with and into Company pursuant to the Merger
Agreement, with Company as the surviving corporation, in which Merger each share
of Company Common Stock outstanding immediately prior to the Effective Time of
the Merger (other than shares as to which statutory dissenters' rights have been
exercised) will be converted into and exchanged for the number of shares of
Norwest Common Stock determined by subtracting the Variable Norwest Shares from
the Aggregate Norwest Shares and dividing the result thereof by the number of
shares of Company Common Stock outstanding immediately prior to the Effective
Time of the Merger. The Effective Time of the Merger shall occur upon the
filing of the Certificate of Merger with the Delaware Secretary of State (which
filing shall occur on the Closing Date or at such time thereafter as Norwest and
Company may agree in writing to provide in the Certificate of Merger).
(c) Consolidation. Following the Effective Time of the Merger and on the
terms and subject to the conditions set forth in this Agreement and the
Consolidation Agreement:
(i) the Bank will consolidate with Norwest Bank under the charter of Bank.
(ii) Each share of Bank Common Stock outstanding immediately prior to the
Effective Time of the Consolidation owned by shareholders other than Norwest
(other than shares as to which statutory dissenters' appraisal rights have
been exercised) will be converted into and exchanged for a number of shares
of Norwest Common Stock determined as follows: (A) subtracting (if a
positive number) or adding (if a negative number) the Company Assets from or
A-2
<PAGE>
to, as the case may be, the product of the Aggregate Norwest Shares
multiplied by the Norwest Measurement Price Consideration, (B) multiplying
the result thereof by 4.76%, (C) dividing the result thereof by the Norwest
Measurement Price (with the result of (A), (B), and (C) being the "Variable
Norwest Shares"), and (D) dividing the Variable Norwest Shares by the number
of shares of Bank Common Stock owned by shareholders other than Norwest
immediately prior to the Effective Time of the Consolidation. The "Company
Assets" are defined as the net assets (liabilities) of Company, other than
its shares in the Bank, as of the last day of the month immediately preceding
the Closing Date.
(iii) The Consolidation shall become effective at 12:01 a.m. on the date
specified in the Certificate of Approval of Consolidation to be issued by the
Office of the Comptroller of the Currency, which date shall be the first
business day after the Effective Date of the Merger (the "Effective Time of
the Consolidation").
(d) Norwest Common Stock Adjustments. If between the date hereof and the
Effective Time of the Merger shares of Norwest Common Stock shall be changed
into a different number of shares or a different class of shares by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment, or if a stock dividend thereon shall be declared with a
record date within such period, then the number of shares of Norwest Common
Stock into which a share of Company Common Stock or Bank Common Stock shall be
converted pursuant to subparagraphs (b) or (c) above, will be appropriately and
proportionately adjusted so that the number of such shares of Norwest Common
Stock or Bank Common Stock, as the case may be, into which a share of Company
Common Stock or Bank Common Stock, as the case may be, shall be converted will
equal the number of shares of Norwest Common Stock which holders of shares of
Company Common Stock or Bank Common Stock, as the case may be, would have
received pursuant to such reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or stock dividend had the
record date therefor been immediately following the Effective Time of the
Merger.
(e) Fractional Shares. No fractional shares of Norwest Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder thereof shall be paid an amount of cash
equal to the product obtained by multiplying the fractional share interest to
which such holder is entitled by the Norwest Measurement Price.
(f) Mechanics of Closing Merger. Subject to the terms and conditions set
forth herein, the closing of the Merger ("Closing") will take place at 10:00
a.m. Minneapolis time on the third business day after the last day of the
calendar month in which he conditions set forth in Section 7(e) of this
Agreement are satisfied unless any of the other conditions set forth in Sections
6 and 7 hereof shall not be satisfied or
A-3
<PAGE>
waived on such date, in which event, then on the third business day after the
last day of the calendar month in which the satisfaction or waiver of the latter
to occur of the conditions set forth in Sections 6 and 7 hereof (the "Closing
Date"). On the Closing Date or on such other date as may be agreed to by the
parties the Merger Agreement shall be executed and it or Articles of Merger or a
Certificate of Merger shall be filed with the Secretaries of State of the State
of Minnesota and Delaware (the "Closing Date"). Each of the parties agrees to
use its best efforts to cause the Merger to be completed as soon as practicable
after the receipt of final regulatory approval of the Merger and the expiration
of all required waiting periods. The time that the filing referred to in the
preceding sentence of this Section 1(f) is made is herein referred to as the
"Time of Filing". The day on which such filing is made and accepted is herein
referred to as the "Effective Date of the Merger". The Effective Time of the
Merger shall be 11:59 p.m. Minneapolis, Minnesota time on the Effective Date of
the Merger. At the Effective Time of the Merger on the Effective Date of the
Merger, the separate existence of Merger Co. shall cease and Merger Co. will be
merged with and into Company pursuant to the Merger Agreement.
The Closing of the transactions contemplated by this Agreement and the Merger
Agreement shall take place on the Closing Date at the offices of Norwest,
Norwest Center, Sixth and Marquette, Minneapolis, Minnesota.
(g) Payment of Certain Bank Stock Loans. On the Closing Date, immediately
after the Effective Time of Merger Norwest agrees to cause to be released all
liens that its affiliates have on the Bank Common Stock by reason of the loan
from Norwest Bank Minnesota, N.A. described on Schedule 2(b) to this Agreement.
Immediately after the Effective Time of the Merger, Norwest agrees to pay in
full those loans of the Company from the Exclusion Trusts (as defined in
Schedule 2(b) to this Agreement) and the loan to the Company from Sun Tree
Limited Partnership described in Schedule 2(o), in exchange for the release of
liens that such entities may have on the Bank Common Stock.
2. REPRESENTATIONS AND WARRANTIES OF COMPANY. Company represents and
warrants to Norwest as follows:
(a) Organization and Authority. Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Company and the "Company Subsidiary" (defined below)
taken as a whole and has corporate power and authority to own its properties and
assets and to carry on its business as it is now being conducted. Company is
registered as a bank holding company with the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended (the "BHC Act"). Company has
furnished Norwest true and correct copies of its articles of
A-4
<PAGE>
incorporation and by-laws, and the articles of association and by-laws of Bank
as amended.
(b) Company's Subsidiaries. The Company's only subsidiary (the "Company
Subsidiary") is the Bank, all shares of the outstanding capital stock of which,
except as set forth on Schedule 2(b), are owned directly or indirectly by
Company. No equity security of the Company Subsidiary is or may be required to
be issued by reason of any option, warrant, scrip, right to subscribe to, call
or commitment of any character whatsoever relating to, or security or right
convertible into, shares of any capital stock of such subsidiary, and there are
no contracts, commitments, understandings or arrangements by which the Company
Subsidiary is bound to issue additional shares of its capital stock, or any
option, warrant or right to purchase or acquire any additional shares of its
capital stock, except as set forth in Schedule 2(b). Subject to 12 U.S.C. (S)
55 (1982), and except as set forth on Schedule 2(b) hereto all of such shares so
owned by Company are fully paid and nonassessable and are owned by it free and
clear of any lien, claim, charge, option, encumbrance or agreement with respect
thereto. The Company Subsidiary is a national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted. Company does not own beneficially, directly or
indirectly, more than 5% of any class of equity securities or similar interests
of any corporation, bank (except the Bank), business trust, association or
similar organization, and is not, directly or indirectly, a partner in any
partnership or party to any joint venture.
(c) Capitalization. The authorized capital stock of Company consists of ___
1,000,000 shares of Class A voting common stock, $.01 par value, and 100,000
shares of Class B non-voting common stock, $.01 par value, of which 9,245 shares
of Class A and 83,204.99 shares of Class B are issued and outstanding, and the
authorized capital stock of Bank consists of 9,245 shares of voting common
stock, $100.00 par value, of which 9,245 shares are issued and outstanding which
amounts constitute the maximum number of shares of Company Common Stock
(assuming for this purpose that phantom shares and other share-equivalents
constitute Company Common Stock) and Bank Common Stock (not assuming for this
purpose that phantom shares and other share-equivalents constitute Bank Common
Stock) that would be outstanding as of the Effective Date of the Merger and
Consolidation, as the case may be if all options, warrants, conversion rights
and other rights with respect thereto were exercised. All of the outstanding
shares of capital stock of Company and Bank have been duly and validly
authorized and issued and are fully paid and nonassessable. Except as set forth
in Schedule 2(c) there are no outstanding subscriptions, contracts, conversion
privileges, options, warrants, calls or other rights obligating Company or Bank
to issue, sell or otherwise dispose of, or to purchase, redeem or otherwise
acquire, any shares of capital stock of Company or Bank. Since June 30, 1991 no
shares of Company capital stock or Bank Common Stock have been purchased,
redeemed or otherwise acquired, directly or indirectly, by Company or the Bank
and
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no dividends or other distributions have been declared, set aside, made or
paid to the shareholders of Company or Bank except as set forth in Schedule
2(c).
(d) Authorization. Company has the corporate power and authority to enter
into this Agreement and the Merger Agreement and Bank has the corporate power
and authority to enter into this Agreement and the Consolidation Agreement and,
subject to any required approvals of their respective shareholders, to carry out
their respective obligations hereunder and thereunder. The execution, delivery
and performance of this Agreement and the Merger Agreement by Company and of
this Agreement and the Consolidation Agreement by the Bank and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
the Board of Directors of Company and Bank, as the case may be. Subject to such
approvals of shareholders and of government agencies and other governing boards
having regulatory authority over Company and Bank as may be required by statute
or regulation, this Agreement and the Merger Agreement and the Consoldation
Agreement are valid and binding obligations of Company and Bank, as the case may
be, enforceable against Company and Bank in accordance with their respective
terms.
Neither the execution, delivery and performance by Company of this Agreement
or the Merger Agreement, and by the Bank of this Agreement and the Consolidation
Agreement, nor the consummation of the transactions contemplated hereby and
thereby, nor compliance by Company or Bank with any of the provisions hereof or
thereof, will (i) violate, conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration of, or result in the creation of, any lien, security interest,
charge or encumbrance upon any of the properties or assets of Company or Bank
under any of the terms, conditions or provisions of (x) its articles of
incorporation or by-laws or (y) any material note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation to
which Company or Bank is a party or by which it may be bound, or to which
Company or Bank or any of the properties or assets of Company or Bank may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of Company, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Company or Bank or any of their respective properties or assets.
Other than in connection or in compliance with the provisions of the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act"), the Securities Exchange Act of 1934 and the rules and regulations
thereunder (the "Exchange Act"), the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 ("HSR Act"), and filings required to effect the Merger under Minnesota
and Delaware law, no notice to, filing with, exemption or review by, or
authorization, consent or approval of, any
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public body or authority is necessary for the consummation by Company or Bank of
the transactions contemplated by this Agreement and the Merger Agreement and the
Consolidation Agreement.
(e) Company Financial Statements. The unaudited consolidated statements of
financial condition of Company and Bank as of December 31, 1992 and 1991 and
related consolidated statements of income, shareholders' equity and cash flows
for the three years ended December 31, 1992, together with the notes thereto,
and the unaudited consolidated statements of financial condition of Company and
Bank as of June 30, 1993 and the related unaudited consolidated statements of
income, shareholders' equity and cash flows for the 6 months then ended
(collectively, the "Company Financial Statements"), have been prepared in
accordance with generally accepted accounting principles (except as noted on the
Company Financial Statements) applied on a consistent basis and present fairly
(subject, in the case of financial statements for interim periods, to normal
recurring adjustments) the consolidated financial position of Company and Bank
at the dates and the consolidated results of operations and cash flows of
Company and Bank for the periods stated therein.
(f) Reports. Since December 31, 1988, except as set forth on Schedule 7(s),
Company and Bank have filed all reports, registrations and statements, together
with any required amendments thereto, that it was required to file with (i) the
Federal Reserve Board, (ii) the Federal Deposit Insurance Corporation (the
"FDIC"), (iii) the United States Comptroller of the Currency (the "Comptroller")
and (iv) any applicable state securities or banking authorities. Except as set
forth on Schedule 7(s), all such reports and statements filed with any such
regulatory body or authority are collectively referred to herein as the "Company
Reports". As of their respective dates, the Company Reports complied in all
material respects with all the rules and regulations promulgated by, the Federal
Reserve Board, the FDIC, the Comptroller and applicable state securities or
banking authorities, as the case may be, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Copies of all the
Company Reports have been made available to Norwest by Company.
(g) Properties and Leases. Except as may be reflected in the Company
Financial Statements and except for any lien for current taxes not yet
delinquent, Company and Bank have good title free and clear of any material
liens, claims, charges, options, encumbrances or similar restrictions to all the
real and personal property reflected in Company's consolidated balance sheet as
of June 30, 1993 for the period then ended, and all real and personal property
acquired since such date, except such real and personal property as has been
disposed of in the ordinary course of business. All leases of real property and
all other leases material to Company or Bank pursuant to which Company or Bank,
as lessee, leases real or personal property, which leases are described on
Schedule 2(g), are valid and effective in accordance with their
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respective terms, and there is not, under any such lease, any material existing
default by Company or Bank or any event which, with notice or lapse of time or
both, would constitute such a material default. Substantially all Company's and
Bank's buildings and equipment in regular use have been well maintained and are
in good and serviceable condition, reasonable wear and tear excepted.
(h) Taxes. Company and Bank have each filed all federal, state, county,
local and foreign tax returns, including information returns, required to be
filed by it, and paid all taxes owed by it, including those with respect to
income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Company and Bank for the fiscal year ended
December 31, 1989, and for all fiscal years prior thereto, are for the purposes
of routine audit by the Internal Revenue Service closed because of the statute
of limitations, and no claims for additional taxes for such fiscal years are
pending. Neither Company nor Bank is a party to any pending action or
proceeding, nor is any such action or proceeding threatened by any governmental
authority, for the assessment or collection of taxes, interest, penalties,
assessments or deficiencies and no issue has been raised by any federal, state,
local or foreign taxing authority in connection with an audit or examination of
the tax returns, business or properties of Company or Bank which has not been
settled, resolved and fully satisfied. Company and Bank have each paid all
taxes owed or which it is required to withhold from amounts owing to employees,
creditors or other third parties. The consolidated balance sheet as of June 30,
1993, referred to in paragraph 2(e) hereof, includes adequate provision for all
accrued but unpaid federal, state, county, local and foreign taxes, interest,
penalties, assessments or deficiencies of Company and Bank with respect to all
periods through the date thereof.
(i) Absence of Certain Changes. Since June 30, 1993 there has been no change
in the business, financial condition or results of operations of Company or
Bank, which has had, or may reasonably be expected to have, a material adverse
effect on the business, financial condition or results of operations of Company
and Bank taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 2(j), neither
Company nor Bank is a party or subject to any of the following (whether written
or oral, express or implied):
(i) any employment contract or understanding (including any
understandings or obligations with respect to severance or termination pay
liabilities or fringe benefits) with any present or former officer, director,
employee or consultant (other than those which are terminable at will by
Company or Bank);
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<PAGE>
(ii) any plan, contract or understanding providing for any bonus,
pension, option, deferred compensation, retirement payment, profit sharing or
similar arrangement with respect to any present or former officer, director,
employee or consultant;
(iii) any labor contract or agreement with any labor union;
(iv) any contract not made in the ordinary course of business containing
covenants which limit the ability of Company or Bank to compete in any line
of business or with any person or which involve any restriction of the
geographical area in which, or method by which, Company or Bank may carry on
its business (other than as may be required by law or applicable regulatory
authorities);
(v) any other contract or agreement which is a "material contract" within
the meaning of Item 601(b)(10) of Regulation S-K; or
(vi) any lease.
(k) Litigation and Other Proceedings. Company has furnished Norwest copies
of (i) all attorney responses to the request of the independent auditors for
Company with respect to loss contingencies as of December 31, 1992 in connection
with the Company financial statements and (ii) a written list of legal and
regulatory proceedings filed against Company or Bank since said date. Except as
set forth in Schedule 7(s) hereof, neither Company nor Bank is a party to any
pending or, to the best knowledge of Company, threatened, claim, action, suit,
investigation or proceeding, or is subject to any order, judgment or decree,
except for matters which, in the aggregate, will not have, or cannot reasonably
be expected to have, a material adverse effect on the business, financial
condition or results of operations of Company and the Bank taken as a whole.
(l) Insurance. Company and Bank are each presently insured, and during each
of the past five calendar years has been insured, for reasonable amounts with
insurance companies, which are, to the knowledge of Bank and Company,
financially sound and reputable, against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation. Bank is insured under a Banker's Blanket Bond, Form 24, which is in
full force and effect and the Bank has received no notice of cancellation
thereof.
(m) Compliance with Laws. Company and Bank each have all permits, licenses,
authorizations, orders and approvals of, and has made all filings, applications
and registrations with, federal, state, local or foreign governmental or
regulatory bodies that are required in order to permit it to own or lease its
properties and assets and to carry on its business as presently conducted and
that are material to the
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<PAGE>
business of Company or Bank; all such permits, licenses, certificates of
authority, orders and approvals are in full force and effect and, to the best
knowledge of Company, no suspension or cancellation of any of them is
threatened; and all such filings, applications and registrations are current.
The conduct by Company and Bank of its respective business and the condition
and use of its respective properties does not violate or infringe, in any
respect material to any such business, any applicable domestic (federal, state
or local) or foreign law, statute, ordinance, license or regulation. Except as
set forth on Schedule 7(s) neither Company nor Bank is in default under any
order, license, regulation or demand of any federal, state, municipal or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Neither Company nor Bank is subject to any cease and desist order,
written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from, or
has adopted any board resolutions at the request of federal or state
governmental authorities charged with the supervision or regulation of banks or
bank holding companies or engaged in the insurance of bank deposits ("Bank
Regulators"), nor, except as disclosed on Schedule 7(s), have any of them been
advised by any Bank Regulator that it is contemplating issuing or requesting (or
is considering the appropriateness of issuing or requesting) any such order,
directive, written agreement, memorandum of understanding, extraordinary
supervisory letter, commitment letter, board resolutions or similar undertaking.
Except for statutory or regulatory restrictions of general application, no
federal, state, municipal or other governmental authority has placed any
restriction on the business or properties of Company or Bank which reasonably
could be expected to have a material adverse effect on the business or
properties of Company and Bank taken as a whole.
(n) Labor. No work stoppage involving Company or Bank is pending or, to the
best knowledge of Company, threatened. Neither Company nor Bank is involved in,
or threatened with or affected by, any labor dispute, arbitration, lawsuit or
administrative proceeding which could materially and adversely affect the
business of Company or Bank. Employees of Company and Bank are not represented
by any labor union nor are any collective bargaining agreements otherwise in
effect with respect to such employees.
(o) Material Interests of Certain Persons.
(i) Except as set forth on Schedule 2(o), to the best knowledge of
Company no officer or director of Company or Bank, or any "associate" (as such
term is defined in Rule l4a-1 under the Exchange Act) of any such officer or
director, has any interest in any material contract or property (real or
personal), tangible or intangible, used in or pertaining to the business of
Company or Bank.
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(ii) Schedule 2(o) sets forth a correct and complete list of any loan
or extension of credit from Company or Bank and every covered transaction to
any present officer, director, principal shareholder, employee or any
associate or related interest or affiliate of any such person or of Company
or Bank which was required under Regulation O of the Federal Reserve Board
("Regulation O") to be approved by or reported to Company's or Bank's Board
of Directors or which is otherwise subject to the restrictions contained in
Regulation O or the provisions of 12 USC (S)371c and 12 USC (S)371c-1 ("23A
and 23B"). Except as set forth on Schedule 2(o) (as possibly affected by the
information contained on Schedule 7(s)), the Bank and Company are not in
violation of the provisions of Regulation O or 23A and 23B.
(p) Company Benefit Plans.
(i) The only "employee benefit plans" within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
for which Company or Bank acts as the plan sponsor as defined in ERISA
Section 3(16)(B), and with respect to which any liability under ERISA or
otherwise exists or may be incurred by Company or Bank are those set forth on
Schedule 2(p) (the "Plans"). Except as may be set forth on Schedule 2(p), no
Plan is a "multi-employer plan" within the meaning of Section 3(37) of ERISA.
(ii) Each Plan is and has been in all material respects operated and
administered in accordance with its provisions and applicable law. Except as
set forth on Schedule 2(p), Company or Bank have received favorable
determination letters from the Internal Revenue Service under the provisions
of the Tax Equity and Fiscal Responsibility Act ("TEFRA"), the Deficit
Reduction Act ("DEFRA") and the Retirement Equity Act ("REA") for each of the
Plans to which the qualification requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), apply. Company knows
of no reason that any Plan which is subject to the qualification provisions
of Section 401(a) of the Code is not "qualified" within the meaning of
Section 401(a) of the Code and that each related trust is not exempt from
taxation under Section 501(a) of the Code, except that any such Plan may not
have been amended to comply with the Tax Reform Act of 1986 (the "TRA") and
other recent legislation and regulations, although each such Plan is within
the remedial amendment period during which retroactive amendment may be made.
(iii) The present value of all benefits vested and all benefits accrued
under each Plan which is subject to Title IV of ERISA did not, in each case,
as determined for purposes of reporting on Schedule B to the Annual Report on
Form 5500 of each such Plan for the plan year ending December 31, 1992,
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<PAGE>
exceed the value of the assets of the Plan allocable to such vested or
accrued benefits.
(iv) Except as disclosed in Schedule 2(p), and to the best knowledge of
Company, no Plan or any trust created thereunder, nor any trustee, fiduciary
or administrator thereof, has engaged in a "prohibited transaction", as such
term is defined in Section 4975 of the Code or Section 406 of ERISA or
violated any of the fiduciary standards under Part 4 of Title I of ERISA
which could subject, to the best knowledge of Company, such Plan or trust, or
any trustee, fiduciary or administrator thereof, or any party dealing with
any such Plan or trust, to the tax or penalty on prohibited transactions
imposed by said Section 4975 or would result in material liability to Company
and Bank taken as a whole.
(v) No Plan which is subject to Title IV of ERISA or any trust created
thereunder has been terminated, nor have there been any "reportable events"
as that term is defined in Section 4043 of ERISA, with respect to any Plan,
other than those events which may result from the transactions contemplated
by this Agreement and the Merger Agreement and the Consolidation Agreement.
(vi) No Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), since the effective date of ERISA.
(vii) Except as disclosed in Schedule 2(p), neither the execution and
delivery of this Agreement and the Merger Agreement and the Consolidation
Agreement nor the consummation of the transactions contemplated hereby and
thereby will (i) result in any material payment (including, without
limitation, severance, unemployment compensation, golden parachute or
otherwise) becoming due to any director or employee or former employee of
Company or Bank under any Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Plan or (iii) result in the acceleration
of the time of payment or vesting of any such benefits to any material
extent.
(q) Proxy Statement, etc. None of the information regarding Company and Bank
supplied or to be supplied by Company for inclusion in (i) a Registration
Statement on Form S-4 to be filed with the SEC by Norwest for the purpose of
registering the shares of Norwest Common Stock to be exchanged for shares of
Company Common Stock and Bank Common Stock pursuant to the provisions of the
Merger Agreement and the Consolidation Agreement (the "Registration Statement"),
and (ii) any other documents to be filed with the SEC or any regulatory
authority in connection with the transactions contemplated hereby or by the
Merger Agreement or by the Consolidation Agreement will, at the respective times
such documents are filed with the SEC or any regulatory authority and, in the
case of the Registration Statement, when it becomes effective and, with respect
to any proxy statement
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<PAGE>
required to be mailed to shareholders of Bank or Company,
when mailed, be false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements therein not
misleading or, in the case of any proxy statement or any amendment thereof or
supplement thereto, at the time of the meeting of shareholders referred to in
paragraph 4(c), be false or misleading with respect to any material fact, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of any proxy for such
meeting. All documents which Company and Bank are responsible for filing with
the SEC and any other regulatory authority in connection with the Merger and the
Consolidation will comply as to form in all material respects with the
provisions of applicable law.
(r) Registration Obligations. Neither Company nor Bank is under any
obligation, contingent or otherwise, which will survive the Merger by reason of
any agreement to register any of its securities under the Securities Act.
(s) Brokers and Finders. Neither Company nor Bank nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for Company or Bank in connection with this Agreement and the Merger
Agreement or the Consolidation Agreement or the transactions contemplated hereby
and thereby.
(t) Administration of Trust Accounts. To the extent, if any, that the Bank
has engaged in "trust activities", Company and Bank have properly administered
in all respects material and which could reasonably be expected to be material
to the financial condition of Company and Bank taken as a whole all accounts for
which it acts as fiduciary, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative,guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
Neither Company, Bank, nor any director, officer or employee of Company or Bank
has committed any breach of trust with respect to any such fiduciary account
which is material to or could reasonably be expected to be material to the
financial condition of Company and Bank taken as a whole, and the accountings
for each such fiduciary account are true and correct in all material respects
and accurately reflect the assets of such fiduciary account.
(u) No Defaults. Except as set forth on Schedule 2(u), neither Company nor
Bank is in default, nor has any event occurred which, with the passage of time
or the giving of notice, or both, would constitute a default, under any material
agreement, indenture, loan agreement or other instrument to which it is a party
or by which it or any of its assets is bound or to which any of its assets is
subject, the result of which has had or could reasonably be expected to have a
material adverse effect upon Company and Bank, taken as a whole. To the best of
Company's knowledge, all parties with whom Company or Bank has material leases,
agreements or contracts or
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who owe to Company or Bank material obligations other than with respect to those
arising in the ordinary course of the banking business of Bank are in
compliance therewith in all material respects.
(v) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably be expected to result in the imposition of, on Company or any Company
Subsidiary, any liability arising from the release of hazardous substances under
any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Company's knowledge, threatened against Company or any Company Subsidiary the
result of which has had or could reasonably be expected to have a material
adverse effect upon Company and Company's Subsidiaries taken as a whole; to the
best of Company's knowledge there is no reasonable basis for any such
proceeding, claim or action; and to the best of Company's knowledge neither
Company nor any Company Subsidiary is subject to any agreement, order, judgment,
or decree by or with any court, governmental authority or third party imposing
any such environmental liability.
(w) Loan Documentation. To the knowledge of Company and Bank (and except to
the extent affected by the information on Schedule 7(s)), there is no defect in
the documentation of any loan made by Bank, or the creation or perfection of any
security interests, mortgages and other liens with respect to all collateral for
such any loan, that is material to or could reasonably be expected to be
material to the financial condition of Company and Bank taken as a whole.
(x) Disclosure. Neither this Agreement nor any of the appendices, Schedules
or attachments hereto contains any untrue statement of a material fact or omits
a material fact necessary to make the statements contained herein or therein not
misleading. There is no fact which has not been disclosed to Norwest pursuant
to the Agreement, the Schedules and Exhibits, which materially affects adversely
the business, operations or financial condition of Company and Bank taken as a
whole.
3. REPRESENTATIONS AND WARRANTIES OF NORWEST. Norwest represents and
warrants to Company as follows:
(a) Organization and Authority. Norwest is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
is duly qualified to do business and is in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and failure to be so qualified would have a
material adverse effect on Norwest and its subsidiaries taken as a whole and has
corporate power and authority to own its properties and assets and to carry on
its business as it is now being conducted. Norwest is registered as a bank
holding company with the Federal Reserve Board under the BHC Act.
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(b) Norwest Subsidiaries. Schedule 3(b) sets forth a complete and correct
list as of June 30, 1993, of Norwest's Significant Subsidiaries (as defined in
Regulation S-X promulgated by the SEC) (individually a "Norwest Subsidiary" and
collectively the "Norwest Subsidiaries"), all shares of the outstanding capital
stock of each of which, except as set forth in Schedule 3(b), are owned directly
or indirectly by Norwest. No equity security of any Norwest Subsidiary is or
may be required to be issued to any person or entity other than Norwest by
reason of any option, warrant, scrip, right to subscribe to, call or commitment
of any character whatsoever relating to, or security or right convertible into,
shares of any capital stock of such subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any Norwest Subsidiary is
bound to issue additional shares of its capital stock, or options, warrants or
rights to purchase or acquire any additional shares of its capital stock.
Subject to 12 U.S.C. (S) 55 (1982), all of such shares so owned by Norwest are
fully paid and nonassessable and are owned by it free and clear of any lien,
claim, charge, option, encumbrance or agreement with respect thereto. Each
Norwest Subsidiary is a corporation or national banking association duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and has corporate power and
authority to own or lease its properties and assets and to carry on its business
as it is now being conducted.
(c) Norwest Capitalization. The authorized capital stock of Norwest consists
of (i) 5,000,000 shares of Preferred Stock, without par value, of which as of
the close of business on August 31, 1993, 1,143,750 shares of 10.24% Cumulative
Preferred Stock at $100 stated value and 1,132,750 shares of Cumulative
Convertible Preferred Stock, Series B, at $200 stated value were outstanding,
and (ii) 500,000,000 shares of Common Stock, $1-2/3 par value, of which as of
the close of business on August 31, 1993, 290,472,163 shares were outstanding
and 2,627,305 shares were held in the treasury.
(d) Authorization. Norwest has the corporate power and authority to enter
into this Agreement and to carry out its obligations hereunder. The execution,
delivery and performance of this Agreement by Norwest and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of Norwest. No approval or consent by the stockholders of Norwest is
necessary for the execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby. Subject to such approvals of government agencies and other governing
boards having regulatory authority over Norwest as may be required by statute or
regulation, this Agreement is a valid and binding obligation of Norwest
enforceable against Norwest in accordance with its terms.
Neither the execution, delivery and performance by Norwest of this Agreement
or the Merger Agreement, nor the consummation of the transactions contemplated
hereby and thereby, nor compliance by Norwest with any of the provisions hereof
or
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<PAGE>
thereof, will (i) violate, conflict with, or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration of, or result in the creation of, any lien, security
interest, charge or encumbrance upon any of the properties or assets of Norwest
or any Norwest Subsidiary under any of the terms, conditions or provisions of
(x) its certificate of incorporation or by-laws or (y) any material note, bond,
mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Norwest or any Norwest Subsidiary is a party
or by which it may be bound, or to which Norwest or any Norwest Subsidiary or
any of the properties or assets of Norwest or any Norwest Subsidiary may be
subject, or (ii) subject to compliance with the statutes and regulations
referred to in the next paragraph, to the best knowledge of Norwest, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to Norwest or any Norwest Subsidiary or any of their respective
properties or assets.
Other than in connection with or in compliance with the provisions of the
Securities Act, the Exchange Act, the securities or blue sky laws of the various
states or filings, consents, reviews, authorizations, approvals or exemptions
required under the BHC Act or the HSR Act, and filings required to effect the
Merger under Minnesota and Delaware law, no notice to, filing with, exemption or
review by, or authorization, consent or approval of, any public body or
authority is necessary for the consummation by Norwest of the transactions
contemplated by this Agreement and the Merger Agreement.
(e) Norwest Financial Statements. The consolidated statements of financial
condition of Norwest and Norwest's subsidiaries as of December 31, 1991 and 1992
and related consolidated statements of income, stockholders' equity and cash
flows for the three years ended December 31, 1993, together with the notes
thereto, certified by KPMG Peat Marwick and included in Norwest's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 as amended by Form 8
dated March 3, 1993 (the "Norwest 10-K") as filed with the SEC, and the
unaudited consolidated balance sheets of Norwest and its subsidiaries as of
____________ June 30, 1993 and the related unaudited consolidated statements of
income and cash flows for the 6 months then ended included in Norwest's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1993, as
filed with the SEC (collectively, the "Norwest Financial Statements"), have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and present fairly (subject, in the case of financial
statements for interim periods, to normal recurring adjustments) the
consolidated financial position of Norwest and its subsidiaries at the dates and
the consolidated results of operations, changes in financial position and cash
flows of Norwest and its subsidiaries for the periods stated therein.
(f) Reports. Since December 31, 1989, Norwest and each Norwest Subsidiary
has filed all reports, registrations and statements, together with any required
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amendments thereto, that it was required to file with (i) the SEC, including,
but not limited to, Forms 10-K, Forms 10-Q and proxy statements, (ii) the
Federal Reserve Board, (iii) the FDIC, (iv) the Comptroller and (v) any
applicable state securities or banking authorities. All such reports and
statements filed with any such regulatory body or authority are collectively
referred to herein as the "Norwest Reports". As of their respective dates, the
Norwest Reports complied in all material respects with all the rules and
regulations promulgated by the SEC, the Federal Reserve Board, the FDIC, the
Comptroller and any applicable state securities or banking authorities, as the
case may be, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) Properties and Leases. Except as may be reflected in the Norwest
Financial Statements and except for any lien for current taxes not yet
delinquent, Norwest and each Norwest Subsidiary has good title free and clear of
any material liens, claims, charges, options, encumbrances or similar
restrictions to all the real and personal property reflected in Norwest's
consolidated balance sheet as of ___________ June 30, 1993 included in Norwest's
Quarterly Report on Form 10-Q for the period then ended, and all real and
personal property acquired since such date, except such real and personal
property has been disposed of in the ordinary course of business. All leases of
real property and all other leases material to Norwest or any Norwest Subsidiary
pursuant to which Norwest or such Norwest Subsidiary, as lessee, leases real or
personal property, are valid and effective in accordance with their respective
terms, and there is not, under any such lease, any material existing default by
Norwest or such Norwest Subsidiary or any event which, with notice or lapse of
time or both, would constitute such a material default. Substantially all
Norwest's and each Norwest Subsidiary's buildings and equipment in regular use
have been well maintained and are in good and serviceable condition, reasonable
wear and tear excepted.
(h) Taxes. Each of Norwest and the Norwest Subsidiaries has filed all
material federal, state, county, local and foreign tax returns, including
information returns, required to be filed by it, and paid or made adequate
provision for the payment of all taxes owed by it, including those with respect
to income, withholding, social security, unemployment, workers compensation,
franchise, ad valorem, premium, excise and sales taxes, and no taxes shown on
such returns to be owed by it or assessments received by it are delinquent. The
federal income tax returns of Norwest and the Norwest Subsidiaries for the
fiscal year ended December 31, 1979, and for all fiscal years prior thereto, are
for the purposes of routine audit by the Internal Revenue Service closed because
of the statute of limitations, and no claims for additional taxes for such
fiscal years are pending. Except only as set forth on Schedule 3(h), (i)
neither Norwest nor any Norwest Subsidiary is a party to any pending action or
proceeding, nor to Norwest's knowledge is any such action or proceeding
threatened by any governmental authority, for the assessment or collection of
taxes, interest, penalties, assessments or deficiencies which could reasonably
be expected to
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have any material adverse effect on Norwest and its subsidiaries taken as a
whole, and (ii) no issue has been raised by any federal, state, local or foreign
taxing authority in connection with an audit or examination of the tax returns,
business or properties of Norwest or any Norwest Subsidiary which has not been
settled, resolved and fully satisfied, or adequately reserved for. Each of
Norwest and the Norwest Subsidiaries has paid all taxes owed or which it is
required to withhold from amounts owing to employees, creditors or other third
parties.
(i) Absence of Certain Changes. Since June 30, 1993, there has been no
change in the business, financial condition or results of operations of Norwest
or any Norwest Subsidiary which has had, or may reasonably be expected to have,
a material adverse effect on the business, financial condition or results of
operations of Norwest and its subsidiaries taken as a whole.
(j) Commitments and Contracts. Except as set forth on Schedule 3(j), as of
the date hereof neither Norwest nor any Norwest Subsidiary is a party or subject
to any of the following (whether written or oral, express or implied):
(i) any labor contract or agreement with any labor union;
(ii) any contract not made in the ordinary course of business containing
covenants which materially limit the ability of Norwest or any Norwest
Subsidiary to compete in any line of business or with any person or which
involve any material restriction of the geographical area in which, or method
by which, Norwest or any Norwest Subsidiary may carry on its business (other
than as may be required by law or applicable regulatory authorities);
(iii) any other contract or agreement which is a "material contract"
within the meaning of Item 601(b)(10) of Regulation S-K.
(k) Litigation and Other Proceedings. Neither Norwest nor any Norwest
Subsidiary is a party to any pending or, to the best knowledge of Norwest,
threatened, claim, action, suit, investigation or proceeding, or is subject to
any order, judgment or decree, except for matters which, in the aggregate, will
not have, or cannot reasonably be expected to have, a material adverse effect on
the business, financial condition or results of operations of Norwest and its
subsidiaries taken as a whole.
(l) Insurance. Norwest and each Norwest Subsidiary is presently insured or
self insured, and during each of the past five calendar years (or during such
lesser period of time as Norwest has owned such Norwest Subsidiary) has been
insured or self-insured, for reasonable amounts with financially sound and
reputable insurance companies against such risks as companies engaged in a
similar business would, in accordance with good business practice, customarily
be insured and has maintained all insurance required by applicable law and
regulation.
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(m) Compliance with Laws. Norwest and each Norwest Subsidiary has all
permits, licenses, authorizations, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit it to own
or lease its properties or assets and to carry on its business as presently
conducted and that are material to the business of Norwest or such Subsidiary;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect, and to the best knowledge of Norwest, no suspension or
cancellation of any of them is threatened; and all such filings, applications
and registrations are current. The conduct by Norwest and each Norwest
Subsidiary of its business and the condition and use of its properties does not
violate or infringe, in any respect material to any such business, any
applicable domestic (federal, state or local) or foreign law, statute,
ordinance, license or regulation. Neither Norwest nor any Norwest Subsidiary is
in default under any order, license, regulation or demand of any federal, state,
municipal or other governmental agency or with respect to any order, writ,
injunction or decree of any court. Except for statutory or regulatory
restrictions of general application, no federal, state, municipal or other
governmental authority has placed any restrictions on the business or properties
of Norwest or any Norwest Subsidiary which reasonably could be expected to have
a material adverse effect on the business or properties of Norwest and its
subsidiaries taken as a whole.
(n) Labor. No work stoppage involving Norwest or any Norwest Subsidiary is
pending or, to the best knowledge of Norwest, threatened. Neither Norwest nor
any Norwest Subsidiary is involved in, or threatened with or affected by, any
labor dispute, arbitration, lawsuit or administrative proceeding which could
materially and adversely affect the business of Norwest or such Norwest
Subsidiary. Except as set forth on Schedule 3(j), employees of Norwest and the
Norwest Subsidiaries are not represented by any labor union nor are any
collective bargaining agreements otherwise in effect with respect to such
employees.
(o) Norwest Benefit Plans.
(i) As of the date hereof, the only "employee benefit plans" within the
meaning of Section 3(3) of ERISA for which Norwest or any Norwest Subsidiary
acts as plan sponsor as defined in ERISA Section 3(16)(B) with respect to
which any liability under ERISA or otherwise exists or may be incurred by
Norwest or any Norwest Subsidiary are those set forth on Schedule 3(o) (the
"Norwest Plans"). No Norwest Plan is a "multi-employer plan" within the
meaning of Section 3(37) of ERISA.
(ii) Each Norwest Plan is and has been in all material respects operated
and administered in accordance with its provisions and applicable law.
Except as set forth on Schedule 3(o), Norwest or the Norwest Subsidiaries
have received favorable determination letters from the Internal Revenue
Service under the provisions of the Tax Equity and Fiscal Responsibility Act
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("TEFRA"), the Deficit Reduction Act ("DEFRA") and the Retirement Equity Act
("REA") for each of the Norwest Plans to which the qualification requirements
of Section 401(a) of the Code apply. Norwest knows of no reason that any
Norwest Plan which is subject to the qualification provisions of Section
401(a) of the Code is not "qualified" within the meaning of Section 401(a) of
the Code and that each related trust is not exempt from taxation under
Section 501(a) of the Code, except that any such Norwest Plan may not have
been amended to comply with TRA and other recent legislation and regulations,
although each such Norwest Plan is within the remedial amendment period
during which retroactive amendment may be made.
(iii) The present value of all benefits vested and all benefits accrued
under each Norwest Plan which is subject to Title IV of ERISA did not, in
each case, as determined for purposes of reporting on Schedule B to the
Annual Report on Form 5500 of each such Norwest Plan for the plan year ending
December 31, 1992, exceed the value of the assets of the Norwest Plans
allocable to such vested or accrued benefits.
(iv) Except as set forth on Schedule 3(o), and to the best knowledge of
Norwest, no Norwest Plan or any trust created thereunder, nor any trustee,
fiduciary or administrator thereof, has engaged in a "prohibited
transaction", as such term is defined in Section 4975 of the Code or Section
406 of ERISA or violated fiduciary standards under Part 4 of Title I of
ERISA, which could subject, to the best knowledge of Norwest, such Norwest
Plan or trust, or any trustee, fiduciary or administrator thereof, or any
party dealing with any such Norwest Plan or trust, to the tax or penalty on
prohibited transactions imposed by said Section 4975 or would result in
material liability to Norwest and its subsidiaries taken as a whole.
(v) Except as set forth on Schedule 3(o), no Norwest Plan which is
subject to Title IV of ERISA or any trust created thereunder has been
terminated, nor have there been any "reportable events" as that term is
defined in Section 4043 of ERISA with respect to any Norwest Plan, other than
those events which may result from the transactions contemplated by this
Agreement and the Merger Agreement.
(vi) No Norwest Plan or any trust created thereunder has incurred any
"accumulated funding deficiency", as such term is defined in Section 412 of
the Code (whether or not waived), during the last five Norwest Plan years
which would result in a material liability.
(vii) Neither the execution and delivery of this Agreement and the
Merger Agreement nor the consummation of the transactions contemplated hereby
and thereby will (i) result in any material payment (including, without
limitation, severance, unemployment compensation, golden parachute or
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otherwise) becoming due to any director or employee or former employee of
Norwest under any Norwest Plan or otherwise, (ii) materially increase any
benefits otherwise payable under any Norwest Plan or (iii) result in the
acceleration of the time of payment or vesting of any such benefits to any
material extent.
(p) Registration Statement, etc. None of the information regarding Norwest
and its subsidiaries supplied or to be supplied by Norwest for inclusion in (i)
the Registration Statement, (ii) the Proxy Statement, or (iii) any other
documents to be filed with the SEC or any regulatory authority in connection
with the transactions contemplated hereby or by the Merger Agreement will, at
the respective times such documents are filed with the SEC or any regulatory
authority and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when mailed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the meeting of shareholders referred to in paragraph 4(c), be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of any proxy for such meeting. All documents which Norwest and
the Norwest Subsidiaries are responsible for filing with the SEC and any other
regulatory authority in connection with the Merger will comply as to form in all
material respects with the provisions of applicable law.
(q) Brokers and Finders. Neither Norwest nor any Norwest Subsidiary nor any
of their respective officers, directors or employees has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for Norwest or any Norwest Subsidiary in connection with this
Agreement and the Merger Agreement or the transactions contemplated hereby and
thereby.
(r) No Defaults. Neither Norwest nor any Norwest Subsidiary is in default,
nor has any event occurred which, with the passage of time or the giving of
notice, or both, would constitute a default under any material agreement,
indenture, loan agreement or other instrument to which it is a party or by which
it or any of its assets is bound or to which any of its assets is subject, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole. To the best
of Norwest's knowledge, all parties with whom Norwest or any Norwest Subsidiary
has material leases, agreements or contracts or who owe to Norwest or any
Norwest Subsidiary material obligations other than with respect to those arising
in the ordinary course of the banking business of the Norwest Subsidiaries are
in compliance therewith in all material respects.
(s) Environmental Liability. There is no legal, administrative, or other
proceeding, claim, or action of any nature seeking to impose, or that could
reasonably
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be expected to result in the imposition, on Norwest or any Norwest
Subsidiary of any liability arising from the release of hazardous substances
under any local, state or federal environmental statute, regulation or ordinance
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, pending or to the best of
Norwest's knowledge, threatened against Norwest or any Norwest Subsidiary, the
result of which has had or could reasonably be expected to have a material
adverse effect upon Norwest and its subsidiaries taken as a whole; to the best
of Norwest's knowledge there is no reasonable basis for any such proceeding,
claim or action; and to the best of Norwest's knowledge neither Norwest nor any
Norwest Subsidiary is subject to any agreement, order, judgment, or decree by or
with any court, governmental authority or third party imposing any such
environmental liability.
(t) Merger Co. As of the Closing Date, Merger Co. will be a corporation duly
organized, validly existing, duly qualified to do business and in good standing
under the laws of its jurisdiction of incorporation, and will have corporate
power and authority to own or lease its properties and assets and to carry on
its business.
4. COVENANTS OF COMPANY. Company covenants and agrees with Norwest as
follows:
(a) Except as otherwise permitted or required by this Agreement, from the
date hereof until the Effective Time of the Merger, Company, and each Company
Subsidiary will: (i) maintain its corporate existence in good standing; (ii)
maintain the general character of its business and conduct its business in its
ordinary and usual manner; (iii) extend credit only in accordance with
Subsection 4(q) below; (iv) maintain proper business and accounting records in
accordance with generally accepted accounting principles; (v) maintain its
properties in good repair and condition, ordinary wear and tear excepted; (vi)
maintain in all material respects presently existing insurance coverage; (vii)
use its reasonable best efforts to preserve its business organization intact, to
keep the services of its present principal employees and to preserve its good
will and the good will of its suppliers, customers and others having business
relationships with it; (viii) use its reasonable best efforts to obtain any
approvals or consents required to maintain existing leases and other contracts
in effect following the Merger; (ix) comply in all material respects with all
laws, regulations, ordinances, codes, orders, licenses and permits applicable to
the properties and operations of Company and Bank the non-compliance with which
reasonably could be expected to have a material adverse effect on Company and
the Company Subsidiaries taken as a whole; and (x) permit Norwest and its
representatives (including KPMG Peat Marwick) to examine its and Bank's books,
records and properties and to interview officers, employees and agents at all
reasonable times when it is open for business in any manner that is not unduly
disruptive to the business of Company and the Bank. No such examination by
Norwest or its representatives either before or after the date of this Agreement
shall in any way affect, diminish or terminate any of the representations,
warranties or covenants of Company herein expressed.
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(b) Except as otherwise contemplated or required by this Agreement, from the
date hereof until the Effective Time of the Merger, Company and Bank will not
(without the prior written consent of Norwest): (i) amend or otherwise change
its articles of incorporation or association or by-laws; (ii) issue or sell or
convert or authorize for issuance or sale or conversion of, or grant any options
or make other agreements with respect to the issuance or sale or conversion of,
any shares of its capital stock, phantom shares or other share-equivalents, or
any other of its securities; (iii) authorize or incur any long-term debt (other
than deposit liabilities); (iv) mortgage, pledge or subject to lien or other
encumbrance any of its properties, except in the ordinary course of business;
(v) enter into any material agreement, contract or commitment in excess of
$10,000 except banking transactions in the ordinary course of business and in
accordance with policies in effect on the date hereof; (vi) make any
investments, except investments made by Bank consistent with the Bank's current
investment policy and guidelines effective on the date of this Agreement, a true
copy of which is attached as Schedule 4(b) in the ordinary course of business
for terms of up to one (1) year and in amounts of $100,000 or less or except
with the consent of Norwest ; (vii) amend or terminate any Plan except as
required by law or as contemplated by Section 4(j) hereof; (viii) make any
contributions to any Plan except as required by the terms of such Plan in effect
as of the date hereof; (ix) declare, set aside, make or pay any dividend or
other distribution with respect to Company's capital stock, or redeem, purchase
or otherwise acquire, directly or indirectly, any of the capital stock of
Company or Bank; (x) increase the compensation of any officers, directors or
executive employees, except pursuant to existing compensation plans and
practices and except as set forth in Schedule 4(b); (xi) sell or otherwise
dispose of any shares of the capital stock of Bank; (xii) sell, assign, transfer
or otherwise dispose of any of its assets or properties, except in the ordinary
course of business; or (xiii) sell or trade, or enter into any agreement to sell
or trade, any of the Bank's investment securities prior to their maturity,
except with the consent of Norwest. Any consent of Norwest for the Company
and/or the Bank to engage in the actions proscribed by Subsections 4(b)(vi) and
(xiii) should be deemed to be granted on the close of business on the first
business day following a request for consent to Norwest unless by that time
Norwest has notified the Bank of its refusal to consent thereto based upon the
information provided to Norwest. All requests to Norwest under this Section
4(b) shall be made during normal working hours of business days, and no consent
shall be unduly delayed or unreasonably withheld by Norwest.
(c) Shareholder Actions.
(i) The Board of Directors of Company will duly call, and will cause to
be held not later than forty-five (45) days following the effective date of
the Registration Statement referred to in paragraph 5(c) hereof, a meeting of
its shareholders and will direct that this Agreement and the Merger Agreement
be submitted to a vote at such meeting. The Board of Directors of Company
will (A) cause proper notice of such meeting to be given to its shareholders
in
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compliance with the Minnesota Business Corporation Act and other applicable
law and regulation, (B) recommend by the affirmative vote of the Board of
Directors a vote in favor of approval of this Agreement and the Merger
Agreement, and (C) use its best efforts to solicit from its shareholders
proxies in favor thereof.
(ii) The Board of Directors of the Bank will duly call, and will cause
to be held not later than forty-five (45) days following the effective date
of the Registration Statement referred to in paragraph 5(c) hereof, a meeting
of its shareholders and will direct that this Agreement and the Consolidation
Agreement be submitted to a vote at such meeting. The Board of Directors of
the Bank will (A) cause proper notice of such meeting to be given to its
shareholders in compliance with applicable law and regulation, (B) recommend
by the affirmative vote of the Board of Directors a vote in favor of approval
of this Agreement and the Consolidation Agreement, and (C) use its best
efforts to solicit from its shareholders proxies in favor thereof.
(d) Company will, upon request by Norwest, furnish or cause to be furnished
to Norwest all the information concerning Company and Bank required for
inclusion in the Registration Statement referred to in paragraph 5(c) hereof,
including financial statements audited by KPMG Peat Marwick which comply as to
form in all material respects with the applicable accounting requirements of the
Securities Act and the published rules and regulations thereunder, and which
otherwise are required or necessary to be filed or included in the Registration
Statement, or any statement or application made by Norwest to any governmental
body in connection with the transactions contemplated by this Agreement and use
its reasonable efforts to cause the "Registration Statement" referred to therein
to become effective as promptly as practicable after filing. The costs of the
audit by KPMG Peat Marwick referred to in the prior sentence will be divided
equally by Bank and Norwest.
(e) Company will take all necessary corporate and other action and use its
best efforts to obtain all approvals of regulatory authorities, consents and
other approvals required of Company to carry out the transactions contemplated
by this Agreement and will cooperate with Norwest to obtain all such approvals
and consents required of Norwest.
(f) Company will deliver to the Closing all opinions, certificates and other
documents required to be delivered by it at the Closing.
(g) Company will hold in confidence all documents and information concerning
Norwest and its subsidiaries furnished to Company and its representatives in
connection with the transactions contemplated by this Agreement and will not
release or disclose such information to any other person, except as required by
law and except to Company's outside professional advisers in connection with
this Agreement, with the same undertaking from such professional advisers. If
the transactions
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contemplated by this Agreement shall not be consummated, such confidence shall
be maintained and such information shall not be used in competition with Norwest
(except to the extent that such information can be shown to be previously known
to Company, in the public domain, or later acquired by Company from other
legitimate sources) and, upon request, all such documents, any copies thereof
and extracts therefrom shall immediately thereafter be returned to Norwest.
(h) Neither Company, nor Bank, nor any director, officer, representative or
agent thereof, will, directly or indirectly, solicit, authorize the solicitation
of or enter into any discussions with any corporation, partnership, person or
other entity or group (other than Norwest) concerning any offer or possible
offer (i) to purchase any shares of common stock, any option or warrant to
purchase any shares of common stock, any securities convertible into any shares
of such common stock, or any other equity security of Company or Bank, (ii) to
make a tender or exchange offer for any shares of such common stock or other
equity security, (iii) to purchase, lease or otherwise acquire the assets of
Company or Bank except in the ordinary course of business, or (iv) to merge,
consolidate or otherwise combine with Company or Bank. If any corporation,
partnership, person or other entity or group makes an offer or inquiry to
Company or Bank concerning any of the foregoing, Company or Bank will promptly
disclose such offer or inquiry, including the terms thereof, to Norwest.
(i) Company shall consult with Norwest as to the form and substance of any
proposed press release or other proposed public disclosure of matters related to
this Agreement or any of the transactions contemplated hereby.
(j) Company and Bank will take all action necessary or required (i) to
terminate or amend, if requested by Norwest, all qualified pension and welfare
benefit plans and all non-qualified benefit plans and compensation arrangements
as of the Effective Date of the Merger, (ii) to amend the Plans to comply with
the provisions of the TRA and regulations thereunder and other applicable law,
and (iii) to submit application to the Internal Revenue Service for a favorable
determination letter for each of the Plans which is subject to the qualification
requirements of Section 401(a) of the Code prior to the Effective Date of the
Merger, provided that Company and Bank will not be required to submit such
application to the Internal Revenue Service if the Internal Revenue Service does
not accept such applications prior to the Effective Date of the Merger.
(k) Neither Company nor Bank shall take any action which with respect to
Company would disqualify the Merger as a "pooling of interests" for accounting
purposes.
(l) Company shall use its reasonable efforts to obtain and deliver at least
32 days prior to the Effective Date of the Merger signed representations
substantially in the form attached hereto as Exhibit C to Norwest by each
executive officer, director or
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shareholder of Company who may reasonably be deemed an "affiliate" of Company
within the meaning of such term as used in Rule 145 under the Securities Act.
(m) At the request of Norwest, Company shall establish such additional
accruals and reserves as may be necessary to conform Company's and Bank's
accounting and credit loss reserve practices and methods to those of Norwest and
Norwest's plans with respect to the conduct of Company's and Bank's business
following the Merger and to provide for the costs and expenses relating to the
consummation by Company of the Merger and the other transactions contemplated by
this Agreement, which additional accruals and reserves will not affect the
definition of Bank Equity as set forth in Section 1(b) hereof.
(n) Company shall cause Bank to, no later than the month end immediately
preceding the Closing Date, and shall accrue all compensation, bonuses and
incentives due executive officers, and employees of the Bank (including any
arising under any phantom stock, bonus or other incentive plans and all deferred
compensation and including specifically, without limitation, the agreements
referred to on Schedule 2(j) items 1, 2 and 3).
(o) For purposes of calculating Bank Equity, Company and Bank shall not allow
Bank's loan loss reserve to fall below $689,000, except as a result of charge
offs (excluding, however, any charge off for any loan listed on Schedule 7(s)),
shall make provision for the loans listed on Schedule 7(s) to the extent
required by generally accepted accounting principles, and, for purposes of
calculating Bank Equity, shall not be required to increase the loan loss reserve
except to the extent of 75 basis points, for every dollar by which the aggregate
amount of all loans outstanding is greater than the aggregate amount of all
loans outstanding as of June 30, 1993.
(p) Company will cooperate with Norwest for the obtaining of Phase I and such
Phase II environmental reports as Norwest may request for properties of the
Company, the cost of which shall be the responsibility of Norwest.
(q)(i) From the date hereof until the Effective Time of the Merger, the
Company shall not permit the Bank to make and the Bank shall not make Extensions
of Credit (defined below) that do not comply with the restrictions set forth in
this Subsection 4(q). The term "Extensions of Credit" shall mean all loans and
extensions of credit (as those terms are defined in 12 USC (S)84 and 12 CFR part
32), including all loans, commitments to make loans, renewals, modifications,
overdrafts and all other extensions of credit of any kind to Bank customers or
on behalf of Bank customers. The following restrictions shall apply for
Extensions of Credit by the Bank: (A) all Extensions of Credit shall be made in
compliance with the Bank's lending policies effective as of the date hereof and
shall be duly rated 1, 2, 3 or 4 by the Bank in accordance with its internal
loan rating system as set forth in its lending policies effective on the date
hereof, except as otherwise authorized by Norwest in writing; (B) no Extensions
of Credit shall be made to any principal shareholder, officer or director
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of the Bank or any member of the immediate family of any principal shareholder,
officer or director of the Bank, or any related interest or affiliate thereof or
of the Bank or Company, or any trust for the benefit thereof, except as
authorized by Norwest in writing; (C) all Extensions of Credit shall be made in
compliance with all applicable federal regulations; (D) no Extension of Credit
in excess of $100,000 in principal amount (in the aggregate for all loans which
are required to be combined as provided in 12 USC (S)84 or 12 CFR Part 32) shall
be made by the Bank except to the extent that there has been a determination by
Norwest that such Extension of Credit would be rated 1, 2, 3 or 4 under Bank's
normal loan rating system or Norwest has otherwise consented to such Extension
of Credit; and (E) Bank shall not increase any Extension of Credit by $25,000 or
more of any Extension of Credit on Bank's watch list without the prior written
consent of Norwest.
(ii) Any consent, approval or determination required to be made pursuant to
this Subsection 4(q) as a condition for any Extension of Credit by the Bank
shall be deemed to have been made by the end of business of the first full
succeeding business day after the business day a final complete Loan Credit
Approval Presentation, is received by Norwest by facsimile, unless Norwest
transmits a written objection to such Extension of Credit within that time. Any
consent request from Norwest hereunder shall not be unreasonably withheld.
5. COVENANTS OF NORWEST. Norwest covenants and agrees with Company as
follows:
(a) From the date hereof until the Effective Time of the Merger, Norwest will
maintain its corporate existence in good standing; conduct, and cause the
Norwest Subsidiaries to conduct, their respective businesses in compliance with
all material obligations and duties imposed on them by all laws, governmental
regulations, rules and ordinances, and judicial orders, judgments and decrees
applicable to Norwest or the Norwest Subsidiaries, their businesses or their
properties; maintain all books and records of it and the Norwest Subsidiaries,
including all financial statements, in accordance with the accounting principles
and practices consistent with those used for the Norwest Financial Statements,
except for changes in such principles and practices required under generally
accepted accounting principles.
(b) Norwest will furnish to Company all the information concerning Norwest
required for inclusion in a proxy statement or statements to be sent to the
shareholders of Company or Bank, or in any statement or application made by
Company or Bank to any governmental body in connection with the transactions
contemplated by this Agreement.
(c) As promptly as practicable after the execution of this Agreement, Norwest
will file with the SEC a registration statement on Form S-4 (the "Registration
Statement") under the Securities Act and any other applicable documents,
relating to the shares of Norwest Common Stock to be delivered to the
shareholders of Company
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pursuant to the Merger Agreement, and each of Norwest and Company will use their
reasonable efforts to cause the Registration Statement to become effective as
promptly as practicable after filing. At the time the Registration Statement
becomes effective, the Registration Statement will comply in all material
respects with the provisions of the Securities Act and the published rules and
regulations thereunder, and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not false or misleading, and at the time of
mailing thereof to the Company shareholders, at the time of the Company
shareholders' meeting referred to in paragraph 4(c) hereof and at the Effective
Time of the Merger the prospectus included as part of the Registration
Statement, as amended or supplemented by any amendment or supplement filed by
Norwest (hereinafter the "Prospectus"), will not contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein not false or misleading; provided, however, that none of the
provisions of this subparagraph shall apply to statements in or omissions from
the Registration Statement or the Prospectus made in reliance upon and in
conformity with information furnished by Company or Bank for use in the
Registration Statement or the Prospectus.
(d) Norwest will file all documents required to be filed to list the Norwest
Common Stock to be issued pursuant to the Merger Agreement on the New York Stock
Exchange and the Midwest Stock Exchange in a timely manner and use its best
efforts to effect said listings.
(e) The shares of Norwest Common Stock to be issued by Norwest to the
shareholders of Company and Bank (other than Norwest) pursuant to this Agreement
and the Merger Agreement and the Consolidation Agreement will, upon such
issuance and delivery to said shareholders pursuant to the Merger Agreement and
Consolidation Agreement, be duly authorized, validly issued, fully paid and
nonassessable. The shares of Norwest Common Stock to be delivered to the
shareholders of Company and Bank pursuant to the Merger Agreement and
Consolidation Agreement are and will be free of any preemptive rights of the
stockholders of Norwest.
(f) Norwest will file all documents required to obtain prior to the Effective
Time of the Merger all necessary Blue Sky permits and approvals, if any,
required to carry out the transactions contemplated by this Agreement, will pay
all expenses incident thereto and will use its best efforts to obtain such
permits and approvals.
(g) Norwest will take all necessary corporate and other action and file on a
timely basis all documents required to obtain and will use its reasonable
efforts to obtain all approvals of regulatory authorities, consents and
approvals required of it to carry out the transactions contemplated by this
Agreement and will cooperate with Company to obtain all such approvals and
consents required by Company.
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(h) Norwest will hold in confidence all documents and information concerning
Company and Bank furnished to it and its representatives in connection with the
transactions contemplated by this Agreement and will not release or disclose
such information to any other person, except as required by law and except to
its outside professional advisers in connection with this Agreement, with the
same undertaking from such professional advisers. If the transactions
contemplated by this Agreement shall not be consummated, such confidence shall
be maintained and such information shall not be used in competition with Company
(except to the extent that such information can be shown to be previously known
to Norwest, in the public domain, or later acquired by Norwest from other
legitimate sources) and, upon request, all such documents, copies thereof or
extracts therefrom shall immediately thereafter be returned to Company.
(i) Norwest will file any documents or agreements required to be filed in
connection with the Merger under the Minnesota Corporation Act and the Delaware
General Corporation Law.
(j) Norwest will use its reasonable efforts to deliver to the Closing all
opinions, certificates and other documents required to be delivered by it at the
Closing.
(k) Norwest shall consult with Company as to the form and substance of any
proposed press release or other proposed public disclosure of matters related to
this Agreement or any of the transactions contemplated hereby.
(l) Norwest shall give Company written notice of receipt of the regulatory
approvals referred to in paragraph 7(e).
6. CONDITIONS PRECEDENT TO OBLIGATION OF COMPANY. The obligation of Company
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following further conditions, which may be waived in writing by
Company:
(a) Except as they may be affected by transactions contemplated hereby and
except to the extent such representations and warranties are by their express
provisions made as of a specified date and except for activities or transactions
after the date of this Agreement made in the ordinary course of business and not
expressly prohibited by this Agreement, the representations and warranties
contained in Section 3 hereof shall be true and correct in all respects material
to Norwest and its subsidiaries taken as a whole as if made at the Time of
Filing.
(b) Norwest shall have, or shall have caused to be, performed and observed in
all material respects all covenants, agreements and conditions hereof to be
performed or observed by it and Merger Co. at or before the Time of Filing.
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(c) Company shall have received a favorable certificate, dated as of the
Effective Date of the Merger, signed by the Chairman, the President or any
Executive Vice President or Senior Vice President and by the Secretary or
Assistant Secretary of Norwest, as to the matters set forth in subparagraphs (a)
and (b) of this paragraph 6.
(d) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Company required for approval of a plan of merger in accordance with the
provisions of Company's Articles of Incorporation and the Minnesota Business
Corporation Act and the Consolidation shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Bank required for approval of a plan of consolidation in accordance with the
provisions of the Bank's articles of association and applicable law.
(e) Norwest shall have received approval by the Federal Reserve Board, the
Comptroller and by such other governmental agencies as may be required by law of
the transactions contemplated by this Agreement and the Merger Agreement and
Consolidation Agreement and all waiting and appeal periods prescribed by
applicable law or regulation shall have expired.
(f) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(g) The shares of Norwest Common Stock to be delivered to the stockholders
and Company and Bank pursuant to this Agreement and the Consolidation Agreement
and the Merger Agreement shall have been authorized for listing on the New York
Stock Exchange and the Midwest Stock Exchange upon official notice of issuance.
(h) Company shall have received an opinion, dated the Closing Date, of
counsel to Company, substantially to the effect that, for federal income tax
purposes: (i) the Merger (of a wholly owned subsidiary of Norwest into Company)
will constitute a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(E) of the Code and the Consolidation (of a wholly owned subsidiary of
Norwest Bank into Bank) will be a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code; (ii) no gain or loss will be
recognized by the holders of Company Common Stock or Bank Common Stock upon
receipt of Norwest Common Stock except for cash received in lieu of fractional
shares; (iii) the basis of the Norwest Common Stock received by the shareholders
of Company and Bank will be the same as the basis of Company Common Stock or
Bank Common Stock, as the case may be, exchanged therefor; and (iv) the holding
period of the shares of Norwest Common Stock received by the shareholders of
Company and Bank will include the holding period of the Company Common Stock or
Bank Common Stock, as the case may be, provided such shares of Company Common
Stock were held as a capital asset as of the Effective Time of the Merger.
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(i) The Registration Statement (as amended or supplemented) shall have become
effective under the Securities Act and shall not be subject to any stop order,
and no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened and be unresolved. Norwest shall have
received all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(j) No party hereto shall have terminated this Agreement as permitted herein.
(k) There shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock Exchange
or in the over-the-counter market, or (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States.
7. CONDITIONS PRECEDENT TO OBLIGATION OF NORWEST. The obligation of Norwest
to effect the Merger shall be subject to the satisfaction at or before the Time
of Filing of the following conditions, which may be waived in writing by
Norwest:
(a) Except as they may be affected by transactions contemplated hereby and
actions and modifications permitted under the terms of this Agreement and except
to the extent such representations and warranties are by their express
provisions made as of a specified date, the representations and warranties
contained in Section 2 hereof shall be true and correct in all respects material
to Company and Bank taken as a whole as if made at the Time of Filing.
(b) Company and Bank shall have, or shall have caused to be, performed and
observed in all material respects all covenants, agreements and conditions
hereof to be performed or observed by it at or before the Time of Filing.
(c) This Agreement and the Merger Agreement shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Company required for approval of a plan of merger in accordance with the
provisions of Company's Articles of Incorporation and the Minnesota Business
Corporation Act and the Consolidation shall have been approved by the
affirmative vote of the holders of the percentage of the outstanding shares of
Bank required for approval of a plan of consolidation in accordance with the
provisions of Bank's articles of association and applicable law.
(d) Norwest shall have received a favorable certificate dated as of the
Effective Date of the Merger signed by the Chairman or President and by the
Secretary or Assistant Secretary of Company, as to the matters set forth in
subparagraphs (a) through (c) of this Section 7.
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(e) Norwest shall have received approval by all governmental agencies as may
be required by law of the transactions contemplated by this Agreement and the
Merger Agreement and all waiting and appeal periods prescribed by applicable law
or regulation shall have expired. No approvals, licenses or consents granted by
any regulatory authority shall contain any condition or requirement relating to
Company or Bank that, in the good faith judgment of Norwest, is unreasonably
burdensome to Norwest.
(f) Company and Bank shall have obtained any and all material consents or
waivers from other parties to loan agreements, leases or other contracts
material to Company's or Bank's business required for the consummation of the
Merger and the Consolidation, and Company and Bank shall have obtained any and
all material permits, authorizations, consents, waivers and approvals required
for the lawful consummation by it of the Merger and the Consolidation.
(g) No court or governmental authority of competent jurisdiction shall have
issued an order restraining, enjoining or otherwise prohibiting the consummation
of the transactions contemplated by this Agreement.
(h) Intentionally omitted.
(i) At any time since the date hereof the total number of shares of Company
Common Stock and Bank Common Stock, as the case may be outstanding and subject
to issuance upon exercise (assuming for this purpose that phantom shares and
other share-equivalents constitute Company Common Stock) of all warrants,
options, conversion rights, phantom shares or other share-equivalents (excluding
unexercized phantom shares of the Bank), other than any option held by Norwest,
shall not have exceeded 9,245 shares of Class A and 83,204.99 shares of Class B
Company Common Stock and 9,245 shares of Bank Common Stock.
(j) The Registration Statement (as amended or supplemented) shall have become
effective under the Securities Act and shall not be subject to any stop order,
and no action, suit, proceeding or investigation by the SEC to suspend the
effectiveness of the Registration Statement shall have been initiated and be
continuing, or have been threatened or be unresolved. Norwest shall have
obtained all state securities law or blue sky authorizations necessary to carry
out the transactions contemplated by this Agreement.
(k) Company shall have caused to be delivered to Norwest a letter of KPMG
Peat Marwick, dated (i) the date on which the S-4 shall become effective and
(ii) the business day prior to the Effective Time, and addressed to Norwest in
form and substance reasonably satisfactory to Norwest and customary in scope and
substance for letter delivered by independent public accountants in connection
with registration statements similar to the S-4.
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(l) There shall be no reasonable basis for any proceeding, claim or action of
any nature seeking to impose, or that could reasonably be expected to result in
the imposition on Company or Bank of, any liability arising from the release of
hazardous substances under any local, state or federal environmental statute,
regulation or ordinance including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 as amended, which
has had or could reasonably be expected to have a material adverse effect upon
Company and its subsidiaries taken as a whole.
(m) No change shall have occurred and no circumstances shall exist which
might reasonably be expected to have a material adverse effect on the financial
condition, results of operations, business or prospects of Company and Bank
taken as a whole (other than changes in banking laws or regulations, or
interpretations thereof, that affect the banking industry generally or changes
in the general level of interest rates).
(n) Norwest shall have received a opinion letter dated as of the Effective
Date addressed to Norwest from counsel to Company and Bank, based on customary
reliance and subject to customary qualifications, to the effect that:
(i) Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Minnesota. Company is
registered as a bank holding company under the Bank Holding Company Act.
(ii) Bank is a national banking association duly organized, validly
existing and in good standing under the laws of the United States.
(iii) Company and Bank each has the requisite corporate and other power
and authority (including all licenses, permits and authorizations) to own and
operate its properties and to carry on its business as now conducted.
Company and Bank is licensed or qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires them to be licensed or qualified except where the failure to be so
licensed or qualified would not have or would not be reasonably expected to
have a material adverse effect on the business, operations, financial
condition or operating results of Company or Bank.
(iv) The execution and delivery of this Agreement by Company and Bank
and the consummation of the transactions contemplated hereby and thereby will
not constitute a breach, default or violation under (A) the respective
Articles of Incorporation, Articles of Association or Bylaws of Company or
Bank, (B) any agreement, arrangement or understanding known to such counsel
to which Company or Bank is a party, (C) any license, franchise or permit or
(D) any law, regulation, order, judgment or decree.
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(v) The authorized capital of Company and Bank is as set forth in
Sections 2(b) and 2(c) herein.
(vi) Except as set forth in Schedule 2(k) hereto, to the knowledge of
such counsel, there are no actions, suits, proceedings, orders or
investigations pending or threatened against Company or Bank, at law or in
equity, or before or by any federal, state, or other governmental department,
commission, board, bureau, agency or instrumentality.
(vii) Company and Bank each has the corporate power to consummate the
transaction on its part contemplated by this Agreement and has duly taken all
requisite corporate action to authorize this Agreement, and such Agreement
has been duly executed and delivered by Company and Bank and constitutes
valid and binding obligations of Company and Bank enforceable in accordance
with its terms.
(o) The Company Equity shall be in an amount equal to the Company Equity as
of June 30, 1993, with only increases to reflect earnings of the Bank and
decreases to reflect accrued but unpaid interest on debt of the Company and to
reflect interest payments actually paid on debt of the Company after June 30,
1993. For purposes of the foregoing, "Company Equity" is defined as equity of
the Company, , all determined in accordance with generally accepted accounting
principles (excluding any adjustments for investments available for sale and
adjustments for marketable equity securities).
(p) No party hereto shall have terminated this Agreement as permitted
herein.
(q) There shall not have occurred (i) any general suspension of, or
limitation on prices for, trading in securities on the New York Stock Exchange
or in the over-the-counter market, or (ii) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States.
(r) Neither Company nor Bank shall be subject to any cease and desist order,
written agreement or memorandum of understanding with, or a party to any
commitment letter, extraordinary supervisory letter or similar undertaking to,
or be subject to any order or directive by any Bank Regulator that adversely
affects Bank or Company (collectively, "Regulatory Directive"), or shall have
assessed any civil money penalty by any Bank Regulator which has not been paid
or reserved for in full, nor been advised by any Bank Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such Regulatory Directive or civil money penalty
(unless such Regulatory Directive will expire or become ineffective upon the
Effective Time of the Merger or Consolidation).
(s) Either the Bank shall have sold or transferred for fair market value as
determined by an independent loan appraisal the loans listed on Schedule 7(s)
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(excluding servicing obligations arising under any participations sold with
respect to such loans), or the amount owing on such loans listed on Schedule
7(s) shall have been paid in full.
8. EMPLOYEE BENEFIT PLANS. Each person who is an employee of Company or Bank
as of the Effective Date of the Merger ("Company Employees") shall be eligible
for participation in the employee welfare and pension plans of Norwest, as in
effect from time to time, as follows:
(a) Employee Welfare Benefit Plans. Each Company employee shall be eligible
for participation in the employee welfare benefit plans of Norwest listed below
subject to any eligibility requirements applicable to such plans (but not
subject to any pre-existing condition exclusions) and shall enter each plan not
later than the first day of the calendar quarter which begins at least 32 days
after the Effective Date of the Merger:
Medical Plan
Dental Plan
Long Term Disability Plan
Flexible Benefits Plan
Group Basic Life Insurance Plan
Group Optional and Dependent Life Insurance Plan
Business Travel Accident Insurance Plan
Short-Term Disability Program
Severance Program
Vacation Program
For the purpose of determining each Company Employee's benefit for the year in
which the Merger occurs under the Norwest vacation program, vacation taken by an
employee of Company in the year in which the Merger occurs will be deducted from
the total Norwest benefit.
(b) Employee Pension Benefit Plans. Each Company Employee shall be eligible
for participation in the Norwest Savings-Investment Plan (the "SIP"), subject to
any eligibility requirements applicable to the SIP (with full credit for years
of past service to Company and the Company Subsidiaries for the purpose of
satisfying any eligibility and vesting periods applicable to the SIP), and shall
enter the SIP not later than the first day of the calendar quarter which begins
at least 32 days after the Effective Date of the Merger. Each Company Employee
shall be eligible for participation, as a new employee, in the Norwest Pension
Plan under the terms thereof.
9. TERMINATION OF AGREEMENT.
(a) This Agreement may be terminated at any time prior to the Time of Filing:
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(i) by mutual written consent of the parties hereto; or
(ii) by either of the parties hereto upon written notice to the other
party if the Merger shall not have been consummated by July 21, 1994 unless
such failure of consummation shall be due to the failure of the party seeking
to terminate to perform or observe in all material respects the covenants and
agreements hereof to be performed or observed by such party; or
(iii) by Company or Norwest upon written notice to the other party if
any court or governmental authority of competent jurisdiction shall have
issued a final order restraining, enjoining or otherwise prohibiting the
consummation of the transactions contemplated by this Agreement; or
(iv) by Company if the Norwest Measurement Price is less than $25.00.
(b) Termination of this Agreement under this paragraph 9 shall not release,
or be construed as so releasing, either party hereto from any liability or
damage to the other party hereto arising out of the breaching party's willful
and material breach of the warranties and representations made by it, or willful
and material failure in performance of any of its covenants, agreements, duties
or obligations arising hereunder, and the obligations under paragraphs 4(g),
5(h) and 10 shall survive such termination.
10. EXPENSES. All expenses in connection with this Agreement and the
transactions contemplated hereby, including without limitation legal and
accounting fees, incurred by Company and Bank shall be borne by Company, and all
such expenses incurred by Norwest shall be borne by Norwest.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns, but shall not be assignable by either party hereto without the prior
written consent of the other party hereto.
12. THIRD PARTY BENEFICIARIES. Each party hereto intends that this Agreement
shall not benefit or create any right or cause of action in or on behalf of any
person other than the parties hereto.
13. NOTICES. Any notice or other communication provided for herein or given
hereunder to a party hereto shall be in writing and shall be delivered in person
or shall be mailed by first class registered or certified mail, postage prepaid,
addressed as follows:
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If to Norwest:
Norwest Corporation
Sixth and Marquette
Minneapolis, Minnesota 55479-1026
Attention: Secretary
If to Company:
c/o Family Partners, Ltd.
5354 Parkdale Drive
Parkdale 3
Suite 310
Minneapolis, MN 55416
Attention: Byron Frank
With copy to:
Joseph Alexander, Esq.
Maslon, Edelman, Borman and Brand
3300 Norwest Center
Minneapolis, MN 55402
or to such other address with respect to a party as such party shall notify the
other in writing as above provided.
14. COMPLETE AGREEMENT. This Agreement and the Merger Agreement and
Consolidation Agreement, and the Exhibits and Schedules attached hereto contain
the complete agreement between the parties hereto with respect to the Merger and
other transactions contemplated hereby and supersede all prior agreements and
understandings between the parties hereto with respect thereto.
15. CAPTIONS. The captions contained in this Agreement are for convenience
of reference only and do not form a part of this Agreement.
16. WAIVER AND OTHER ACTION. Either party hereto may, by a signed writing,
give any consent, take any action pursuant to paragraph 9 hereof or otherwise,
or waive any inaccuracies in the representations and warranties by the other
party and compliance by the other party with any of the covenants and conditions
herein.
17. AMENDMENT. At any time before the Time of Filing, the parties hereto, by
action taken by their respective Boards of Directors or pursuant to authority
delegated by their respective Boards of Directors, may amend this Agreement;
provided, however, that no amendment after approval by the shareholders of
Company or Bank shall be made which changes in a manner adverse to such
shareholders the
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consideration to be provided to said shareholders pursuant to
this Agreement and the Merger Agreement and the Consolidation Agreement.
18. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
19. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation or
warranty contained in the Agreement or the Merger Agreement or Consolidation
Agreement shall survive the Merger of Merger Co. with and into Company or of
the Consolidation of Bank with Norwest Bank or except as set forth in paragraph
9(b), the termination of this Agreement. Paragraph 10 shall survive the Merger.
20. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute but one instrument.
21. REGULATORY APPROVALS.
(a) Norwest agrees to file the application for approval of the transactions
contemplated hereby by the Board of Governors of the Federal Reserve System (the
"Fed Application") within 60 days after the date of this Agreement, provided
that Company has provided Norwest, on a timely basis, with all information about
Company and Bank necessary in order for Norwest to file the Fed Application
reasonably within such time period. The parties hereto shall cooperate with
each other and use their reasonable efforts to promptly prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, and to obtain as promptly as practicable all permits, consents,
approvals and authorizations of all third parties and governmental entities
which are necessary or advisable to consummate the transactions contemplated by
this Agreement (including without limitation the Merger and the Consolidation).
Company and Norwest shall have the right to review in advance, and to the extent
practicable each will consult the other on, in each case subject to applicable
laws relating to the exchange of information, all the information relating to
Company or Norwest as the case may be, and any of their respective subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any governmental entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all third
parties and governmental entities necessary or advisable to consummate the
transactions contemplated by this Agreement and each party will keep the other
apprised of the status of matters relating to completion of the transactions
contemplated herein.
(b) Norwest and Company shall, upon request, furnish each other with all
information concerning themselves, their subsidiaries, directors, officers and
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stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Prospective, the Registration Statement or any other
statement, filing, notice or application made by or on behalf of Norwest,
Company or any of their respective subsidiaries to any governmental entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
NORWEST CORPORATION D.L. BANCSHARES, INC.
By: ________________________ By: ________________________
Its: ________________________ Its: ________________________
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
Between
NORWEST ACQUISITION CORPORATION
a Delaware corporation
(the merged corporation)
AND
D.L. BANCSHARES, INC.
a Minnesota corporation
(the surviving corporation)
This Agreement and Plan of Merger dated as of March ___, 1994, between NORWEST
ACQUISITION CORPORATION, a Delaware corporation (hereinafter called "Norwest")
and D.L. BANCSHARES, INC., a Minnesota corporation ("D.L." and sometimes called
the "surviving corporation") (said corporations being hereinafter sometimes
referred to as the "constituent corporations"),
WHEREAS, D.L. was incorporated by Articles of Incorporation filed in the
office of the Secretary of State of the State of Minnesota on November 30, 1982,
and said corporation is now a corporation subject to and governed by the
provisions of the Minnesota Business Corporation Act. D.L. has authorized
capital stock of 1,000,000 shares of common stock, divided into 9,245 shares of
Class A Common Stock and 83,204.99 shares of Class B Common Stock, both with par
value of $.01 per share ("D.L. Common Stock"). As of March 1, 1994, there were
9,245 shares of Class A Common Stock and 83,204.99 shares of Class B Common
Stock outstanding and no shares were held in the treasury; and
WHEREAS, Norwest, a wholly owned subsidiary of Norwest Corporation ("Norwest
Corporation") was incorporated by a Certificate of Incorporation filed in the
office of the Secretary of State of the State of Delaware on February ___, 1994
and said corporation is now a corporation subject to and governed by the
provisions of the Delaware General Corporation Law, with an authorized capital
stock of ______ shares of Common Stock, par value _________, of which _________
shares were outstanding as of ___________, 1993 ("Norwest Common Stock"); and
WHEREAS, Norwest and D.L. are parties to an Agreement and Plan of
Reorganization dated as of September 23, 1993 (the "Reorganization Agreement"),
setting forth certain representations, warranties and covenants in connection
with the merger provided for herein; and
WHEREAS, the directors, or a majority of them, of each of the constituent
corporations respectively deem it advisable for the welfare and advantage of
said corporations and for the best interests of the respective shareholders of
said corporations that said corporation merge and that Norwest be merged with
and into D.L., with D.L. continuing as the surviving corporation, on the terms
and conditions hereinafter set forth
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in accordance with the provisions of the Delaware General Corporation Law and
the Minnesota Business Corporation Act, which statutes permit such merger; and
WHEREAS, it is the intent of the parties to effect a merger which qualifies as
a tax-free reorganization pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code;
NOW, THEREFORE, the parties hereto, subject to the approval of the
shareholders of Norwest and D.L., in consideration of the premises and of the
mutual covenants and agreements contained herein and of the benefits to accrue
to the parties hereto, have agreed and do hereby agree that Norwest shall be
merged with and into D.L. pursuant to the laws of the States of Delaware and
Minnesota, and do hereby agree upon, prescribe and set forth the terms and
conditions of the merger of Norwest with and into D.L., the mode of carrying
said merger into effect, the manner and basis of converting the shares of D.L.
Common Stock into shares of "Norwest Corporation Common Stock" (as defined
below), and such other provisions with respect to said merger as are deemed
necessary or desirable, as follows:
FIRST: At the time of merger Norwest shall be merged with and into D.L., one
of the constituent corporations, which shall be the surviving corporation, and
the separate existence of Norwest shall cease and the name of the surviving
corporation shall remain D.L. Bancorporation.
SECOND: As of the effective date of the Merger, the Articles of Incorporation
of the surviving corporation shall read in their entirety as set forth in
Appendix A attached hereto.
THIRD: The By-Laws of D.L. at the time of merger shall be and remain the By-
Laws of the surviving corporation until amended according to the provisions of
the Articles of Incorporation of the surviving corporation or of said By-Laws.
FOURTH: The directors of Norwest at the time of merger shall be and remain
the directors of the surviving corporation and shall hold office from the time
of merger until their respective successors are elected and qualify.
FIFTH: The officers of Norwest at the time of merger shall be and remain the
officers of the surviving corporation and shall hold office from the time of
merger until their respective successors are elected or appointed and qualify.
SIXTH: The manner and basis of converting the shares of D.L. Common Stock
into shares of capital stock of Norwest Corporation ("Norwest Corporation Common
Stock") shall be as follows:
1. Each of the shares of D.L. Common Stock outstanding immediately prior to
the time of merger (other than shares as to which statutory dissenters'
rights
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<PAGE>
have been exercised) shall at the time of merger, by virtue of the
merger and without any action on the part of the holder or holders thereof,
be converted into and exchanged for a number of shares of Norwest Corporation
Common Stock determined by subtracting the "Variable Norwest Shares" (as that
term is defined in the Reorganization Agreement) from the "Aggregate Norwest
Shares" (as defined in the Reorganization Agreement) and dividing the result
thereof by the number of shares of D.L. Common Stock outstanding immediately
prior to the effective Time of the Merger.
2. As soon as practicable after the merger becomes effective, each holder of
a certificate for shares of D.L. Common Stock outstanding immediately prior
to the time of merger shall be entitled, upon surrender of such certificate
for cancellation to the surviving corporation or to Norwest Bank Minnesota,
National Association, as the designated agent of the surviving corporation
(the "Agent"), to receive a new certificate for the number of whole shares of
Norwest Corporation Common Stock to which such holder shall be entitled on
the basis above set forth. Until so surrendered each certificate which,
immediately prior to the time of merger, represented shares of D.L. Common
Stock shall not be transferable on the books of the surviving corporation but
shall be deemed (except for the payment of dividends as provided below) to
evidence ownership of the number of whole shares of Norwest Corporation
Common Stock into which such shares of D.L. Common Stock have been converted
on the basis above set forth; provided, however, that, until the holder of
such certificate shall have surrendered the same for exchange as above set
forth, no dividend payable to holders of record of Norwest Corporation Common
Stock as of any date subsequent to the effective date of merger shall be paid
to such holder with respect to the Norwest Common Stock represented by such
certificate, but, upon surrender and exchange thereof as herein provided,
there shall be paid by the surviving corporation or the Agent to the record
holder of such certificate for Norwest Common Stock issued in exchange
therefor an amount with respect to such shares of Norwest Common Stock equal
to all dividends that shall have been paid or become payable to holders of
record of Norwest Corporation Common Stock between the effective date of
merger and the date of such exchange.
3. If between the date of the Reorganization Agreement and the time of
merger, shares of Norwest Corporation Common Stock shall be changed into a
different number of shares or a different class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares
or readjustment, or if a stock dividend thereon shall be declared with a
record date within such period, then the number of shares of Norwest
Corporation Common Stock into which a share of D.L. Common Stock shall be
converted on the basis above set forth, will be appropriately and
proportionately adjusted so that the number of such shares of Norwest
Corporation Common Stock into which a share of D.L. Common Stock shall be
converted will equal the number of shares of Norwest Corporation Common Stock
which the holders of shares of D.L.
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<PAGE>
Common Stock would have received pursuant
to such reclassification, recapitalization, split-up, combination, exchange
of shares or readjustment, or stock dividend had the record date therefor
been immediately following the time of merger.
4. No fractional shares of Norwest Corporation Common Stock and no
certificates or scrip certificates therefor shall be issued to represent any
such fractional interest, and any holder of a fractional interest shall be
paid an amount of cash equal to the product obtained by multiplying the
fractional share interest to which such holder is entitled by the Norwest
Measurement Price.
5. Each share of Norwest Common Stock issued and outstanding at the time of
merger shall continue as an outstanding share of the surviving corporation
after the time of merger.
6. Each share of Norwest Common Stock held in the treasury of Norwest at the
effective time of merger shall continue as a treasury share of the surviving
corporation after the effective time of merger.
SEVENTH: The merger provided for by this Agreement shall be effective as
follows:
1. The effective date of merger shall be the date on which this Agreement or
the Certificate of Merger (as described in subparagraph 1(c) of this Article
Seventh) shall be delivered to and filed by the Secretary of State of the
State of Minnesota; provided, however, that all of the following actions
shall have been taken in the following order:
a. This Agreement shall be approved and adopted on behalf of D.L. and
Norwest in accordance with the Minnesota Business Corporation Act and the
Delaware General Corporation Law; and
b. Articles of merger (with this Agreement attached as part thereof)
with respect to the merger, setting forth the information required by the
Minnesota Business Corporation Act, shall be executed by the President or
a Vice President of D.L. and by the Secretary or an Assistant Secretary
of D.L., and by the President or a Vice President of Norwest and by the
Secretary or an Assistant Secretary of Norwest, and shall be filed in the
office of the Secretary of State of the State of Minnesota in accordance
with the Minnesota Business Corporation Act; and
c. This Agreement or a Certificate of Merger with respect to the merger
setting forth the information required by the Delaware General
Corporation Law shall be executed by the Chairman or the President or a
Vice President of Norwest and by the Secretary or an Assistant Secretary
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<PAGE>
of Norwest and certified and acknowledged in accordance with the Delaware
General Corporation Law, and shall be filed in the office of the
Secretary of State of the State of Delaware in accordance with the
Delaware General Corporation Law.
2. The merger shall become effective as of 11:59 p.m. (the "time of merger")
on the effective date of merger.
EIGHTH: At the time of merger:
1. The separate existence of Norwest shall cease, and the corporate
existence and identity of D.L. shall continue as the surviving corporation.
2. The merger shall have the other effects prescribed by Section 302A.641 of
the Minnesota Business Corporation Act.
NINTH: The following provisions shall apply with respect to the merger
provided for by this Agreement:
1. The surviving corporation shall (i) file with the Secretary of State of
the State of Minnesota an agreement that it may be served with process within
or without the State of Minnesota in the courts of the State of Minnesota in
any proceeding for the enforcement of any obligation of D.L. and in any
proceeding for the enforcement of the rights of a dissenting shareholder of
Norwest against D.L., and (ii) file with said Secretary of State an agreement
that it will promptly pay to the dissenting shareholders of Norwest the
amount, if any, to which such dissenting shareholders will be entitled under
the provisions of the Minnesota Business Corporation Act with respect to the
rights of dissenting shareholders.
2. The registered office of Norwest in the State of Minnesota shall be
________________________________, and the name of the registered agent of
Norwest at such address is The Corporation Trust Company.
3. If at any time the surviving corporation shall consider or be advised
that any further assignment or assurance in law or other action is necessary
or desirable to vest, perfect or confirm in the surviving corporation the
title to any property or rights of Norwest acquired or to be acquired as a
result of the merger provided for herein, the proper officers and directors
of the surviving corporation and Norwest may execute and deliver such deeds,
assignments and assurances in law and take such other action as may be
necessary or proper to vest, perfect or confirm title to such property or
right in Norwest and otherwise carry out the purposes of this Agreement.
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<PAGE>
4. For the convenience of the parties and to facilitate the filing of this
Agreement, any number of counterparts hereof may be executed and each such
counterpart shall be deemed to be an original instrument.
5. This Agreement and the legal relations among the parties hereto shall be
governed by and construed in accordance with the laws of the State of
Minnesota, except insofar as the laws of the State of Delaware shall
mandatorily apply to the merger provided for herein.
6. This Agreement cannot be altered or amended except pursuant to an
instrument in writing signed by both of the parties hereto.
7. At any time prior to the filing of Articles of Merger with the Secretary
of State of the State of Minnesota and the filing of this Agreement or a
Certificate of Merger with the Secretary of State of the State of Delaware,
subject to the provisions of the Reorganization Agreement, this Agreement may
be terminated upon approval by the Boards of Directors of either of the
constituent corporations notwithstanding the approval of the shareholders of
either constituent corporation.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have cause this Agreement and Plan of
Merger to be signed in their respective corporate names by the undersigned
officers and their respective corporate seals to be affixed hereto, pursuant to
authority duly given by their respective Boards of Directors, all as of the day
and year first above written.
NORWEST ACQUISITION
CORPORATION
By: ________________________
Its: ________________________
(Corporate Seal)
Attest:
__________________________
Secretary
D.L. BANCSHARES, INC.
By: _________________________
Its: _________________________
(Corporate Seal)
Attest:
___________________________
Secretary
A-46
<PAGE>
EXHIBIT C
Norwest Corporation
Norwest Center
Sixth and Marquette
Minneapolis, MN 55479-1026
Attn: Secretary
Gentlemen:
I have been advised that I might be considered to be an "affiliate," as that
term is defined for purposes of paragraphs (c) and (d) of Rule 145 ("Rule 145")
promulgated by the Securities and Exchange Commission (the "Commission") under
the Securities Act of 1933, as amended (the "Securities Act") of D.L.
Bancshares, Inc., a Minnesota corporation ("Company").
Pursuant to an Agreement and Plan of Reorganization, dated as of ____________,
19___, (the "Reorganization Agreement"), between Company, First National Bank of
Detroit Lakes, a national banking association (the "Bank"), and Norwest
Corporation, a Delaware corporation ("Norwest") it is contemplated that Company
will merge with and into a wholly owned subsidiary of Norwest (the "Merger") and
the Bank will consolidate with a wholly-owned subsidiary of Norwest (the
"Consolidation") and as a result, I will receive in exchange for each share of
Common Stock of Company owned by me immediately prior to the Effective Time of
the Consolidation (as defined in the Reorganization Agreement), a number of
shares of Common Stock, par value $1 2/3 per share, of Norwest ("Norwest Common
Stock"), as more specifically set forth in the Reorganization Agreement.
I hereby agree as follows:
I will not offer to sell, transfer or otherwise dispose of any of the shares of
Norwest Common Stock held by me during the 30 days prior to the Effective Time
of the Merger.
I will not offer to sell, transfer or otherwise dispose of any of the shares of
Norwest Common Stock held by me during the 30 days prior to the Effective Time
of the Merger.
I will not offer to sell, transfer or otherwise dispose of any of the shares of
Norwest Common Stock issued to me pursuant to the Merger (the "Stock") except
(a) in compliance with the applicable provisions of Rule 145, (b) in a
transaction that is
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<PAGE>
otherwise exempt from the registration requirements of the Securities Act, or
(c) in an offering registered under the Securities Act.
I will not sell, transfer or otherwise dispose of the Stock or in any way reduce
my risk relative to any shares of the Stock issued to me pursuant to the Merger
until such time as financial results covering at least 30 days of post-Merger
combined operations of Company and Norwest have been published.
I consent to the endorsement of the Stock issued to me pursuant to the Merger
with a restrictive legend which will read substantially as follows:
"The shares represented by this certificate were issued in a transaction to
which Rule 145 promulgated under the Securities Act of 1933, as amended (the
"Act"), applies, and may be sold or otherwise transferred only in compliance
with the limitations of such Rule 145, or upon receipt by Norwest Corporation
of an opinion of counsel reasonably satisfactory to it that some other
exemption from registration under the Act is available, or pursuant to a
registration statement under the Act."
Norwest's transfer agent shall be given an appropriate stop transfer order and
shall not be required to register any attempted transfer of the shares of the
Stock, unless the transfer has been effected in compliance with the terms of
this letter agreement.
It is understood and agreed that this letter agreement shall terminate and be of
no further force and effect and the restrictive legend set forth above shall be
removed by delivery of substitute certificate without such legend, and the
related stop transfer restrictions shall be lifted forthwith, if (a) (i) any
such shares of Stock shall have been registered under the Securities Act for
sale, transfer or other disposition by me or on my behalf and are sold,
transferred or otherwise disposed of, or (ii) any such shares of Stock are sold
in accordance with the provisions of paragraphs (c), (e), (f) and (g) of Rule
144 promulgated under the Securities Act, or (iii) I am not at the time an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least two years (or such other period as may be prescribed thereunder) and
Norwest has filed with the Commission all of the reports it is required to file
under the Securities Exchange Act of 1934, as amended, during the preceding
twelve months, or (iv) I am not and have not been for at least three months an
affiliate of Norwest and have been the beneficial owner of the Stock for at
least three years (or such other period as may be prescribed by the Securities
Act, and the rules and regulations promulgated thereunder, or (v) Norwest shall
have received an opinion of counsel acceptable to Norwest to the effect that the
stock transfer restrictions and the legend are not required, and (b) financial
results covering at least 30 days of post-Merger combined operations have been
published.
I have carefully read this letter agreement and the Reorganization Agreement and
have discussed their requirements and other applicable limitations upon my
abilities to offer to
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<PAGE>
sell, transfer or otherwise dispose of shares of the
Stock, to the extent I felt necessary, with my counsel or counsel for Company.
Sincerely,
________________________________
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<PAGE>
APPENDIX B
AGREEMENT AND PLAN OF CONSOLIDATION
<PAGE>
AGREEMENT AND PLAN OF CONSOLIDATION
THIS AGREEMENT AND PLAN OF CONSOLIDATION (the "Consolidation Agreement") is
dated as of March ___, 1994, between FIRST NATIONAL BANK OF DETROIT LAKES
("First Detroit") and NORWEST INTERIM BANK DETROIT LAKES, NATIONAL ASSOCIATION
("Norwest Bank").
PREAMBLE
First Detroit and Norwest Bank acknowledge and confirm the following:
(a) First Detroit is a national banking association having its principal
office and place of business at 211 West Holmes Street, Detroit Lakes, Minnesota
56501.
(b) As of March 1, 1994, First Detroit had a capital of $924,500, divided
into 9,245 shares of common stock, par value $100 per share ("First Detroit
Common Stock"), and surplus of $________ and retained earnings of $________ .
(c) Norwest Bank is a national banking association having its principal
office and place of business at 211 West Holmes Street, Detroit Lakes, Minnesota
56501.
(d) As of March 1, 1994, Norwest Bank had a capital of $100,000, divided into
1,000 shares of common stock, par value $100 per share ("Norwest Bank Common
Stock"), and surplus of $20,000.
(e) D.L. Bancshares, Inc. ("Company"), First Detroit and Norwest Corporation
("Norwest") have entered into an Agreement dated as of September 23, 1993 (the
"Reorganization Agreement"), a copy of which is attached hereto as Appendix A,
which Reorganization Agreement contemplates the transactions to be effected by
this Consolidation Agreement.
(f) A majority of the Board of Directors of First Detroit and a majority of
the Board of Directors of Norwest Bank have duly approved this Consolidation
Agreement and authorized its execution.
(g) It is the intent of the parties hereto to effect a corporate
reorganization which qualifies as a tax-free reorganization pursuant to Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code.
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<PAGE>
AGREEMENTS
IN CONSIDERATION OF THE PREMISES, First Detroit and Norwest Bank make this
Consolidation Agreement and fix the terms and conditions of the consolidation of
First Detroit and Norwest Bank as follows:
SECTION 1
1.1 Pursuant to the authority of and in accordance with the provisions of 12
U.S.C. 215, First Detroit and Norwest Bank (hereinafter collectively called
"Consolidated or Consolidating Banks") shall be consolidated under the charter
of First Detroit.
1.2 The name of the consolidated bank (the "New Bank") shall continue to be
First National Bank of Detroit Lakes.
1.3 The consolidation shall be effective as of 12:01 a.m. on the date
specified in the certificate of approval to be issued by the Comptroller of the
Currency of the United States, under the seal of his office, approving the
consolidation (the "Effective Date").
1.4 The business of the New Bank shall be that of a national banking
association and shall be conducted at the main office of the New Bank, which
shall be located at 211 West Holmes Street, Detroit Lakes, Minnesota 56501, and
at its legally established branches.
1.5 As of the Effective Date, the Articles of Association of the New Bank
shall read in their entirety as set forth in Appendix B attached hereto, and the
New Bank shall be authorized under such Articles of Association to issue 9,245
shares of common stock, par value $100 per share.
SECTION 2
As of the Effective Date:
2.1 The corporate existence of Norwest Bank and First Detroit shall be
consolidated, and the New Bank shall be deemed to be the same corporation as
each of the Consolidating Banks.
2.2 All rights, franchises, and interests of the Consolidating Banks in and to
every type of property (real, personal and mixed) and choses in action shall be
transferred to and vested in the New Bank by virtue of the consolidation without
any deed or other transfer. The New Bank, 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
B-2
<PAGE>
estates, assignee, receiver, 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 either of the Consolidating Banks at the time of
consolidation.
2.3 The New Bank shall be liable for all liabilities of every kind and
description, including liabilities arising out of the operation of a trust
department, of each of the Consolidating Banks existing as of the Effective
Date.
2.4 The amount of capital stock of the New Bank shall be $924,500, divided
into 9,245 shares of common stock, each of $100 par value, and at the time the
consolidation shall become effective, the New Bank shall have a surplus of
$________ and retained earnings which, when combined with the capital and
surplus, will be equal to the combined capital structures of the Consolidating
Banks as stated in the preamble of this Consolidation Agreement, adjusted,
however, for the results of operations, and the payment of dividends, if any,
between March 1, 1994 and the Effective Date.
SECTION 3
3.1 Subject to the provisions of 12 USC (S) 215 regarding rights of dissenting
shareholders, the shares of common stock of the Consolidating Banks issued and
outstanding immediately prior to the Effective Date shall, as of the Effective
Date, by virtue of the consolidation and without any action on the part of the
holder or holders thereof, be converted as follows:
(a) The shares of First Detroit Common Stock outstanding immediately prior
to the time of consolidation and then owned by Company shall at the time of
consolidation be converted and exchanged for 9,245 shares of common stock of
the New Bank, each of $100 par value, plus cash in the amount of $120,000,
which shares shall constitute the entire number of shares of common stock of
the New Bank authorized, issued and outstanding after the consolidation; and,
upon surrender of the certificates evidencing the shares of the First Detroit
Common Stock owned by Company, the New Bank shall issue to Company a
certificate for 9,245 shares of common stock of the New Bank, which shares
shall be fully-paid and nonassessable.
(b) Each share of First Detroit Common Stock outstanding immediately prior
to the time of consolidation and owned by a shareholder other than Company
shall at the time of consolidation, by virtue of the consolidation and
without any action on the part of the holder or holders thereof, be converted
into a number of shares of common stock of Norwest of the par value of $1 2/3
per share ("Norwest Common Stock") determined as follows: (A) subtracting
(if a positive number) or adding (if a negative number) the Company Assets
(as defined in the Reorganization Agreement) from or to, as the case may be,
the product of the "Aggregate Norwest Shares" (as defined in the
Reorganization Agreement)
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<PAGE>
multiplied by the Norwest Measurement Price (as defined in the Reorganization
Agreement), (B) multiplying the result thereof by 4.76%, (C) dividing the
result thereof by the Norwest Measurement Price, and (D) dividing the result
thereof by the number of shares of First Detroit Common Stock owned by
shareholders other than Norwest immediately prior to the Effective Time of
the Consolidation.
(c) As soon as practicable after the consolidation becomes effective, each
holder of a certificate for shares of First Detroit Common Stock outstanding
immediately prior to the time of consolidation shall be entitled, upon
surrender of such certificate for cancellation to Norwest Bank Minnesota,
National Association, as the designated agent of the New Bank (the "Agent"),
to receive a new certificate for the number of whole shares of Norwest Common
Stock to which such holder shall be entitled on the basis above set forth.
Until so surrendered each certificate which, immediately prior to the time of
consolidation, represented shares of First Detroit Common Stock shall not be
transferable on the books of the New Bank but shall be deemed (except for the
payment of dividends as provided below) to evidence ownership of the number
of whole shares of Norwest Common Stock into which such shares of First
Detroit Common Stock have been converted on the basis above set forth;
provided, however, that, until the holder of such certificate shall have
surrendered the same for exchange as above set forth, no dividend payable to
holders of record of Norwest Common Stock as of any date subsequent to the
effective date of consolidation shall be paid to such holder with respect to
the Norwest Common Stock represented by such certificate, but, upon surrender
and exchange thereof as herein provided, there shall be paid by the New Bank
or the Agent to the record holder of such certificate for Norwest Common
Stock issued in exchange therefor an amount with respect to such shares of
Norwest Common Stock equal to all dividends that shall have been paid or
become payable to holders of record of Norwest Common Stock between the
effective date of consolidation and the date of such exchange.
(d) If between the date of the Reorganization Agreement and the Effective
Time of the Merger (as defined in the Reorganization Agreement), shares of
Norwest Common Stock shall be changed into a different number of shares or a
different class of shares by reason of any reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment,
or if a stock dividend thereon shall be declared with a record date within
such period, then the number of shares of Norwest Common Stock into which a
share of First Detroit Common Stock shall be converted on the basis above set
forth, will be appropriately and proportionately adjusted so that the number
of such shares of Norwest Common Stock into which a share of First Detroit
Common Stock shall be converted will equal the number of shares of Norwest
Common Stock which the holders of shares of First Detroit Common Stock would
have received pursuant to such reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment, or stock dividend had the
record date therefor been immediately following the time of Effective Time of
the Merger.
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<PAGE>
(e) No fractional shares of Norwest Common Stock and no certificates or
scrip certificates therefor shall be issued to represent any such fractional
interest, and any holder of a fractional interest shall be paid an amount of
cash equal to the product obtained by multiplying the fractional share
interest to which such holder is entitled by the Norwest Measurement Price.
(f) The presently outstanding 1,000 shares of Norwest Bank Common Stock
shall be deemed canceled. Shares of Norwest Bank Common Stock thereafter
surrendered to the New Bank shall be canceled and no further transfer or
registering of Norwest Bank Common Stock shall occur after the Effective
Date.
3.2 From and after the Effective Date, there shall be no transfers on the
stock transfer books of Consolidated Banks of the shares of First Detroit Common
Stock or Norwest Bank Common Stock which were issued and outstanding immediately
prior to the Effective Date.
SECTION 4
4.1 The by-laws of First Detroit as they exist at the Effective Date shall
continue in full force as the by-laws of the New Bank until altered, amended, or
repealed as provided therein or as provided by law.
4.2 As of the Effective Date, the following named persons shall serve as the
Board of Directors of the New Bank until the next annual meeting of the
shareholders or until such time as their successors have been elected and have
qualified:
Allan M. Severson
Kermit C. Alveshere
Charles L. Kretchman
Rogert J. Reuter
Shirley S. Strande
4.3 The officers of First Detroit holding office at the Effective Date shall
continue as the officers of the New Bank for the term prescribed in the by-laws
or until the Board of Directors otherwise shall determine.
4.4 From and after the Effective Date, the Articles of Association of the
Association shall read in their entirety as set forth in Appendix B attached
hereto and made a part hereof.
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<PAGE>
SECTION 5
5.1 This Consolidation Agreement shall be submitted to the shareholders of
First Detroit and Norwest Bank, respectively, for approval at meetings to be
called and held in accordance with the articles of incorporation of First
Detroit and the articles of association of Norwest Bank and in accordance with
applicable provisions of law. Such approval by the shareholders shall require
the affirmative vote of the shareholders of each of the Consolidating Banks
owning at least two-thirds of its capital stock outstanding.
SECTION 6
6.1 The consolidation shall be subject to and conditioned upon the following:
(a) approval of this Consolidation Agreement by the shareholders of First
Detroit and Norwest Bank as required by law;
(b) approval of the consolidation by all appropriate banking and regulatory
authorities and the satisfaction of all other requirements prescribed by law
necessary for consummation of the consolidation; and
(c) consummation of the merger of a wholly owned subsidiary of Norwest into
Company as defined in and contemplated by the Reorganization Agreement.
6.2 At any time before the Effective Date, if any of the following
circumstances obtain, this Consolidation Agreement may be terminated, at the
election of First Detroit or Norwest Bank, by written notice from the party so
electing to the other, or the consummation of the consolidation may be postponed
for such period, and subject to such further rights of First Detroit and Norwest
Bank, or either of them, to terminate this Consolidation Agreement as First
Detroit and Norwest Bank may agree in writing:
(a) by mutual consent of the Boards of Directors of the Consolidating Banks
if consummation of the consolidation would be inadvisable in the opinion of
said Boards; or
(b) by action of the Board of Directors of any party hereto if the
Reorganization Agreement is terminated.
SECTION 7
7.1 First Detroit and Norwest Bank, by mutual consent of their respective
Boards of Directors, may amend this Consolidation Agreement before the Effective
Date; provided, however, that after this Consolidation Agreement has been
approved by the
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<PAGE>
shareholders of First Detroit, no such amendment shall affect
the rights of such shareholders of First Detroit in a manner which is materially
adverse to such shareholders.
7.2 This Consolidation Agreement may be executed in several counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, First Detroit and Norwest Bank have caused this
Consolidation Agreement to be executed by their respective duly authorized
officers and their corporate seals to be hereunto affixed as of the date first
above written, pursuant to a resolution of each Consolidating Bank's Board of
Directors, acting by a majority thereof, and witness the signatures hereto of a
majority of each of said Consolidating Bank's Board of Directors.
(SEAL) FIRST NATIONAL BANK OF DETROIT
LAKES
ATTEST:
By: _______________________________
_______________________ Its: ______________________________
Secretary
A majority of the Board of Directors of First National Bank Detroit Lakes:
____________________ ____________________
____________________ ____________________
____________________ ____________________
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<PAGE>
(SEAL) NORWEST INTERIM
BANK DETROIT LAKES,
NATIONAL ASSOCIATION
ATTEST:
By: ________________________________
_______________________ Its: _______________________________
Secretary
A majority of the Board of Directors of Norwest Interim Bank Detroit Lakes,
National Association:
____________________ ____________________
____________________ ____________________
____________________ ____________________
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<PAGE>
STATE OF MINNESOTA )
) ss
COUNTY OF ____________)
On this _____ day of __________, 1993, before me, a Notary Public for the
State and County aforesaid, personally came ____________________ , as
_________________ , and ____________________ , as __________________ , of FIRST
NATIONAL BANK OF DETROIT LAKES, and each in his or her said capacity
acknowledged the foregoing instrument to be the act and deed of said bank and
the seal affixed thereto to be its seal; and came also
____________________ ____________________
____________________ ____________________
____________________ ____________________
being a majority of the Board of Directors of said bank and each of them
acknowledged said instrument to be the act and deed of said bank and of himself
or herself as a director thereof.
WITNESS my official seal and signature this day and year aforesaid.
____________________________
(Seal of Notary) Notary Public, __________ County
My Commission Expires ________
B-9
<PAGE>
STATE OF MINNESOTA )
)ss
COUNTY OF ____________)
On this _____ day of __________, 1993, before me, a Notary Public for the
State and County aforesaid, personally came ____________________ , as
_________________ , and ____________________ , as __________________ , of
NORWEST INTERIM BANK DETROIT LAKES, NATIONAL ASSOCIATION, and each in his or her
said capacity acknowledged the foregoing instrument to be the act and deed of
said bank and the seal affixed thereto to be its seal; and came also
____________________ ____________________
____________________ ____________________
____________________ ____________________
being a majority of the Board of Directors of said bank and each of them
acknowledged said instrument to be the act and deed of said bank and of himself
or herself as a director thereof.
WITNESS my official seal and signature this day and year aforesaid.
____________________________
(Seal of Notary) Notary Public, __________ County
My Commission Expires ________
B-10
<PAGE>
APPENDIX C
MINNESOTA STATUTES SECTIONS 302A.471 and 302A.473
<PAGE>
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS.-Subdivision 1. Actions creating
rights. A shareholder of a corporation may dissent from, and obtain payment for
the fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) An amendment of the articles that materially and adversely affects the
rights or preferences of the shares of the dissenting shareholder in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the redemption of the
shares, including a provision respecting a sinking fund for the redemption or
repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the shares to
acquire shares, securities other than shares, or rights to purchase shares or
securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a matter, or to
cumulate votes, except as the right may be excluded or limited through the
authorization or issuance of securities of an existing or new class or series
with similar or different voting rights; except that an amendment to the
articles of an issuing public corporation that provides that section 302A.671
does not apply to a control share acquisition does not give rise to the right to
obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or substantially all
of the property and assets of the corporation not made in the usual or regular
course of its business, but not including a disposition in dissolution described
in section 302A.725, subdivision 2, or a disposition pursuant to an order of a
court, or a disposition for cash on terms requiring that all or substantially
all of the net proceeds of disposition be distributed to the shareholders in
accordance with their respective interests within one year after the date of
disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B, to
which the corporation is a party, except as provided in subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter 322B, to
which the corporation is a party as the corporation whose shares will be
acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote with
respect to which the articles, the bylaws, or a resolution approved by the board
directs that dissenting shareholders may obtain payment for their shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert dissenters'
rights as to less than all of the shares registered in the name of the
shareholder, unless the shareholder dissents with respect to all the shares that
are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In that event, the rights of the dissenter
shall be determined as if the shares as to which the shareholder has dissented
and the other shares were registered in the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a
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<PAGE>
dissenting shareholder under the terms of this section and section 302A.473, if
the beneficial owner submits to the corporation at the time of or before the
assertion of the rights a written consent of the shareholder.
Subd. 3. Rights not to apply. The right to obtain payment under this section
does not apply to a shareholder of the surviving corporation in a merger, if the
shares of the shareholder are not entitled to be voted on the merger.
Subd. 4. Other rights. The shareholders of a corporation who have a right
under this section to obtain payment for their shares do not have a right at law
or in equity to have a corporate action described in subdivision 1 set aside or
rescinded, except when the corporate action is fraudulent with regard to the
complaining shareholder or the corporation.
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.-Subdivision 1.
Definitions. (a) For purposes of this section, the terms defined in this
subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action referred to in section 302A.471, subdivision 1 or the
successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a corporation
immediately before the effective date of the corporate action referred to in
section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective date
of the corporate action referred to in section 302A.471, subdivision 1 up to and
including the date of payment, calculated at the rate provided in section 549.09
for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting at
which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If a proposed action must be approved by the
shareholders, a shareholder who wishes to exercise dissenters' rights must file
with the corporation before the vote on the proposed action a written notice of
intent to demand the fair value of the shares owned by the shareholder and must
not vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision 3
and to all shareholders entitled to dissent if no shareholder vote was required,
a notice that contains:
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<PAGE>
(1) The address to which a demand for payment and certificates of
certificated shares must be sent in order to obtain payment and the date by
which they must be received;
(2) Any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder, or the
beneficial owner on whose behalf the shareholder dissents, acquired the shares
or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief description of
the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes effect.
Subd. 5. Payment; return of shares. (a) After the corporate action takes
effect, or after the corporation receives a valid demand for payment, whichever
is later, the corporation shall remit to each dissenting shareholder who has
complied with subdivisions 3 and 4 the amount the corporation estimates to be
the fair value of the shares, plus interest, accompanied by:
(1) The corporation's closing balance sheet and statement of income for a
fiscal year ending not more than 16 months before the effective date of the
corporate action, together with the latest available interim financial
statements;
(2) An estimate by the corporation of the fair value of the shares and a
brief description of the method used to reach the estimate; and
(3) A copy of section 302A.471 and this section, and a brief description of
the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in paragraph (a)
from a person who was not a shareholder on the date the action dissented from
was first announced to the public or who is dissenting on behalf of a person who
was not a beneficial owner on that date. If the dissenter has complied with
subdivisions 3 and 4, the corporation shall forward to the dissenter the
materials described in paragraph (a), a statement of the reason for withholding
the remittance, and an offer to pay to the dissenter the amount listed in the
materials if the dissenter agrees to accept that amount in full satisfaction.
The dissenter may decline the offer and demand payment under subdivision 6.
Failure to do so entitles the dissenter only to the amount offered. If the
dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the deposit
of certificates or the imposition of transfer restrictions on uncertificated
shares, it shall return all deposited certificates and cancel all transfer
restrictions. However, the corporation may again give notice under subdivision
4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest within
30 days after the corporation mails the remittance under
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<PAGE>
subdivision 5, and demand payment of the difference. Otherwise, a dissenter is
entitled only to the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand under
subdivision 6, it shall, within 60 days after receiving the demand, either pay
to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The jurisdiction of the court is
plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair
value of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment for the amount by which
the fair value of the shares as determined by the court, plus interest, exceeds
the amount, if any, remitted under subdivision 5, but shall not be liable to the
corporation for the amount, if any, by which the amount, if any, remitted to the
dissenter under subdivision 5 exceeds the fair value of the shares as determined
by the court, plus interest.
Subd. 8. Cost; fees; expenses. (a) The court shall determine the costs and
expenses of a proceeding under subdivision 7, including the reasonable expenses
and compensation of any appraisers appointed by the court, and shall assess
those costs and expenses against the corporation, except that the court may
assess part or all of those costs and expenses against a dissenter whose action
in demanding payment under subdivision 6 is found to be arbitrary, vexatious, or
not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an attorney
for the dissenters out of the amount awarded to the dissenters, if any.
C-4
<PAGE>
APPENDIX D
UNITED STATES CODE, TITLE 12, SECTION 215
<PAGE>
* * * * *
(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 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 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 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 shreholders 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 rights 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 shareholder the excess in such sale price shall be
D-1
<PAGE>
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.
D-2
<PAGE>
APPENDIX E
BANKING CIRCULAR 259
<PAGE>
BC-259
BANKING ISSUANCE
- -------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- -------------------------------------------------------------------------------
Type: Banking Circular Subject: Stock Appraisals
- -------------------------------------------------------------------------------
TO: Chief Executive Officers of National Banks, Deputy
Comptrollers (District), Department and Division Heads, and
Examining Personnel
PURPOSE
This banking circular informs all national banks of the valuation methods used
by the Office of the Comptroller of the Currency (OCC) to estimate the value of
a bank's shares when requested to do so by a shareholder dissenting to the
conversion, merger, or consolidation of its bank. The results of appraisals
performed by the OCC between January 1, 1985 and September 30, 1991 are also
summarized.
References: 12 U.S.C. 214a, 215 and 215a; 12 CFR 11.590 (Item 2)
BACKGROUND
Under 12 U.S.C. Sections 214a, a shareholder dissenting from a conversion,
consolidation, or merger involving a national bank is entitled to receive the
value of his or her shares from the resulting bank. A valuation of the shares
shall be made by a committee of three appraisers (a representative of the
dissenting shareholder, a representative of the resulting bank, and a third
appraiser selected by the other two). If the committee is formed and renders an
appraisal that is acceptable to the dissenting shareholder, the process is
complete and the appraised value of the shares is paid to the dissenting
shareholder by the resulting bank. If, for any reason, the committee is not
formed or if it renders an appraisal that is not acceptable to the dissenting
shareholder, an interested party may request an appraisal by the Office of the
Comptroller of the Currency (OCC). 12 U.S.C. Section 215 provides these
appraisal rights to any shareholder dissenting to a consolidation. Any
dissenting shareholder of a target bank in a merger is also entitled to these
appraisal rights pursuant to 12 U.S.C. Section 215a.
- -------------------------------------------------------------------------------
Date: March 5, 1992
E-1
<PAGE>
The above provides only a general overview of the appraisal process. The
specific requirements of the process are set forth in the statutes themselves.
METHODS OF VALUATION USED
Through its appraisal process, the OCC attempts to arrive at a fair estimate of
the value of a bank's shares. After reviewing the particular facts in each case
and the available information on a bank's shares, the OCC selects an appropriate
valuation method, or combination of methods, to determine a reasonable estimate
of the shares' value.
MARKET VALUE
The OCC uses various methods to establish the market value of shares being
appraised. If sufficient trading in the shares exists and the prices are
available from direct quotes from the Wall Street Journal or a market-maker,
those quotes are considered in determining the market value. If no market value
is readily available, or if the market value is not well established, other
methods of estimating market value can be used, such as the investment value and
adjusted book value methods.
INVESTMENT VALUE
Investment value requires an assessment of the value to investors of a share in
the future earnings of the target bank. Investment value is estimated by
applying an average price/earnings ratio of banks with similar earnings
potential to the earnings capacity of the target bank.
The peer group selection is based on location, size, and earnings patterns. If
the state in which the subject bank is located provides a sufficient number of
comparable banks using location, size and earnings patterns as the criteria for
selection, the price/earnings ratios assigned to the banks are applied to the
earnings per share estimated for the subject bank. In order to select a
reasonable peer group when there are too few comparable independent banks in a
location that is comparable to that of the subject bank, the pool of banks from
which a peer group is selected is broadened by including one-bank holding
company banks in a comparable location, and/or by selecting banks in less
comparable locations, including adjacent states, that have earnings patterns
similar to the subject bank.
ADJUSTED BOOK VALUE
The OCC also uses an "adjusted book value" method for estimating value.
Historically, the OCC has not placed any weight on the bank's "unadjusted book
value", since the value is based on historical acquisition costs of the bank's
assets, and does not reflect investors' perceptions of the value of the bank as
an ongoing concern. Adjusted book value is calculated by multiplying the book
value of the
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<PAGE>
target bank's assets per share times the average market price to book value
ratio of comparable banking organizations. The average market price to book
value ratio measures the premium or discount to book value which investors
attribute to shares of similarly situated banking organizations.
Both the investment value method and the adjusted book value method present
appraised values which are based on the target bank's value as a going concern.
These techniques provide estimates of the market value of the shares of the
subject bank.
OVERALL VALUATION
The OCC may use more than one of the above-described methods in deriving the
value of shares of stock. If more than one method is used, varying weights may
be applied in reaching an overall valuation. The weight given to the value by a
particular valuation method is based on how accurately the given method is
believed to represent market value. For example, the OCC may give more weight
to a market value representing infrequent trading by shareholders than to the
value derived from the investment value method when the subject bank's earnings
trend is so irregular that it is considered to be a poor predictor of future
earnings.
PURCHASE PREMIUMS
For mergers and consolidations, the OCC recognizes that purchase premiums do
exist and may, in some instances, be paid in the purchase of small blocks of
shares. However, the payment of purchase premiums depends entirely on the
acquisition or control plans of the purchasers, and such payment are not regular
or predictable elements of market value. Consequently, the OCC's valuation
methods do not include consideration of purchase premiums in arriving at the
value of shares.
STATISTICAL DATA
The chart below lists the results of appraisals the OCC performed between
January 1, 1985 and September 30, 1991. The OCC provides statistical data on
book value and price/earnings ratios for comparative purposes, but does not
necessarily rely on such data in determining the value of the banks' shares.
Dissenting shareholders should not view these statistics as determinative for
future appraisals.
In connection with disclosures given to shareholders under 12 CFR 11.590 (Item
2), banks may provide shareholders a copy of this banking circular or disclose
the information contained herein, including the past results of OCC appraisals.
If the bank discloses the past results of the OCC appraisals, it should advise
shareholders that: (1) the OCC did not rely on all the information set forth in
the chart in performing each appraisal; and (2) the OCC's past appraisals are
not necessarily determinative of its future appraisals of a particular bank's
shares.
E-3
<PAGE>
APPRAISAL RESULTS
<TABLE>
<CAPTION>
OCC AVERAGE PRICE/
APPRAISAL APPRAISAL PRICE BOOK EARNINGS RATIO
DATE* VALUE OFFERED VALUE OF PEER GROUP
<S> <C> <C> <C> <C>
1/1/85 107.25 110.00 178.29 5.3
1/2/85 73.16 NA 66.35 6.8
1/15/85 53.41 60.00 83.95 4.8
1/31/85 22.72 20.00 38.49 5.4
2/1/85 30.63 24.00 34.08 5.7
2/25/85 27.74 27.55 41.62 5.9
4/30/85 25.98 35.00 42.21 4.5
7/30/85 3,153.10 2,640.00 6,063.66 NC
9/1/85 17.23 21.00 21.84 4.7
11/22/85 316.74 338.75 519.89 5.0
11/22/85 30.28 NA 34.42 5.9
12/16/85 66.29 77.00 89.64 5.6
12/27/85 60.85 57.00 119.36 5.3
12/31/85 61.77 NA 73.56 5.9
12/31/85 75.79 40.00 58.74 12.1
1/12/86 19.93 NA 26.37 7.0
3/14/86 59.02 200.00 132.20 3.1
4/21/86 40.44 35.00 43.54 6.4
5/2/86 15.50 16.50 23.69 5.0
7/3/86 405.74 NA 612.82 3.9
7/31/86 297.34 600.00 650.63 4.4
8/22/86 103.53 106.67 136.23 NC
12/26/86 16.66 NA 43.57 4.0
12/31/86 53.39 95.58 69.66 7.1
5/1/87 186.42 NA 360.05 5.1
6/11/87 50.46 70.00 92.35 4.5
6/11/87 38.53 55.00 77.75 4.5
7/31/87 13.10 NA 20.04 6.7
8/26/87 55.92 57.52 70.88 NC
8/31/87 19.55 23.75 30.64 5.0
8/31/87 10.98 NA 17.01 4.2
10/6/87 56.48 60.00 73.11 5.6
3/15/88 297.63 NA 414.95 6.1
6/2/88 27.26 NA 28.45 5.4
6/30/88 137.78 NA 215.36 6.0
8/30/88 768.62 677.00 1,090.55 10.7
3/31/89 773.62 NA 557.30 7.9
5/26/89 136.47 180.00 250.42 4.5
5/29/90 9.87 NA 11.04 9.9
</TABLE>
- ------
*The "Appraisal Date" is the consummation date for the conversion,
consolidation, or merger.
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<PAGE>
NA - Not Available
NC - Not Computed
- ------------------------------------------------------------------------------
For more information regarding the OCC's stock appraisal process, contact the
Office of the Comptroller of the Currency, 490 L'Enfant Plaza East, S.W.,
Washington, D.C. 20219, Director for Corporate Activity, Bank Organization and
Structure.
/s/ Frank McGuire
- ----------------------------
Frank McGuire
Acting Corporate Policy and Economic Analysis
E-5
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law authorizes indemnification
of directors and officers of a Delaware corporation under certain circumstances
against expenses, judgments, and the like in connection with an action, suit,
or proceeding. Article Fourteenth of the Certificate of Incorporation of
Norwest Corporation provides for broad indemnification of directors and
officers of the registrant.
Item 21. Exhibits and Financial Statement Schedules
Exhibits:
2(a) -- Agreement and Plan of Reorganization, dated as of September 22, 1993,
as amended, among D. L. Bancshares, Inc., First National Bank of
Detroit Lakes, and Norwest Corporation, and form of Agreement and
Plan of Merger between Norwest Corporation and a wholly-owned
subsidiary of Norwest. (included in Proxy Statement-Prospectus as
Appendix A).
2(b) -- Form of Agreement and Plan of Consolidation between First National
Bank of Detroit Lakes and Norwest Bank Detroit Lakes, National
Association (included in Proxy Statement-Prospectus as Appendix B).
4(a) -- Restated Certificate of Incorporation, as amended (incorporated by
reference to Exhibit 3(b) to the Registrant's Current Report on Form
8-K dated June 28, 1993 (File No. 1-2979)).
4(b) -- Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's 10.24% Cumulative Preferred Stock
(incorporated by reference to Exhibit 4(a) to the Registrant's
Registration Statement No. 33-38806).
4(c) -- Certificate of Designations of Powers, Preferences, and Rights
relating to the Registrant's Cumulative Convertible Preferred Stock,
Series B (incorporated by reference to Exhibit 2 to the Registrant's
Form 8-A dated August 8, 1991 (File No. 1-2979)).
4(d) -- By-Laws of the Norwest Corporation, as amended (incorporated herein
by reference to Exhibit 4(c) to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1991 (File No. 1-2979)).
4(e) -- Rights Agreement, dated as of November 22, 1988, between Norwest
Corporation and Citibank, N.A., including as Exhibit A the form of
Certificate of Designation of Powers, Preferences and Rights setting
forth the terms of the Series A Junior Participating Preferred Stock,
without par value, (incorporated herein by reference to Exhibit 1 to
the Registrant's Form 8-A dated December 6, 1988 (File No. 1-2979))
and Certificates of Adjustment pursuant to Section 12 of the Rights
Agreement (incorporated herein by reference to Exhibit 3 to Norwest
Corporation's Form 8 dated July 21,
II-1
<PAGE>
1989, and to Exhibit 4 to the Registrant's Form 8-A/A dated
June 28, 1993 (File No. 1-2979)).
5 -- Opinion of General Counsel of Norwest Corporation. *
8(a) -- Opinion of Maslon, Edelman, Borman & Brand with respect to *
the Merger.
8(b) -- Opinion of Maslon, Edelman, Borman & Brand with respect to *
the Bank Consolidation.
23(a) -- Consent of General Counsel of the Registrant (included as *
part of Exhibit 5 filed herewith).
23(b) -- Consent of Maslon, Edelman, Borman & Brand (included as *
part of Exhibit 8 filed herewith).
23(c) -- Consent of KPMG Peat Marwick (concerning financial *
statements of Norwest Corporation).
23(d) -- Consent of KPMG Peat Marwick (concerning financial *
statements of D.L. Bancshares, Inc.).
24 -- Powers of Attorney. *
99 -- Form of proxy for Special Meeting of Shareholders of D. L. **
Bancshares, Inc.
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period, in which offers or sales are being made,
a posteffective amendment to this registration statement (i) to
include any prospectus required by section 10(a)(3) of the Securities
Act of 1933, (ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or
the most recent posteffective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, and (iii) to
include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such posteffective 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.
(3) To remove from registration by means of a posteffective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) 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 Section 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
- ---------------
*Previously filed
**Filed herewith
II-2
<PAGE>
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.
(c) 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.
(d) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) 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.
(e) 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.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 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.
(g) The undersigned registrant hereby undertakes to supply by means of a
posteffective 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 became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota, on the 8th day of February, 1994.
NORWEST CORPORATION
By: /s/ Richard M. Kovacevich
-----------------------------------------
Richard M. Kovacevich
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
amendment to the Registration Statement has been signed on the 8th day of
February, 1994, by the following persons in the capacities indicated:
/s/ Richard M. Kovacevich President and Chief Executive Officer
------------------------- (Principal Executive Officer)
Richard M. Kovacevich
/s/ John T. Thornton Executive Vice President and Chief
-------------------- Financial Officer
John T. Thornton (Principal Financial Officer)
/s/ Michael A. Graf Senior Vice President and Controller
------------------- (Principal Accounting Officer)
Michael A. Graf
DAVID A. CHRISTENSEN )
PIERSON M. GRIEVE )
CHARLES M. HARPER )
N. BERNE HART ) A majority of the
WILLIAM A. HODDER ) Board of Directors*
GEORGE C. HOWE )
LLOYD P. JOHNSON )
REATHA CLARK KING )
RICHARD M. KOVACEVICH )
RICHARD S. LEVITT )
RICHARD D. McCORMICK )
CYNTHIA H. MILLIGAN )
JOHN E. PEARSON )
IAN M. ROLLAND )
STEPHEN E. WATSON )
MICHAEL W. WRIGHT )
- ---------
*Richard M. Kovacevich, by signing his name hereto, does hereby sign this
document on behalf of each of the directors named above pursuant to powers of
attorney duly executed by such persons.
/s/ Richard M. Kovacevich
-------------------------
Richard M. Kovacevich
Attorney-in-Fact
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Form
Number Description of Filing
------- ----------- ---------
<C> <S> <C>
2(a) Agreement and Plan of Reorganization, dated as of
September 22, 1993, as amended, among D.L. Bancshares, Inc.,
First National Bank of Detroit Lakes, and Norwest
Corporation, and form of Agreement and Plan of Merger
between Norwest Corporation and a wholly-owned subsidiary
of Norwest (included in Proxy Statement-Prospectus as
Appendix A)
2(b) Form of Agreement and Plan of Consolidation between First
National Bank of Detroit Lakes and Norwest Bank Detroit
Lakes, National Association (included in Proxy Statement-
Prospectus as Appendix B).
4(a) Restated Certificate of Incorporation, as amended
(incorporated by reference to Exhibit 3(b) to the
Registrant's Current Report on Form 8-K dated June 28,
1993 (File No. 1-2979)).
4(b) Certificate of Designations of Powers, Preferences, and
Rights relating to the Registrant's 10.24% Cumulative
Preferred Stock (incorporated by reference to Exhibit 4(a)
to the Registrant's Registration Statement No. 33-38806).
4(c) Certificate of Designations of Powers, Preferences, and
Rights relating to the Registrant's Cumulative Convertible
Preferred Stock, Series B (incorporated by reference to
Exhibit 2 to the Registrant's Form 8-A dated August 8,
1991 (File No. 1-2979)).
4(d) By-Laws of Norwest Corporation, as amended (incorporated
by reference to Exhibit 4(c) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1991
(File No. 1-2979)).
4(e) Rights Agreement, dated as of November 22, 1988, between
Norwest Corporation and Citibank, N.A., including as
Exhibit A the form of Certificate of Designation of Powers,
Preferences and Rights setting forth the terms of the
Series A Junior Participating Preferred Stock, without par
value, (incorporated by reference to Exhibit 1 to the
Registrant's Form 8-A dated December 6, 1988
(File No. 1-2979)) and Certificates of Adjustment
pursuant to Section 12 of the Rights Agreement (incorporated
by reference to Exhibit 3 to the Registrant's Form 8 dated
July 21, 1989, and to Exhibit 4 to the Registrant's
Form 8-A/A dated June 28, 1993 (File No. 1-2979)).
5 Opinion of General Counsel of the Registrant.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Form
Number Description of Filing
------- ----------- ------------
<C> <S> <C>
8(a) Opinion of Maslon, Edelman, Borman & Brand with *
respect to the Merger
8(b) Opinion of Maslon, Edelman, Borman & Brand with *
respect to the Bank Consolidation
23(a) Consent of General Counsel of Registrant (included as
part of Exhibit 5 filed herewith).
23(b) Consent of Maslon, Edelman, Borman & Brand (included
as part of Exhibit 8 filed herewith).
23(c) Consent of KPMG Peat Marwick (concerning financial *
statements of Norwest Corporation).
23(d) Consent of KPMG Peat Marwick (concerning financial *
statements of D.L. Bancshares, Inc.).
24 Powers of Attorney. *
99 Form of proxy for Special Meeting of Shareholders of Electronic
D.L. Bancshares, Inc. Transmission
</TABLE>
- ----------------
*Previously filed by electronic transmission
<PAGE>
EXHIBIT 99
D. L. BANCSHARES, INC.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints Ronald Fingerhut and Byron Frank, and each
of them, proxies, with full power of substitution, to vote all shares of Class
A Common Stock the undersigned is entitled to vote at the Special Meeting of
Shareholders of D.L. Holding Company ("Bancshares") to be held at 3300 Norwest
Center, Minneapolis, Minnesota 55402, at 10:00 a.m. on Friday, March 11,
1994, or at any adjournment thereof, as follows, hereby revoking any proxy
previously given:
(1) The approval of the Agreement and Plan of Reorganization among
Bancshares, First National Bank of Detroit Lakes (the "Bank"), and Norwest
Corporation ("Norwest"), dated as of September 23, 1993, pursuant to which (i)
Bancshares will merge with Norwest Acquisition Co., a wholly-owned subsidiary
of Norwest, with Bancshares as the surviving entity, and each outstanding share
of the common stock of Bancshares will be exchanged for shares of the common
stock, par value $1 2/3 per share, of Norwest, and (ii) the Bank will
consolidate under the charter of the Bank with a wholly owned bank subsidiary
of Norwest, as more fully described in the Proxy Statement-Prospectus
accompanying this Proxy.
FOR [_] AGAINST [_] ABSTAIN [_]
(2) In their discretion on such matters as may properly come before the
meeting or any adjournment thereof; all as set out in the Notice and Proxy
Statement-Prospectus relating to the meeting, receipt of which are hereby
acknowledged.
Shares represented by this proxy will be voted as directed by the
shareholder. The Board of Directors recommends a vote "FOR" proposal 1. If no
direction is supplied, the proxy will be voted "FOR" proposal 1.
Dated: ________________________, 1994.
----------------------------------------------
(Please sign exactly as name appears at left.)
----------------------------------------------
(If stock is owned by more than one person, all
owners should sign. Persons signing as
executors, administrators, trustees, or in
similar capacities should so indicates.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
