<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 31, 1998
-------------
COMMERCIAL FEDERAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEBRASKA 1-11515 47-0658852
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) dentification Number)
2120 SOUTH 72nd STREET, OMAHA, NEBRASKA 68124
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (402) 554-9200
--------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
1
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
FORM 8-K/A
----------
AMENDMENT NO. 1 TO CURRENT REPORT
---------------------------------
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits:
- ----------------------------------------------------------------------------
On July 31, 1998, Commercial Federal Corporation ("Commercial Federal")
consummated its acquisition of AmerUs Bank ("AmerUs"), a wholly-owned
subsidiary of AmerUs Group Co. AmerUs was a federally chartered savings
bank headquartered in Des Moines, Iowa.
On August 14, 1998, Commercial Federal consummated its acquisition of First
Colorado Bancorp, Inc. ("First Colorado"). First Colorado, headquartered
in Lakewood, Colorado, was a unitary savings and loan holding company and
the parent company of First Federal Bank of Colorado, a federally chartered
stock savings bank.
The unaudited pro forma consolidated financial information set forth herein
was prepared for purposes of complying with Regulation S-X of the
Securities and Exchange Commission in connection with the filing of the
respective Forms 8-K of Commercial Federal relating to the acquisitions of
AmerUs and First Colorado since such acquisitions are significant to the
financial statements of Commercial Federal.
Item 7(a). Financial Statements of Business Acquired:
- ------------------------------------------------------
The unaudited consolidated financial statements as of June 30, 1998, and
for the six months ended June 30, 1998 and 1997, and the audited
consolidated financial statements as of December 31, 1997 and 1996, and for
the years ended December 31, 1997 and 1996, of AmerUs are included herein
as Exhibits 99(a) and 99(b), respectively.
The unaudited consolidated financial statements of First Colorado (File
No. 0-27126) as of June 30, 1998, and for the three and six months ended
June 30, 1998 and 1997, are incorporated by reference to Item 1 of the
First Colorado Quarterly Report on Form 10-Q for the quarter ended June 30,
1998. The audited consolidated financial statements of First Colorado as of
December 31, 1997, and for the three years ended December 31, 1997, are
incorporated by reference to Item 8 of the First Colorado Annual Report on
Form 10-K for the year ended December 31, 1997.
Item 7(b). Pro Forma Financial Information:
- ---------------------------------------------
Filed as a part of this Current Report Form 8-K/A is the required unaudited
pro forma combined statement of financial position as of June 30, 1998, and
the unaudited pro forma condensed combined statements of operations for the
three years ended June 30, 1998.
The pro forma data are presented for comparative purposes only and are not
necessarily indicative of the future financial position or results of
operations of the combined company or of the combined financial position or
the results of operations that would have been realized had the
acquisitions of AmerUs and First Colorado been consummated during the
periods or as of the date for which the pro forma data are presented.
2
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
FORM 8-K/A
----------
AMENDMENT NO. 1 TO CURRENT REPORT
---------------------------------
Item 7(c). Exhibits:
- ---------------------
Exhibit 23. Consent of KPMG Peat Marwick LLP.
Exhibit 99(a). Unaudited consolidated financial statements of AmerUs Bank
and Subsidiaries as of June 30, 1998, and for the six
months ended June 30, 1998 and 1997.
Exhibit 99(b). Audited consolidated financial statements of AmerUs Bank
and Subsidiaries as of December 31, 1997 and 1996, and for
the years ended December 31, 1997 and 1996.
Exhibit 99(c). Unaudited consolidated financial statements of First
Colorado as of June 30, 1998, and for the three and six
months ended June 30, 1998 and 1997 (incorporated by
reference to Item 1 of the First Colorado Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998).
Exhibit 99(d). Audited consolidated financial statements of First Colorado
as of December 31, 1997, and for the three years ended
December 31, 1997 (incorporated by reference to Item 8 of
the First Colorado Annual Report on Form 10-K for the year
ended December 31, 1997).
3
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCIAL FEDERAL CORPORATION
------------------------------
(Registrant)
Date: October 14, 1998 /s/ James A. Laphen
---------------- --------------------------------------------
James A. Laphen, President, Chief Operating
Officer and Chief Financial Officer (Duly
Authorized and Principal Financial Officer)
Date: October 14, 1998 /s/ Gary L. Matter
---------------- --------------------------------------------
Gary L. Matter, Senior Vice President,
Controller and Secretary
(Principal Accounting Officer)
4
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
Item 7(b). Pro Forma Financial Information.
- -------------------------------------------
On July 31, 1998, Commercial Federal consummated its acquisition of AmerUs.
Under the terms of the Stock Purchase Agreement, Commercial Federal acquired
through a taxable acquisition all of the outstanding shares of the common stock
of AmerUs for total consideration of $178,269,000. Such consideration consisted
of (i) certain assets retained by AmerUs Group Co. in lieu of cash (primarily
FHA Title One single-family residential mortgage loans and a receivable for
income tax benefits) totaling approximately $85,027,000, (ii) cash (as adjusted
per the agreement) totaling $53,242,000, and (iii) a one-year promissory note
for $40,000,000 bearing interest, adjusted monthly, at 150 basis points over the
one-year Treasury bill rate. AmerUs was a federally chartered savings bank
headquartered in Des Moines, Iowa and operated 47 branches in Iowa (26),
Missouri (8), Nebraska (6), Kansas (4), Minnesota (2) and South Dakota (1). The
acquisition was accounted for as a purchase.
On August 14, 1998, Commercial Federal consummated its acquisition of First
Colorado. Under the terms of the agreement, Commercial Federal acquired in a
tax-free reorganization all 18,564,766 outstanding shares of First Colorado's
common stock in exchange for 18,278,789 shares of its common stock. Based on
Commercial Federal's closing stock price of $26.375 at August 14, 1998, the
total consideration for this acquisition, including cash paid for fractional
shares, approximated $482,154,000. An additional requirement of the transaction
with First Colorado was the issuance of 1,400,000 shares of First Colorado
common stock immediately prior to the consummation of the merger. Such
requirement was necessary to cure the taint on the treasury stock of First
Colorado so this transaction could be accounted for as a pooling of interests.
These shares offered directly by First Colorado resulted in gross cash proceeds
(prior to any transaction costs) of $33,425,000 less the placement agent's
commission of $919,000, or net proceeds to First Colorado totaling $32,506,000.
First Colorado, headquartered in Lakewood, Colorado, was a unitary savings and
loan holding company and the parent company of First Federal Bank of Colorado, a
federally chartered stock savings bank that operated 27 branches located in
Colorado, with 23 branches located in the Denver metropolitan area and four in
Colorado's western slope region. The acquisition was accounted for as a pooling
of interests.
The unaudited pro forma combined statement of financial condition as of June 30,
1998, and the unaudited pro forma condensed combined statements of operations
and diluted earnings per share for the fiscal years ended June 30, 1998, 1997
and 1996 presented on the following pages do not include any expected cost
savings or the benefits of related synergies as a result of the mergers of
AmerUs and First Colorado, do not reflect any nonrecurring merger transaction
costs, nor do they reflect all purchase accounting adjustments other than those
described in the accompanying notes, and are not necessarily indicative of the
results that would have occurred if the mergers of AmerUs and First Colorado had
been consummated on June 30, 1998, or had occurred as of the beginning of the
fiscal year ended June 30, 1996 for the First Colorado acquisition accounted for
as a pooling-of-interests and as of the beginning of the fiscal year ended June
30, 1998 for the AmerUs acquisition accounted for as a purchase, or which may be
obtained in the future.
5
<PAGE>
Commercial Federal Corporation
------------------------------
Item 7(b). Pro Forma Financial Information
-------------------------------------------
Unaudited Pro Forma Combined Statement of Financial Condition
-------------------------------------------------------------
<TABLE>
<CAPTION>
Commercial AmerUs Pro Forma
Federal Bank Adjustments
ASSETS: --------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Cash $ 131,336 $ 38,304 $ 45,000 A
(53,242) A
Investment securities available for sale 140,359 - -
Mortgage-backed securities available for sale 165,697 123,601 -
Loans held for sale, net 289,666 30,084 2,193 C
Investment securities held to maturity 455,028 - -
Mortgage-backed securities held to maturity 748,589 - -
Loans and leases receivable, net 6,412,712 1,053,069 3,865 C
(75,656) A
Federal Home Loan Bank stock 119,431 13,182 -
Interest receivable, net 58,119 11,379 -
Real estate, net 20,831 4,446 -
Premises and equipment, net 111,803 18,377 -
Prepaid expenses and other assets 125,924 18,662 (9,371) A
Intangible assets, net 73,145 1,685 (1,685) C
111,685 C
--------------------------------------------------------------
Total Assets $8,852,640 $1,312,789 $ 22,789
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits $5,363,140 $ 957,624 $ 6,238 C
Advances from Federal Home Loan Bank 2,271,772 215,525 2,515 C
Securities sold under agreements to repurchase 334,294 - -
Other borrowings 106,577 7,352 40,000 A
45,000 A
Interest payable 35,925 - -
Other liabilities 97,893 27,221 34,103 C
--------------------------------------------------------------
Total liabilities 8,209,601 1,207,722 127,856
Commitments and contingencies - - -
Stockholders' Equity:
Preferred stock - - -
Common stock 421 3 (3) B
Additional paid-in capital 233,727 44,929 (44,929) B
Retained earnings 409,735 61,375 (61,375) B
Unearned Employee Stock Ownership Plan (ESOP) shares (1,383) - -
Unrealized holding gain (loss) on securities
available for sale, net 539 (1,240) 1,240 B
--------------------------------------------------------------
643,039 105,067 (105,067)
Less treasury stock, at cost - - -
---------------------------------------------------------------
Total Stockholders' Equity 643,039 105,067 (105,067)
---------------------------------------------------------------
Total Liabilities and Stockholders' Equity $8,852,640 $1,312,789 $ 22,789
===============================================================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma First Pro Forma Pro Forma
Combined Colorado Adjustments Combined
ASSETS: ----------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Cash $ 161,398 $ 85,676 $ 32,506 D $ 279,580
Investment securities available for sale 140,359 757 - 141,116
Mortgage-backed securities available for sale 289,298 5,696 - 294,994
Loans held for sale, net 321,943 - - 321,943
Investment securities held to maturity 455,028 77,160 - 532,188
Mortgage-backed securities held to maturity 748,589 171,867 - 920,456
Loans and leases receivable, net 7,393,990 1,155,580 - 8,549,570
Federal Home Loan Bank stock 132,613 11,701 - 144,314
Interest receivable, net 69,498 8,234 - 77,732
Real estate, net 25,277 166 - 25,443
Premises and equipment, net 130,180 23,148 - 153,328
Prepaid expenses and other assets 135,215 2,605 - 137,820
Intangible assets, net 184,830 4,040 - 188,870
----------------------------------------------------------
Total Assets $10,188,218 $1,546,630 $ 32,506 $11,767,354
==========================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits 6,327,002 $1,195,067 $ - $ 7,522,069
Advances from Federal Home Loan Bank 2,489,812 107,410 - 2,597,222
Securities sold under agreements to repurchase 334,294 - - 334,294
Other borrowings 198,929 4,097 - 203,026
Interest payable 35,925 - - 35,925
Other liabilities 159,217 21,900 - 181,117
----------------------------------------------------------
Total liabilities 9,545,179 1,328,474 - 10,873,653
Commitments and contingencies - - - -
Stockholders' Equity:
Preferred stock - - - -
Common stock 421 2,013 140 D 604
(2,153) E
183 E
Additional paid-in capital 233,727 154,463 32,366 D 370,186
(183) E
(50,187) E
Retained earnings 409,735 124,510 - 534,245
Unearned Employee Stock Ownership Plan (ESOP) shares (1,383) (10,021) - (11,404)
Unrealized holding gain (loss) on securities
available for sale, net 539 (469) - 70
----------------------------------------------------------
643,039 270,496 (19,834) 893,701
Less treasury stock, at cost - (52,340) 52,340 E -
----------------------------------------------------------
Total Stockholders' Equity 643,039 218,156 32,506 893,701
----------------------------------------------------------
Total Liabilities and Stockholders' Equity $10,188,218 $1,546,630 $ 32,506 $11,767,354
==========================================================
</TABLE>
See footnotes on the following page.
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
Item 7(b). Pro Forma Financial Information.
- -------------------------------------------
A. Represents the cash paid and the purchase notes totaling $40,000,000
executed for the purchase of AmerUs' common stock, the dispositions of
certain assets of AmerUs per the Stock Purchase Agreement plus the gain
and/or losses, net of tax, realized upon such dispositions. These pro forma
adjustments reflect that the cash portion paid for AmerUs' common stock is
funded in part by a $45,000,000 promissory note with a five-year maturity,
quarterly principal payments of $1,250,000 and bearing a monthly rate of
interest which is priced at 100 basis points below the quoted national base
prime rate.
B. Represents the elimination of the stockholders' equity accounts of AmerUs
since this transaction is accounted for as a purchase.
C. The acquisition of AmerUs is accounted for as a purchase and these pro
forma adjustments represent the estimated fair value of AmerUs' related
assets and liabilities. The excess of the purchase price over the fair
value of the net assets acquired on a pro forma basis is estimated to total
$110,000,000 of which $16,264,000 is allocated to core value of deposits,
and $93,736,000 to goodwill for these unaudited pro forma combined
financial statements.
D. Represents the 1,400,000 shares of First Colorado common stock issued prior
to the consummation of the merger:
<TABLE>
<CAPTION>
<S> <C>
Total consideration (1,400,000 shares x $23.875 per share) $33,425,000
Less commissions and other expenses of issuance and distribution (919,000)
-----------
Net cash proceeds $32,506,000
===========
Accounting for the transaction:
Par value ($.10 per share) $ 140,000
Additional paid-in capital 32,366,000
-----------
$32,506,000
===========
</TABLE>
The purpose of the issuance of the 1,400,000 shares of First Colorado
common stock is to permit the merger to be accounted for as a pooling-of-
interests under generally accepted accounting principles. For purposes of
these pro forma adjustments the net cash proceeds were assumed to remain in
non-interest-earning assets.
E. Represents the tax-free exchange of .9847 shares of Commercial Federal
common stock for each share of First Colorado common stock (18,564,766 net
outstanding shares) surrendered in connection with this acquisition,
adjusted for the issuance of 1,400,000 shares, resulting in 18,278,789
shares of Commercial Federal common stock issued. No consideration was
given for fractional shares in these pro forma adjustments. Fractional
shares were paid in cash.
Nonrecurring pre-tax expenses and charges estimated to approximate $25,000,000
associated with the First Colorado merger are not included in this unaudited
historical pro forma combined statement of financial condition.
7
<PAGE>
Commercial Federal Corporation
Item 7(b). Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Statement of Operations
<TABLE>
<CAPTION>
For the Year Ended June 30, 1998
------------------------------------------------------------------------------
Commercial AmerUs Pro Forma Pro Forma First Pro Forma
(In thousands, except per share data) Federal Bank Adjustments Combined Colorado Combined
----------- -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 647,618 $112,849 $ (2,773) A $ 757,694 $ 110,070 $ 867,764
Interest expense 417,188 67,556 1,366 A 486,110 60,201 546,311
----------- -------- ----------- ----------- ----------- -----------
Net interest income 230,430 45,293 (4,139) 271,584 49,869 321,453
Provision (credit) for loan and lease losses 15,325 8,324 - 23,649 (1,472) 22,177
----------- -------- ----------- ----------- ----------- -----------
Net interest income after provision for
loan and lease losses 215,105 36,969 (4,139) 247,935 51,341 299,276
----------- -------- ----------- ----------- ----------- -----------
Noninterest income 88,265 25,168 - 113,433 9,069 122,502
Noninterest expense 195,295 44,318 7,127 A 246,740 28,716 275,456
----------- -------- ----------- ----------- ----------- -----------
Income before income taxes 108,075 17,819 (11,266) 114,628 31,694 146,322
Provision for income taxes 40,742 6,953 (2,548) 45,147 11,614 56,761
----------- -------- ----------- ----------- ----------- -----------
Net income $ 67,333 $ 10,866 $ (8,718) $ 69,481 $ 20,080 $ 89,561
=========== ======== ======== =========== =========== ===========
Diluted earnings per common share $ 1.62 $ 43.46 $ 1.67 $ 1.23 $ 1.52 B
=========== ======== =========== =========== ===========
Weighted average diluted
common shares outstanding 41,693,226 250,000 41,693,226 16,278,946 59,101,684 B
=========== ======== =========== =========== ===========
</TABLE>
See footnotes on the following pages.
8
<PAGE>
Commercial Federal Corporation
Item 7(b). Pro Forma Financial Information
Unaudited Pro Forma Condensed Combined Statement of Operations
<TABLE>
<CAPTION>
For the Years Ended June 30,
--------------------------------------------------------------------------------
1997 1996
-------------------------------------------------------------------------------
Commercial First Pro Forma Commercial First Pro Forma
(In thousands, except per share data) Federal Colorado Combined Federal Colorado Combined
----------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 607,604 $ 104,628 $ 712,232 $ 575,733 $ 94,263 $ 669,996
Interest expense 396,775 57,194 453,969 378,580 58,863 437,443
----------- ----------- ----------- ----------- --------- -----------
Net interest income 210,829 47,434 258,263 197,153 35,400 232,553
Provision (credit) for loan and lease losses 12,284 1,143 13,427 7,211 (495) 6,716
----------- ----------- ----------- ----------- --------- -----------
Net interest income after provision for loan
and lease losses 198,545 46,291 244,836 189,942 35,895 225,837
Noninterest income 81,133 5,498 86,631 68,768 5,206 73,974
Noninterest expense 194,142 30,506 224,648 159,774 21,317 181,091
----------- ----------- ----------- ----------- --------- -----------
Income before income taxes and extraordinary
items 85,536 21,283 106,819 98,936 19,784 118,720
Provision for income taxes 30,069 7,911 37,980 32,741 7,146 39,887
----------- ----------- ----------- ----------- --------- -----------
Income before extraordinary items $ 55,467 $ 13,372 $ 68,839 $ 66,195 $ 12,638 $ 78,833
=========== =========== =========== =========== ========= ===========
Diluted earnings per common share $ 1.35 $ .73 $ 1.14 B $ 1.59 $ 1.96 $ 1.26 B
=========== =========== =========== =========== ========= ===========
Weighted average diluted common shares
outstanding 41,020,167 18,354,268 60,472,194 B 41,692,377 6,433,838 62,787,936 B
=========== =========== =========== =========== ========= ===========
</TABLE>
See footnotes on the following pages.
6
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
Item 7(b). Pro Forma Financial Information.
- -------------------------------------------
A. The unaudited pro forma condensed combined statements for the fiscal years
ended June 30, 1998, 1997 and 1996 present the combined revenues and
expenses and pro forma adjustments as if the mergers of AmerUs and First
Colorado had occurred as of the beginning of the fiscal year ended June 30,
1996, for the First Colorado acquisition accounted for as a pooling-of-
interests, and as of the beginning of the fiscal year ended June 30, 1998
for the AmerUs acquisition accounted for as a purchase. The pro forma
adjustments below represent the estimated fair value of the related assets
and liabilities of AmerUs.
The excess of the purchase price over the fair value of the net assets of
AmerUs acquired on a pro forma basis is estimated to total $110,000,000 of
which $16,264,000 is allocated to core value of deposits and $93,736,000 to
goodwill for these unaudited pro forma combined financial statements. Net
income on a pro forma basis was reduced for the accelerated amortization
expense of core value of deposits estimated over a 10-year period and the
straight line amortization expense of goodwill estimated over a 20-year
period; and adjustments were made to interest expense on the $45,000,000
note, the proceeds of which were used to partially fund the purchase of the
common stock of AmerUs in this transaction, and on the $40,000,000 purchase
notes pursuant to the Stock Purchase Agreement.
The following are the effects of the amortization of the pro forma purchase
accounting adjustments for AmerUs for the fiscal year ended June 30, 1998,
assuming this acquisition had been consummated as of the beginning of
fiscal year 1998.
<TABLE>
<CAPTION>
<S> <C>
Interest income:
Purchase accounting adjustments on loans $(2,773,000)
===========
Interest expense:
Purchase accounting adjustments on deposits $(3,306,000)
Purchase accounting adjustments on advances
from Federal Home Loan Bank (1,383,000)
Interest on note borrowed to partially fund the cash
portion for the purchase of AmerUs common stock 3,280,000
Interest on Purchase Notes payable to AmerUs Group
Co. for the purchase of AmerUs common stock 2,775,000
-----------
$ 1,366,000
===========
Noninterest expense:
Amortization of core value of deposits $ 2,440,000
Amortization of goodwill 4,687,000
-----------
$ 7,127,000
===========
</TABLE>
10
<PAGE>
COMMERCIAL FEDERAL CORPORATION
------------------------------
Item 7(b). Pro Forma Financial Information.
- -------------------------------------------
B. Pro forma combined diluted earnings per common share and weighted average
diluted common shares outstanding are based upon an exchange ratio of .9847
and the additional issuance of 1,400,000 shares of First Colorado common
stock prior to the consummation of the merger. Such pro forma assumptions
result in the issuance of Commercial Federal weighted average shares of
common stock totaling 17,408,458, 19,452,027 and 21,095,559, respectively,
for the years ended June 30, 1998, 1997 and 1996.
C. Commercial Federal's fiscal year end is June 30, and First Colorado's
fiscal year end is December 31. Historical results of operations for First
Colorado for the year ended June 30, 1998, represent its results of
operations for the four fiscal quarters then ended. Historical results of
operations for First Colorado for the years ended June 30, 1997, and June
30, 1996, represent First Colorado's reported results of operations for the
fiscal years ended December 31, 1996 and 1995, respectively.
Nonrecurring pre-tax expenses and charges estimated to approximate $25,000,000
associated with the First Colorado merger are not included in this unaudited
historical pro forma combined statements of operations.
11
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITOR'S CONSENT
The Board of Directors
Commercial Federal Corporation:
We consent to the incorporation by reference in the Form 8-K/A of Commercial
Federal Corporation dated October 14, 1998, of our report dated March 9, 1998,
with respect to the consolidated statements of financial condition of First
Colorado Bancorp, Inc. and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1997, which report appears in the December 31, 1997 Annual Report on Form 10-K
of First Colorado Bancorp, Inc.
s/s Peat Marwick LLP
Denver Colorado
October 14, 1998
<PAGE>
EXHIBIT 99.(a)
AmerUs Bank
Consolidated Balance Sheet
30-Jun-98
(in thousands)
<TABLE>
<CAPTION>
ASSETS (UNAUDITED)
- ------ -----------
<S> <C>
Cash and due from banks 34,031
Interest-bearing deposits 4,273
Mortgage-backed and other securities
held to maturity -
Mortgage-backed and other securities
available for sale 123,601
Federal Home Loan Bank stock 13,182
Loans available for sale:
Consumer 11,032
Real Estate 19,052
Loans and leases held to maturity:
Consumer 480,724
Real Estate 567,318
Commercial 2,279
Leases 13,721
-----------
Total Loans and Leases 1,094,126
Allowance for credit losses (7,853)
Unearned income (3,120)
-----------
Net loans and leases 1,083,153
Real estate inventory, net 4,446
Premises and equipment, net 18,377
Other assets 31,726
-----------
Total Assets 1,312,789
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
LIABILITIES:
Checking 105,316
Savings 28,699
Money Markets 214,889
Certificates of Deposit 444,068
Wholesale Deposits 164,652
-----------
Total Deposits 957,624
Advances from the Federal Home Loan Bank 215,525
Notes payable and other debt 7,352
Accrued expenses and other liabilities 25,033
Income taxes payable 2,188
-----------
Total Liabilities 1,207,722
-----------
STOCKHOLDER'S EQUITY:
Common stock 3
Additional paid in capital 44,929
Net unrealized gain (loss) on securities (1,240)
Retained earnings 61,375
-----------
Total stockholder's equity 105,067
-----------
Total Liabilities and Stockholder's Equity 1,312,789
===========
</TABLE>
<PAGE>
AmerUs Bank
Income Statement Comparison to Prior Year
June 98
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-----------------------
(UNAUDITED) 1998 1997
- ----------- ---------- ----------
<S> <C> <C>
INTEREST AND DIVIDEND INCOME:
Interest and fees on loans 48,150,873 44,084,621
Interest and fees on leases 592,309 4,245,610
Interest on mortgage-backed and
other investment securities 4,480,493 5,458,683
Interest on interest-bearing deposits 342,924 307,667
Dividends on FHLB stock 546,967 597,292
---------- ----------
Total Interest and Dividend Income 54,113,566 54,693,873
---------- ----------
INTEREST EXPENSE:
Deposits 24,860,965 22,483,868
Advances from the FHLB 8,065,961 7,352,514
Notes payable and other debt 284,576 1,742,107
---------- ----------
Total Interest Expense 33,211,502 31,578,489
---------- ----------
Net Interest Income 20,902,064 23,115,384
Provision for Credit Losses 4,595,000 4,675,000
---------- ----------
Net Interest Income after
Provision for Credit Losses 16,307,064 18,440,384
---------- ----------
NONINTEREST INCOME:
Bank and leasing co. retail fee income 2,863,004 3,312,623
Investment company fee income 1,687,508 2,148,619
Loan servicing fees, net 826,217 149,913
Gain (loss) on sale of: consumer loans 7,341,303 7,106,644
other - (160,154)
Other 182,440 1,533,109
---------- ----------
Total Noninterest Income (Loss) 12,900,472 14,090,754
---------- ----------
NONINTEREST EXPENSE:
Salaries and employee benefits 10,153,493 8,908,494
Occupancy, net 2,114,281 2,060,414
Advertising 748,770 488,399
Deposit insurance premiums 295,501 263,358
Depreciation 2,505,985 2,644,435
Other real estate owned, net 149,084 (11,443)
Data processing 1,596,897 1,841,477
Amortization 130,772 245,600
Other 4,715,351 5,146,682
---------- ----------
Total Noninterest Expense 22,410,134 21,587,416
---------- ----------
Income Before Income Taxes 6,797,402 10,943,722
Income Tax Expense (Benefit) 2,649,300 4,117,000
---------- ----------
Net Income (Loss) 4,148,102 6,826,722
========== ==========
</TABLE>
<PAGE>
AmerUs Bank
Consolidated Statement of Stockholder's Equity
30-Jun-98
(in thousands)
<TABLE>
<CAPTION>
NET UNREALIZED
GAIN (LOSS) ON
ADDITIONAL SECURITIES
COMMON PAID-IN AVAILABLE RETAINED
(UNAUDITED) STOCK CAPITAL FOR SALE EARNINGS TOTAL
- ----------- ---------- ------------ ---------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1998 3 44,929 (1,043) 57,227 101,116
Contribution of capital - - - - -
Dividends Paid - - - - -
Net Income - - - 4,148 4,148
Change in net unrealized gain (loss)
on securities available for sale (net
of deferred income taxes of -$126) - - (197) - (197)
---------- ------------ ---------------- ---------- ----------
Balance as of June 30, 1998 3 44,929 (1,240) 61,375 105,067
========== ============ ================ ========== ==========
</TABLE>
<PAGE>
EXHIBIT 99(b)
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholder of
AmerUs Bank and Subsidiaries:
We have audited the accompanying consolidated balance sheets of AmerUs Bank and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income, stockholder's equity, and cash flows for the years then
ended. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of AmerUs Bank and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Des Moines, Iowa
January 23, 1998
<PAGE>
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
Assets
------
<S> <C> <C>
Cash and cash equivalents $ 35,888 52,031
Securities available for sale (note 2) 137,122 176,561
Stock in Federal Home Loan Bank (FHLB), at cost 18,634 17,207
Loans held for sale (note 3) 40,240 24,253
Loans and leases receivable, net (note 4) 1,191,677 1,029,340
Real estate (note 5) 2,197 4,576
Office property and equipment, net (note 6) 19,980 21,605
Other assets (note 7) 31,545 35,638
----------- -----------
$ 1,477,283 1,361,211
=========== ===========
Liabilities and Stockholder's Equity
------------------------------------
Liabilities:
Deposits (note 8) $ 963,380 905,162
FHLB advances (note 9) 366,565 252,200
Notes payable (note 10) 15,866 84,239
Other liabilities 27,829 23,206
Income taxes payable, primarily to parent company 2,527 4,525
----------- -----------
Total liabilities 1,376,167 1,269,332
----------- -----------
Stockholder's equity (note 13):
Preferred stock, par value $.01 per share;
5,000,000 shares authorized; none
issued or outstanding - -
Common stock, $.01 par value; authorized
10,000,000 shares; issued and outstanding, 250,000 shares 3 3
Additional paid-in capital 44,929 44,929
Retained earnings, substantially restricted 57,227 48,682
Net unrealized loss on securities available
for sale, net of deferred income taxes (1,043) (1,735)
----------- -----------
Total stockholder's equity 101,116 91,879
----------- -----------
Commitments and contingencies (notes 6 and 16).
$ 1,477,283 1,361,211
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
AMERUS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Interest income:
Loans and leases $ 101,368 84,983
Securities 10,290 12,518
Interest-bearing deposits 566 1,127
Dividends on FHLB stock 1,205 1,207
--------- --------
Total interest income 113,429 99,835
--------- --------
Interest expense:
Deposits (note 8) 46,868 39,789
Advances from FHLB 16,512 13,117
Notes payable 2,543 4,168
--------- --------
Total interest expense 65,923 57,074
--------- --------
Net interest income 47,506 42,761
Provision for credit losses (note 4) 8,404 3,380
--------- --------
Net income after provision for credit losses 39,102 39,381
--------- --------
Noninterest income:
Net gain on sale of loans held for
sale and securities available for sale 13,378 9,825
Service fees from customers 10,542 8,480
Gain on sale of deposits 1,492 -
Loan servicing income, net 856 550
Other 91 343
--------- --------
Total noninterest income 26,359 19,198
--------- --------
Noninterest expense:
Compensation, payroll taxes, and employee benefits (note 11) 18,147 16,325
Occupancy 4,179 4,610
Data processing 3,497 3,404
Deposit insurance premiums 548 1,879
Special deposit insurance assessment (note 15) - 4,508
Depreciation 5,486 5,421
Other real estate owned, net (1,092) (173)
Advertising 1,226 1,322
Amortization of goodwill 391 1,093
Loan servicing (note 4) 1,196 951
Other 9,917 8,938
--------- --------
Total noninterest expense 43,495 48,278
--------- --------
Income before income taxes 21,966 10,301
Income taxes (note 12) 8,421 3,810
--------- --------
Net income $ 13,545 6,491
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
AMERUS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Net
Common paid-in Retained unrealized
stock capital earnings gain (loss) Total
-------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 3 37,429 42,191 (1,239) 78,384
Contribution of capital - 7,500 - - 7,500
Net income - - 6,491 - 6,491
Change in unrealized loss on securities
available for sale, net of deferred taxes - - - (496) (496)
-------- ------------ ----------- ------------ ------------
Balance at December 31, 1996 3 44,929 48,682 (1,735) 91,879
Net income - - 13,545 - 13,545
Dividends on common stock, $20 per share (5,000) (5,000)
Change in unrealized loss on securities
available for sale, net of deferred taxes - - - 692 692
-------- ------------ ----------- ------------ ------------
Balance at December 31, 1997 $ 3 44,929 57,227 (1,043) 101,116
======== ============ =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMERUS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,545 6,491
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 5,486 5,421
Amortization of goodwill, fees, premiums, and discounts 3,685 2,549
Provision for credit losses 8,404 3,380
Deferred income taxes (1,519) 487
Proceeds from sale of loans, $104,989 and $46,755
from related parties in 1997 and 1996, respectively 258,614 266,052
Disbursements for loans originated for sale (245,076) (256,232)
Gain on sale of deposits (1,488) -
Net (gain) loss from other investing activities (1,151) 64
Increase in accrued interest receivable (1,739) (2,814)
(Decrease) increase in other assets (308) 6,586
Increase (decrease) in accrued interest payable 2,364 (669)
Increase in other liabilities 2,912 6,591
Decrease in income taxes payable,
primarily to parent company (1,998) (2,526)
------------- -------------
Net cash provided by operating activities 41,731 35,380
------------- -------------
Cash flows from investing activities:
Net change in loans receivable 93,756 86,972
Purchase of loans, $54,106 and $2,992
from related parties in 1997 and 1996, respectively (302,108) (331,984)
Purchase of leases and lease originations (31,999) (14,709)
Lease repayments 39,822 23,441
Securities available for sale:
Proceeds from maturities and repayments 39,453 54,891
Proceeds from sales 17,982 14,507
Purchases (17,023) (74,349)
FHLB stock purchase (1,427) -
Proceeds from sale of real estate 5,079 1,378
Capital expenditures on real estate
owned and in judgment, net (281) (677)
Purchases of office property and equipment (4,327) (5,764)
Proceeds from sale of office property and equipment 674 303
------------- -------------
Net cash used in investing activities (160,399) (245,991)
------------- -------------
</TABLE>
5
<PAGE>
AMERUS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
($ IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Increase in deposits, net $ 117,186 92,491
Sale of deposits (55,000) -
Decrease in advance payments by
borrowers for taxes and insurance (653) (255)
Proceeds from FHLB advances 993,181 564,350
Repayment of advances from FHLB (878,816) (526,025)
Proceeds from issuance of notes payable 7,325 34,322
Repayment of notes payable (75,698) (36,376)
Proceeds from contribution of capital - 7,500
Cash dividends paid (5,000) -
------------- -------------
Net cash provided by financing activities 102,525 136,007
------------- -------------
Net increase (decrease) in cash and cash equivalents (16,143) (74,604)
Cash and cash equivalents at beginning of year 52,031 126,635
------------- -------------
Cash and cash equivalents at end of year $ 35,888 52,031
============= =============
Supplemental disclosures of cash flow information -
Cash paid for:
Interest $ 66,848 57,742
Income taxes 11,946 5,791
============= =============
Supplemental schedule of noncash
investing and financing activities:
Loans transferred to real estate
acquired in settlement of loans $ 2,265 2,485
Net transfers between loans held for sale
and loans receivable - (59,553)
Sales of real estate financed - 849
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Description of the Business
---------------------------
AmerUs Bank, which is headquartered in Des Moines, Iowa, is a federally
chartered stock savings bank and a wholly owned subsidiary of AmerUs Group
Co. AmerUs Group Co. is a wholly owned subsidiary of American Mutual
Holding Company (AMHC), also headquartered in Des Moines, Iowa. AMHC and
AmerUs Group Co. were formed as part of a corporate reorganization of
AmerUs Bank's former ultimate parent American Mutual Life Insurance
Company into a mutual holding company structure. AmerUs Bank operates
branches in Iowa, Kansas, Minnesota, Missouri, Nebraska, and South Dakota
and loan production offices in 13 states. AmerUs Bank is primarily a
retail banking operation offering loans, deposits, and related financial
services. Loans consist primarily of home equity, consumer, and
residential real estate products.
Consolidation and Basis of Presentation
---------------------------------------
The consolidated financial statements include AmerUs Bank and its wholly
owned subsidiaries, AmerUs Investments, Inc. and AmerUs Leasing, Inc.
(collectively the Bank). The subsidiaries provide investment products to
the Bank's customers and purchase leases from a third party. All
significant intercompany balances and transactions have been eliminated in
consolidation.
During 1997, the Bank entered into an agreement to sell a majority of the
leasing assets of AmerUs Leasing, Inc. to an unrelated third party. Under
the terms of the agreement, net leasing related assets of approximately
$55,049,000 were sold at the December 31, 1997, net book value. The Bank
realized no gain or loss on the transaction and at the assets were
transferred to the purchaser in January 1998.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Regulatory Capital
------------------
AmerUs Bank is required by the Office of Thrift Supervision (OTS) to maintain
prescribed levels of regulatory capital. At December 31, 1997 and 1996,
respectively, the requirements were met.
Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, the Bank includes in cash and cash
equivalents amounts due from other financial institutions and interest-
bearing deposits in other financial institutions purchased with original
maturities of three months or less. Amounts of interest-bearing deposits
included as cash equivalents at December 31, 1997 and 1996, were
$7,335,000 and $21,696,000, respectively.
Securities Available for Sale
-----------------------------
Securities to be held for indefinite periods of time, including securities
the Bank intends to utilize as part of its asset/liability management
strategy and may sell in response to changes in interest rates, changes in
prepayment risk, liquidity needs, and when needed to increase regulatory
capital or other similar factors, are classified as available for sale.
(Continued)
7
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Securities Available for Sale, Continued
----------------------------------------
Securities available for sale are recorded at fair value. The aggregate
unrealized gains or losses, net of income tax effect, are recorded as a
component of stockholder's equity.
Discounts and premiums on securities available for sale are
accreted/amortized using the interest method. The timing of the
accretion/amortization for mortgage-backed securities is adjusted for
actual prepayment experience.
Gain or loss is recognized using the specific identification method, and net
gains or losses are shown in the statements of income.
Loans Held for Sale
-------------------
Loans held for sale are carried at the lower of cost or market determined on
an aggregate basis. The cost of loans sold is determined on a specific
identification basis, and gains or losses on the sale of loans are
recognized on the settlement date. Net fees and costs associated with the
origination and acquisition of loans held for sale are included in the
basis for determining gain or loss.
Loans and Leases
----------------
Loans are stated at the principal amounts outstanding, net of unearned
income, deferred loan fees, and discounts. Unearned income, net deferred
loan fees, and discounts on loans which are probable of collection are
amortized over the term of the loans using a method that approximates the
interest method.
Leases are accounted for as direct financing leases for financial statement
purposes. The total minimum rentals receivable and the residual value of
leased assets under each lease contract are recorded as assets, net of
unearned income. Unearned income is the excess of the total rentals
receivable and residual value over the cost of the leased asset. Unearned
income is recognized over the lease term utilizing the interest method.
Direct origination costs are deferred and recognized over the estimated
life of the lease.
Unearned Loan Fees and Discounts
--------------------------------
Certain fees and direct expenses incurred in the loan origination process are
deferred, with recognition thereof over the contractual life of the
related loan as a yield adjustment using the interest method of
amortization. Any unamortized fees on loans sold are credited to income
in the year such loans are sold.
Premiums and discounts in connection with mortgage loans purchased are
amortized over the term of the loans using the interest method.
(Continued)
8
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Allowances for Losses on Loans, Real Estate, and Leases
-------------------------------------------------------
The allowances for losses on loans, real estate, and leases are maintained at
amounts considered adequate to provide for such losses. The allowance for
losses on loans and leases is based on management's periodic evaluation of
the loan and lease portfolio and reflects an amount that, in management's
opinion, is adequate to absorb losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous
factors, including current economic conditions, prior loan and lease loss
experience, the composition of the loan and lease portfolio, and
management's estimate of anticipated credit losses.
Under the Bank's credit policies, all loans with interest more than 90 days
in arrears and restructured loans are considered impaired loans. Loan
impairment is measured based on the present value of expected future cash
flows, discounted at the loan's effective interest rate except, where more
practical, at the observable market price of the loan or the fair value of
the collateral, if the loan is collateral dependent.
Accrued interest receivable in arrears which management believes is doubtful
of collection (generally when a loan becomes 90 days delinquent) is
charged to income. When interest accruals are discontinued, accrued
interest receivable is charged to income. Subsequent interest income is
not recognized on such loans until collected or until determined by
management to be collectible.
Real estate acquired is carried at the lower of cost or fair value. When
property is acquired through foreclosure or a loan is considered impaired,
any excess of the related loan balance over fair value of the property
plus disposition costs is charged to the allowance for losses on real
estate. When circumstances indicate additional loss on the property, a
direct charge to the allowance for losses on real estate is made, and the
real estate is recorded net of such provision.
Financial Instruments with Off Balance Sheet Risk
-------------------------------------------------
In the normal course of business to meet the financing needs of its
customers, the Bank is a party to financial instruments with off balance
sheet risk, which include commitments to extend credit. The Bank's
exposure to credit loss in the event of nonperformance by the other party
to the commitments to extend credit is represented by the contractual
amount of those instruments. The Bank uses the same credit policies in
making commitments as it does for on balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there are no violations of any conditions established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Bank
evaluated each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank, upon
extension of credit is based on management's credit evaluation of the
counterparty.
(Continued)
9
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Office Property and Equipment
-----------------------------
Office property and equipment are recorded at cost. Depreciation is
calculated over the estimated useful lives, which range from 25 to 30
years for buildings and from 3 to 10 years for furniture and equipment,
using straight-line and declining-balance methods, respectively.
Goodwill
--------
In connection with the Bank's acquisition, the excess of cost over fair value
of the Bank's net assets acquired was pushed down and is being amortized
on an accelerated method over approximately ten years. In connection with
the purchase of two branches in 1994, the Bank had recorded goodwill,
which was being amortized on an accelerated method over six years. During
1997, the Bank sold the two branches and the remaining goodwill balance of
approximately $2,319,000 was included in the calculation of the gain on
the sale of deposits.
Servicing Rights
----------------
The Bank's servicing assets are determined based upon estimated future
revenues from contractually specified servicing fees and other ancillary
revenues that are expected to compensate the Bank for performing the
servicing. Such servicing rights are recognized at the time of sale as
part of the gain on the sale of loans to permanent investors. The
resulting servicing rights asset is amortized over the expected life of
the servicing revenues. Servicing rights are periodically assessed for
impairment which is recognized in the statements of income during the
period in which the impairment occurs.
Effective January 1, 1997, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." SFAS 125 requires
that after a transfer of financial assets, the Bank must recognize the
financial and servicing assets controlled and liabilities incurred, and
derecognize financial assets and liabilities in which control is
surrendered or debt is extinguished. The adoption of SFAS 125 did not have
a material effect on the Bank's financial position or results of
operations.
Loan Servicing Income
---------------------
Loan servicing income represents servicing fees earned on an accrual basis in
connection with mortgage and consumer loan servicing. The fees are
generally calculated on the outstanding principal balance of loans
serviced.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method, which
requires deferred taxes to be recognized by applying enacted statutory
rates applicable to future years to the differences between the carrying
amounts and the tax basis of existing assets and liabilities.
(Continued)
10
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Income Taxes, Continued
-----------------------
The Bank files a consolidated federal tax return with its ultimate parent
company, American Mutual Holding Co., and calculates its income tax
provision as if it filed a separate return. For state tax purposes,
AmerUs Bank and its subsidiaries file income or franchise tax returns as
required by the various states.
Reclassifications
-----------------
Certain amounts previously reported have been reclassified to conform with
the presentation in these consolidated financial statements. These
reclassifications did not affect previously reported net income or
retained earnings.
Fair Value of Financial Instruments
-----------------------------------
The following methods and assumptions were used by the Bank in estimating
fair values of financial instruments as disclosed herein:
Cash and Cash Equivalents and Accrued Interest Receivable and Payable
The carrying amount approximates the estimated fair value due to the
short-term nature of those instruments.
Securities Available for Sale
The fair value of securities is estimated based on bid prices published in
financial newspapers, bid quotations received from securities dealers, or
quoted market prices of similar instruments, adjusted for differences
between the quoted instruments and the instruments being valued.
FHLB Stock
The value of FHLB stock is equivalent to its carrying value due to the
stock being redeemable at par value.
(Continued)
11
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Fair Value of Financial Instruments, Continued
----------------------------------------------
Loans Held for Sale
The fair value of loans held for sale is estimated based on the fair value
of recent and pending sales of loans with similar characteristics.
Loans Receivable
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as commercial, real
estate, and consumer. The fair value of loans is calculated by discounting
scheduled cash flows through the estimated maturity using estimated market
discount rates that reflect the credit and interest rate risk inherent in
the loan. The estimate of maturity is based on the historical experience
with repayments for each loan classification, modified, as required, by an
estimate of the effect of current economic and lending conditions. The
effect of nonperforming loans is considered in assessing the credit risk
inherent in the fair value estimate.
Deposits
The fair value of deposits with no stated maturity, such as noninterest-
bearing demand deposits; savings; and NOW accounts, is equal to the amount
payable on demand. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows. The discount rate is
estimated using the rates currently offered for deposits of similar
remaining maturities. The fair value estimates do not include the benefit
that results from the low-cost funding provided by the deposit liabilities
compared to the cost of borrowing funds in the market.
Advances and Commitments from the FHLB and Notes Payable
Rates currently available to the Bank for such borrowings with similar
terms and remaining maturities are used to discount the future cash flows
to estimate fair value for advances and commitments from the FHLB and
notes payable.
The carrying amounts of securities sold under agreements to repurchase
approximate fair value because of the short-term nature of the
instruments.
(Continued)
12
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES, CONTINUED
Fair Value of Financial Instruments, Continued
----------------------------------------------
Off Balance Sheet Instruments
The fair value of commitments to extend credit and commitments to purchase
or sell loans is estimated using the difference between current levels of
interest rates and committed rates. The fair value of letters of credit is
based on fees currently charged for similar agreements. Management
estimates the fair value of such financial instruments approximates the
carrying value, as applicable.
Nonfinancial Instruments
------------------------
Lease Financing
Except for the net leasing assets sold, as previously discussed in the
"Description of the Business," which are valued at the contractual sales
price, the estimated fair value of lease financing is determined by
discounting the future cash flows using the current rates at which similar
leases would be made to lessees with similar credit ratings and remaining
terms. The residual value of leased assets is adjusted based upon the
Bank's actual experience on the disposition of similar leased assets,
present value from the end of the lease term using the current lease
rates.
Servicing Rights
Servicing assets are determined based upon estimated future revenues from
contractually specified servicing fees and other ancillary revenues that
are expected to compensate the Bank for performing the servicing. The
fair value was estimated with a valuation model using current prepayment
speeds and a market discount rate.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. Because no market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions,
risk characteristics of various financial instruments, and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
(Continued)
13
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE
Securities available for sale at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Gross Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
------------ ---------- ----------- -------------
<S> <C> <C> <C> <C>
($ in thousands)
1997
---
U.S. agency securities $ 27,137 105 (31) 27,211
Mortgage-backed securities:
Government National
Mortgage Association (GNMA) 10,924 206 - 11,130
Federal National
Mortgage Association (FNMA) 10,108 52 (1) 10,159
Federal Home Loan Mortgage
Corporation (FHLMC) 2,128 14 (37) 2,105
Private issue mortgage
pass-through certificates 16,841 42 (194) 16,689
Collateralized mortgage obligations 65,897 3 (1,873) 64,027
Other investment securities 5,801 - - 5,801
------------- ---------- ------------ -------------
$ 138,836 422 (2,136) 137,122
============= ========== ============ =============
1996
----
U.S. agency securities $ 20,119 - (151) 19,968
Mortgage-backed securities:
GNMA 13,144 201 - 13,345
FNMA 19,401 297 (4) 19,694
FHLMC 3,570 10 (70) 3,510
Private issue mortgage
pass-through certificates 21,727 81 (242) 21,566
Collateralized mortgage obligations 79,793 6 (2,597) 77,202
Other investment securities 21,655 - (379) 21,276
------------- ---------- ------------ -------------
$ 179,409 595 (3,443) 176,561
============= ========== ============ =============
</TABLE>
(Continued)
14
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) SECURITIES AVAILABLE FOR SALE, CONTINUED
The amortized cost and estimated fair value of securities available for sale
at December 31, 1997, are shown below by contractual maturity. 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>
Estimated
Amortized fair
cost value
------------ ------------
<S> <C> <C>
($ in thousands)
Due in 1 year or less $ 5,000 5,000
Due after 1 year through 5 years 22,137 22,211
-------- -------
27,137 27,211
Mortgage-backed securities 105,898 104,110
Other investment securities 5,801 5,801
-------- -------
$138,836 137,122
======== =======
</TABLE>
Mortgage-backed and other investment securities have no contractual maturity
dates, as principal and interest are received monthly. Other investment
securities consist of other asset-backed securities in 1997 and other
asset-backed securities, mutual fund investments and FHLMC preferred stock
in 1996, all of which have no contractual maturity dates.
Proceeds from the sale of securities available for sale during 1997 and 1996
were $17,982,000 and $14,507,000, respectively. Gross realized gains of
$186,000 and $17,000 and gross realized losses of $346,000 and $11,000
were recognized in 1997 and 1996, respectively.
As of December 31, 1997 and 1996, approximately 35 percent and 33 percent,
respectively, of private issue mortgage pass-through certificates and
collateralized mortgage obligations were secured by single family homes in
California.
(Continued)
15
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS HELD FOR SALE
Loans held for sale at December 31, 1997 and 1996, respectively, are
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
($ in thousands)
<S> <C> <C>
Mortgage loans $ 9,090 5,563
Consumer loans 30,748 18,447
Deferred loan costs 402 243
------- ------
$40,240 24,253
======= ======
</TABLE>
Proceeds from the sale of loans held for sale during 1997 and 1996,
respectively, were $258,614,000 and $266,052,000, and gross realized gains
of $13,538,000 and $9,819,000, respectively, were recognized on those
sales.
(4) LOANS AND LEASES RECEIVABLE
At December 31, 1997 and 1996, loans and lease receivables consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------------- ------------------
($ in thousands)
<S> <C> <C>
Consumer $ 507,682 535,020
Single-family real estate 615,050 377,398
Lease financing 80,682 80,694
Multi-family real estate 3,761 30,871
Commercial real estate 3,626 14,940
Real estate contracts 2,761 3,070
Commercial 4,137 10,159
---------- ---------
1,217,699 1,052,152
---------- ---------
Allowance for credit losses (11,787) (9,439)
Unearned income (14,235) (13,373)
---------- ---------
Loans and leases
receivable, net $1,191,677 1,029,340
========== =========
</TABLE>
The Bank originates and purchases both adjustable and fixed interest rate
loans. As of December 31, 1997 and 1996, approximately 16 percent and 19
percent, respectively, of the Bank's loans portfolio were adjustable
interest rate loans. The adjustable rate loans have interest rate
adjustment limitations and are generally indexed to various national
indices.
(Continued)
16
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS AND LEASES RECEIVABLE, CONTINUED
As of December 31, 1997 and 1996, the Bank was servicing loans for others
totaling approximately $433,104,000 and $353,294,000, respectively.
Servicing loans for others generally consists of collecting loan payments,
maintaining escrow accounts, disbursing payments to investors, and
foreclosure processing. Loan servicing income is recorded on the accrual
basis and includes servicing fees from investors. The Bank carries
fidelity and mortgage interest insurance coverages sufficient to meet
secondary market requirements. In connection with loans serviced for
others, the Bank is liable for escrow balances maintained for borrowers as
of December 31, 1997 and 1996, of $533,000 and $648,000, respectively.
During 1997, the servicing of the Bank's first mortgage loans was transferred
to a third party for sub-servicing. In 1996, the Bank's first mortgage
loans were sub-serviced by an affiliate. Under terms of the sub-servicing
agreements, the Bank paid $449,000 and $450,000 for the years ended
December 31, 1997 and 1996, respectively.
The Bank has arranged for lease portfolio servicing with a third party.
Servicing leases generally consists of collecting lease payments,
repossessing leased equipment, and disbursing payments to the investor.
For the years ended December 31, 1997 and 1996, the Bank paid lease
portfolio servicing expenses of approximately $747,000 and $501,000,
respectively.
Changes in the allowance for credit losses during 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
($ in thousands)
<S> <C> <C>
Balance at beginning of year $ 9,439 9,654
Provision for credit losses 8,404 3,380
Charge-offs (6,318) (4,024)
Recoveries 262 429
------- ------
Balance at end of year $11,787 9,439
======= ======
</TABLE>
At December 31, 1997 and 1996, the Bank had nonaccrual loans of $30,629,000
and $19,461,000, respectively. The allowances for loan losses related to
these impaired loans were approximately $5,520,000 and $3,529,000,
respectively. The average balances of such loans for the years ended
December 31, 1997 and 1996, were $23,797,000 and $16,892,000,
respectively. For the years ended December 31, 1997 and 1996, interest
income which would have been recorded under the original terms of such
loans was approximately $2,681,000 and $1,344,000, respectively, with no
interest income actually recorded.
The amount the Bank will ultimately realize from these loans and leases could
differ materially from their carrying value because of future developments
affecting the underlying collateral or the borrowers' ability to repay the
loans and leases. As of December 31, 1997, there were no material
commitments to lend additional funds to customers whose loans were
classified as nonaccrual.
(Continued)
17
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4) LOANS AND LEASES RECEIVABLE, CONTINUED
Certain officers and directors of the Bank, identified for regulatory
purposes, are loan customers in the ordinary course of business. Such
loans were made on substantially the same terms and collateral
requirements as comparable loan transactions prevailing at the time and
did not involve more than normal risk of collectibility. Changes in loans
outstanding to designated officers and directors for the years ended
December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
($ in thousands)
<S> <C> <C>
Balance at beginning of year $1,014 342
Advances 116 946
Repayments (4) (18)
Other changes (800) (256)
------ -----
Balance at end of year $ 326 1,014
====== =====
</TABLE>
Other changes include existing loans to new designated officers and
directors, net of existing loans to persons who no longer meet such
criteria.
The components of lease financing as of December 31, 1997 and 1996, were as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------- ----------------
($ in thousands)
Future minimum lease
<S> <C> <C>
payments receivable $ 79,756 79,450
Estimated residual value 926 1,244
-------- -------
80,682 80,694
Allowance for lease losses, included
in the allowance for credit losses (2,742) (2,585)
Unearned income (14,235) (13,373)
-------- -------
Lease financing, net $ 63,705 64,736
======== =======
</TABLE>
(5) REAL ESTATE
At December 31, 1997 and 1996, real estate consisted of the following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
($ in thousands)
<S> <C> <C>
Real estate acquired
through foreclosure $1,115 3,456
Real estate in judgment 1,082 1,120
------ -----
$2,197 4,576
====== =====
</TABLE>
(Continued)
18
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) OFFICE PROPERTY AND EQUIPMENT
At December 31, 1997 and 1996, office property and equipment consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
($ in thousands)
<S> <C> <C>
Land $ 1,417 1,261
Buildings 15,280 14,284
Furniture and equipment 21,680 19,179
------- ------
38,377 34,724
Less accumulated depreciation 18,397 13,119
------- ------
$19,980 21,605
======= ======
</TABLE>
Future minimum rental payments under noncancelable operating leases as of
December 31, 1997, were as follows:
<TABLE>
<CAPTION>
To related To third
parties parties Total
--------------- --------------- ---------------
<S> <C> <C> <C>
($ in thousands)
1998 $262 1,872 2,134
1999 227 1,599 1,826
2000 224 1,293 1,517
2001 206 1,035 1,241
2002 - 765 765
2003 and thereafter - 3,360 3,360
---- ----- ------
$919 9,924 10,843
==== ===== ======
</TABLE>
Total rent expense for 1997 and 1996 under noncancelable operating leases was
approximately $2,062,000 and $2,311,000, respectively.
(Continued)
19
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) OTHER ASSETS
Other assets as of December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------- ------------------
($ in thousands)
<S> <C> <C>
Accrued interest receivable:
Loans and leases $11,537 9,725
Securities available for sale 1,205 1,279
Goodwill, net of accumulated amortization
of $4,149 and $6,034, respectively 1,816 4,526
Fees and other receivables 6,354 7,263
Servicing rights, net of accumulated
amortization of $4,461 and $1,231, respectively 3,709 6,757
Net deferred income tax asset 3,403 2,330
Other 3,521 3,758
------- ------
$31,545 35,638
======= ======
</TABLE>
Changes in servicing rights for the year ended December 31, 1997 and 1996,
were as follows:
<TABLE>
<CAPTION>
1997 1996
---------------- -------------------
($ in thousands)
<S> <C> <C>
Balance at beginning of year $ 6,757 345
Additions 245 7,616
Amortization (3,244) (1,167)
------- ------
Balance prior to valuation allowance 3,758 6,794
Less valuation allowance 49 37
------- ------
Balance at end of year $ 3,709 6,757
======= ======
</TABLE>
The valuation allowance increased by $12,000 and $37,000 for the years ended
December 31, 1997 and 1996, respectively.
(Continued)
20
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) DEPOSITS
A summary of deposits at December 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
($ in thousands)
<S> <C> <C>
Checking deposits $103,722 104,058
Savings deposits 232,191 240,073
Certificates of deposit 627,467 561,031
-------- -------
$963,380 905,162
======== =======
</TABLE>
At December 31, 1997, certificates of deposit accounts scheduled by
maturities were as follows:
<TABLE>
<CAPTION>
($ in thousands)
<S> <C>
1998 $331,768
1999 196,609
2000 61,582
2001 29,923
2002 7,314
2003 and thereafter 271
--------
$627,467
========
</TABLE>
The Bank's certificates of deposit of $100,000 or more were $26,113,000 and
$23,803,000 at December 31, 1997 and 1996, respectively.
As of December 31, 1997 and 1996, deposits of governmental agencies of
$7,221,000 and $6,809,000 were collateralized by mortgage-backed
securities with an amortized cost of $9,042,000 and $9,273,000,
respectively. The Bank incurred interest expense on deposits for the
years ended December 31, 1997 and 1996, as follows:
<TABLE>
<CAPTION>
1997 1996
----------------- ----------------
($ in thousands)
<S> <C> <C>
Checking deposits $ 524 561
Savings deposits 9,983 9,871
Certificates of deposit 36,361 29,357
------- ------
Total $46,868 39,789
======= ======
</TABLE>
(Continued)
21
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) ADVANCES FROM THE FHLB
At December 31, 1997 and 1996, advances from the FHLB consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- ----------------------------------------
Weighted-average Weighted-average
interest rate Amount interest rate Amount
------------------- ----------------- ------------------- ---------------
($ in thousands) ($ in thousands)
Fixed term advances (A) -
<S> <C> <C> <C> <C>
Maturity in the year ending December 31:
1997 -% $ - 6.08% $ 113,710
1998 6.06 200,930 6.60 63,530
1999 6.09 84,975 6.72 15,650
2000 6.52 55,545 6.55 26,095
2001 6.49 9,840 6.49 9,840
2002 6.98 15,275 6.98 15,275
Amount drawn on line of credit (B) Variable - Variable 8,100
Letters of credit (C) - -
---------- ---------
$ 366,565 $ 252,200
========== =========
</TABLE>
(A) As of December 31, 1997 and 1996, advances from the FHLB are secured by
stock in the FHLB with a carrying value of $18,634,000 and $17,207,000,
respectively, at such dates; mortgage-backed securities with a fair value
of $39,067,000 and $39,613,000, respectively; and loans with a fair value
of $421,608,000 and $362,620,000, respectively.
(B) Line of credit with the FHLB with a limit of $20,000,000 matures on
November 29, 1998, at which time the Bank anticipates renewing the
agreement. The line has a variable interest rate which fluctuates daily.
At December 31, 1997, the interest rate was 6.25 percent. The line of
credit is collateralized as described in (A) above (see note 16).
(C) Letters of credit were obtained from the FHLB totaling $6,110,000 and
$38,464,000 as of December 31, 1997 and 1996. The letters of credit are
collateralized as described in (A) above.
(Continued)
22
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) NOTES PAYABLE
At December 31, 1997 and 1996, notes payable were as follows:
<TABLE>
<CAPTION>
TERMS AND DESCRIPTION 1997 1996
--------------------- ------------- -------------
($ in thousands)
<S> <C> <C>
Customer reverse repurchase agreements;
principal and interest rates from 5.08%
to 7.05%; interest payments due upon
maturity from 1998 through 1999;
collateralized by mortgage-backed and
investment securities with a fair value
of $19 million and $61 million, respectively $15,866 43,261
Notes payable to governmental authorities,
which were paid in 1997. - 40,978
------- ------
$15,866 84,239
======= ======
</TABLE>
The mortgage-backed securities collateralizing the customer reverse
repurchase agreements were under the Bank's control at December 31, 1997
and 1996. Information concerning customer reverse repurchase agreements
at December 31, 1997 and 1996, is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
($ in thousands)
<S> <C> <C>
Average balance during the year $33,659 40,287
======= ======
Average interest rate during the year 5.79% 5.98
======= ======
Maximum month-end balance during the year $45,440 50,283
======= ======
</TABLE>
Aggregate maturities of notes payable for the next five years and thereafter
are as follows:
<TABLE>
<CAPTION>
($ in
thousands)
<S> <C>
1998 $ 8,929
1999 6,937
-------
$15,866
=======
</TABLE>
(Continued)
23
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) EMPLOYEE BENEFIT PLANS
401(k) Plan
-----------
The Bank participates in a 401(k) plan which covers substantially all
employees who have completed at least one thousand hours of service in any
one year. During 1996, the plan was amended to include a year-end employer
contribution of 4 percent of the eligible employees' pensionable earnings.
In addition, each employee may elect to contribute up to 15 percent of
their annual pre-tax compensation to the plan, subject to Internal Revenue
Service limitations, that is matched 125 percent by the Bank, up to 4
percent of the employee's annual compensation. The Bank's plan expense
for the years ended December 31, 1997 and 1996, was approximately
$1,099,000 and $1,021,000, respectively.
Pension Plan
------------
Effective on January 1, 1996, the defined benefit plan in which the Bank
previously participated was curtailed, and the assets of the plan were
transferred to the 401(k) plan, as described above. In connection with
the curtailment, the Bank made additional contributions to the 401(k) plan
of $116,000 and $93,000 for the years ended December 31, 1997 and 1996,
respectively.
Post-Retirement Benefits Other Than Pensions
--------------------------------------------
The Bank participated in AmerUs Life, Inc.'s post-retirement benefit plan
which provides certain eligible participants with medical, dental, and
life insurance benefits. The plan is unfunded and the benefits are
generally based on a combination of age and years of service at
retirement. The medical and dental insurance plan is contributory, with
retiree contributions adjusted annually, and contains other cost-sharing
features such as deductibles and coinsurance. The accounting for the
medical and dental insurance plan anticipates future cost-sharing changes
to the written plan that are consistent with the Bank's expressed intent
to increase the retiree contribution rate annually for the expected
inflation rate for that year. The life insurance plan is reduced by 4
percent each month on a straight-line basis upon retirement of the
participant. The actuarial present values of the accumulated plan
benefits and net assets available for benefits relating to the
participants are accounted for at AmerUs Life, Inc. and are not available
at the Bank level. The Bank's net post-retirement benefit plan expense
for the years ended December 31, 1997 and 1996, was $137,000 and $124,000,
respectively.
Employment Agreements
---------------------
The Bank and AmerUs Group Co. have entered into employment agreements, which
expire December 31, 2000, with eight of the Bank's executive officers (the
Officers). The agreements provide, among other things, for payment to the
Officers of up to 299 percent of the Officers' annual compensation in the
event of a change in control of the Bank where employment terminates
involuntarily in connection with such change in control, and AmerUs Group
Co. or one of its affiliates does not offer the Officers comparable
employment.
(Continued)
24
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) INCOME TAXES
Income tax expense for the years ended December 31, 1997 and 1996, was as
follows:
<TABLE>
<CAPTION>
1997 1996
------------------------------------------- ---------------------------------------------
($ in thousands)
Federal State Total Federal State Total
------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Current $ 8,541 1,399 9,940 2,809 514 3,323
Deferred (1,310) (209) (1,519) 430 57 487
------- ----- ------ ----- --- -----
$ 7,231 1,190 8,421 3,239 571 3,810
======= ===== ====== ===== === =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities of
December 31, 1997 and 1996, are presented below:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
($ in thousands)
<S> <C> <C>
Deferred income tax assets:
Allowance for credit losses $4,797 3,731
Deferred compensation and benefits 842 827
Net unrealized loss
on securities available for sale 671 1,113
Loans held for sale 855 374
Deposit base intangible - 570
Office property and equipment 1,320 445
Other 8 5
------ -----
Total deferred income
tax assets 8,493 7,065
------ -----
Deferred income tax liabilities:
FHLB stock dividends 1,896 1,896
Leases 648 702
Accrual to cash conversion for interest
income on certain loans 61 80
Deferred loan fees 1,875 1,632
Allowance for credit losses 174 217
Other 436 208
------ -----
Total deferred income
tax liabilities 5,090 4,735
------ -----
Net deferred income tax assets
recorded in other assets $3,403 2,330
====== =====
</TABLE>
(Continued)
25
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) INCOME TAXES, CONTINUED
Based upon the Bank's level of historical taxable income and anticipated
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the Bank will
realize the benefits of these deductible differences.
The differences between the recorded income tax expense and the amounts
computed at the federal statutory income tax rate were as follows for the
years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------
Amount Percent Amount Percent
--------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
($ in thousands)
Income before income
taxes at the federal
statutory income tax rate $7,688 35.0% $3,605 35.0%
State taxes 785 3.6 297 2.9
Other (52) (0.3) (92) (0.9)
------ ---- ------ ----
Total income tax expense $8,421 38.3% $3,810 37.0%
====== ==== ====== ====
</TABLE>
The base year bad debt tax reserve, defined as tax reserves arising in tax
years beginning before December 31, 1987, is $7,828,000. No deferred tax
liability has been recognized on this amount, as management does not
anticipate this bad debt tax reserve will become taxable in the
foreseeable future.
(13) STOCKHOLDER'S EQUITY
In connection with conversion from a mutual to a stock institution, the Bank
established a liquidation account in the amount of $25.5 million, for the
benefit of eligible account holders who continue to maintain their
deposits at the Bank. In the unlikely event of future liquidation of the
Bank, an eligible account holder will be entitled to receive a
distribution from the liquidation account prior to any payments to holders
of common stock. The total amount of the liquidation account is reduced
each year by an amount proportionate to the decrease in the deposit
balances of eligible account holders. The Bank may not declare or pay a
cash dividend on any of its capital stock if the effect of such dividend
would be to cause the stockholder's equity of the Bank to be reduced below
the aggregate amount then required for the liquidation account. The
balance of the liquidation account as of December 31, 1997 and 1996, was
$1.4 million and $1.9 million, respectively.
(Continued)
26
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) STOCKHOLDER'S EQUITY, CONTINUED
Regulatory Capital Requirements
-------------------------------
The Financial Institution Reform, Recovery, and Enforcement Act of 1989
(FIRREA) and the capital regulations of the OTS promulgated thereunder
require institutions to have a minimum regulatory tangible capital equal
to 1.5 percent of total assets; a minimum 3 percent core capital ratio;
and a minimum 8 percent risk-based capital ratio. These capital standards
set forth in the capital regulations must generally be no less stringent
than the capital standards applicable to national banks. FIRREA also
specifies the required ratio of housing-related assets in order to qualify
as a savings institution. The Bank met the regulatory capital
requirements at December 31, 1997 and 1996.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established additional capital requirements which require regulatory
action against depository institutions in one of the undercapitalized
categories defined in implementing regulations. As of June 30, 1997, the
most recent notification from the OTS categorized the Bank as well
capitalized. Institutions that are defined as well capitalized, must
generally have a leverage capital (core) ratio of at least 5 percent, a
tier 1 risk-based capital ratio of at least 6 percent, and a total risk-
based capital ratio of at least 10 percent. FDICIA also provides for
increased supervision by federal regulatory agencies, increased reporting
requirements for insured depository institutions, and other changes in the
legal and regulatory environment for such institutions. The Bank met the
regulatory capital requirements at December 31, 1997 and 1996.
The Bank's actual and required capital amounts and ratios as of December 31,
1997, were as follows:
<TABLE>
<CAPTION>
To be well capitalized
For capital under prompt corrective
Actual adequacy purposes action provisions
-------------------- -------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ------- ------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
($ in thousands)
Tangible capital $ 100,342 6.8% $ 22,178 1.5% $ 73,927 5.0%
Tier I leverage (core) capital 100,342 6.8 44,356 3.0 73,927 5.0
Risk-based capital 111,313 10.4 85,600 8.0 106,999 10.0
Tier I risk-based capital 100,342 9.4 42,800 4.0 64,200 6.0
========= ===== ======== ==== ========= =====
</TABLE>
(Continued)
27
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) STOCKHOLDER'S EQUITY, CONTINUED
Regulatory Capital Requirements, Continued
------------------------------------------
At December 31, 1997 and 1996, the Bank had federal income tax bad debt
reserves of approximately $7,828,000, which constitute allocations to bad
debt reserves for federal income tax purposes for which no provision for
taxes on income had been made. If such allocations are charged for other
than bad debt losses, taxable income is created to the extent of the
charges. The Bank's retained earnings at December 31, 1997 and 1996, were
partially restricted because of the effect of these tax bad debt reserves.
Dividend Restrictions
---------------------
Federal regulations impose certain limitations on the payment of dividends
and other capital distributions by the Bank. Under the regulations, a
savings institution, such as the Bank, that will meet the fully phased-in
capital requirements (as defined by the OTS regulations) subsequent to a
capital distribution is generally permitted to make such capital
distribution without OTS approval so long as they have not been notified
of the need for more than normal supervision by the OTS. The Bank has not
been so notified and, therefore, may make capital distributions during a
calendar year equal to net income plus 50 percent of the amount by which
the Bank's capital exceeds the fully phased-in capital requirement as
measured at the beginning of the calendar year. A savings institution
with total capital in excess of current minimum capital requirements but
not in excess of the fully phased-in requirements is permitted by the new
regulations to make, without OTS approval, capital distributions of
between 25 percent and 75 percent of its net income for the previous four
quarters less dividends already paid for such period. A savings
institution that fails to meet current minimum capital requirements is
prohibited from making any capital distributions without prior approval
from the OTS.
(14) RELATED-PARTY TRANSACTIONS AND BALANCES
As of December 31, 1997 and 1996, the Bank had the following balances with
related parties:
<TABLE>
<CAPTION>
1997 1996
-------------- ------------
($ in thousands)
<S> <C> <C>
Assets -
Accounts receivable
and other assets $ 59 131
Liabilities:
Deposits 12,531 13,607
Other liabilities 966 958
Income taxes payable to parent 2,641 4,052
======= ======
</TABLE>
(Continued)
28
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) RELATED-PARTY TRANSACTIONS AND BALANCES, CONTINUED
The Bank had the following transactions with related parties during the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------- ------------
($ in thousands)
<S> <C> <C>
Revenues:
Gain on sale of loans $4,545 425
Loan servicing fees 541 -
Office space rental 94 119
Commission income 1,478 568
------ -----
$6,658 1,112
====== =====
Expenses:
Loan servicing $ 119 450
Office space rental 518 1,079
Real estate and other commissions 41 90
Data processing 2,468 2,296
Telephone 599 455
Postage 642 605
Office supplies and printing 486 568
Support services 135 134
Human resources 640 344
Legal 96 203
Investment management 141 126
Marketing 269 -
Board of directors' fees 49 64
Other expenses 267 248
------ -----
$6,470 6,662
====== =====
</TABLE>
During 1997 and 1996, an affiliate of the Bank purchased loans aggregating
$98,476,000 and $46,755,000, respectively. During 1997 and 1996, the Bank
purchased $54,106,000 and $2,992,000, respectively, of loans from an
affiliate. During 1996, the Bank's parent company contributed capital of
$7,500,000 to the Bank.
(Continued)
29
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) SPECIAL DEPOSIT INSURANCE ASSESSMENT
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the Act) was
signed into law. The Act imposed a one-time special assessment of 65.7
basis points on deposits held as of March 31, 1995, to capitalize the
Savings Association Insurance Fund (SAIF). All of the deposits of the
Bank are SAIF insured. The special assessment of $4,508,000 was paid by
the Bank on November 27, 1996. Beginning in 1997, the premium for SAIF-
insured deposits was reduced from 23 basis points to 6.4 basis points,
thus reducing deposit insurance expense for the Bank.
(16) 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 totaling $382,000 and $310,000, respectively, and unused lines of
credit of $82,340,000 and $74,134,000, respectively, as of December 31,
1997 and 1996.
The Bank has sold loans that contained certain recourse provisions totaling
approximately $7 million and $9 million as of December 31, 1997 and 1996,
respectively. The recourse provisions provide that the Bank is obligated
to repurchase delinquent loans prior to the investor disposing of the
underlying collateral. No significant losses have been incurred on the
loans sold with recourse and management anticipates losses, if any, will
not have a material adverse effect on the financial position or the
results of operations of the Bank.
The Bank's exposure to credit loss in the event of nonperformance by the
other party to the commitments to extend credit is represented by the
contractual amount of those commitments. The Bank uses 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 as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee.
Since some of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness
on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, by the Bank upon extension of credit is based on management's
credit evaluation.
(Continued)
30
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(16) COMMITMENTS AND CONTINGENCIES, CONTINUED
As of December 31, 1997 and 1996, the Bank had outstanding commitments to
sell loans of $165,000 and $132,000, respectively, and outstanding
commitments to purchase loans of $-0- and $251,000, respectively. Such
commitments are not reflected in the consolidated balance sheets.
As of December 31, 1997 and 1996, the Bank had a commitment from the FHLB to
borrow, at the option of the Bank, $20,000,000 on a line of credit with a
variable interest rate, of which $-0- and $8,100,000 were outstanding as
of December 31, 1997 and 1996, respectively. Such commitment expires
November 29, 1998, and had a commitment fee of .05 percent of the
commitment amount. The Bank has pledged its stock in the FHLB, certain
mortgage-backed securities, and sufficient loans to fulfill the FHLB
collateral requirement (see note 9). The average balances of cash
reserves required to be maintained with the FHLB, for the benefit of the
Federal Reserve Bank, were approximately $-0- in 1997 and 1996.
The Bank is a party to a number of lawsuits, claims, and assessments arising
in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse
effect on the financial position or results of operations of the Bank.
During 1995, the Bank entered into an exclusive agreement with a grocery
store chain to open and lease space for 40 bank branches in various
grocery stores throughout the Bank's market area over the next six years.
The agreement required an initial down payment by the Bank upon inception
of the agreement and an additional payment in February of 1997. At
December 31, 1997, the Bank has options remaining to open 16 branches
under the terms of the agreement.
The Bank has entered into an agreement with a third party to purchase up to
$1,000,000 of leases each month until December 31, 1998.
(Continued)
31
<PAGE>
AMERUS BANK AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(17) Disclosures About Fair Value of Financial Instruments
The estimated fair value of the Bank's financial instruments (as described in
note 1) at December 31, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ----------------------------
Recorded Fair Recorded Fair
amount value amount value
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
($ in thousands)
Financial assets:
Cash and cash equivalents $ 35,888 35,888 52,031 52,031
Securities
available for sale 137,122 137,122 176,561 176,561
FHLB stock 18,634 18,634 17,207 17,207
Loans held for sale 40,240 42,433 24,253 25,435
Loans (excludes leases) 1,127,972 1,161,811 964,604 974,810
Accrued interest receivable 12,742 12,742 11,004 11,004
Financial liabilities:
Deposits 963,380 969,618 905,162 905,162
FHLB advances 366,565 369,080 252,200 253,586
Notes payable 15,866 15,866 84,239 84,387
Accrued interest payable 7,872 7,872 5,508 5,508
Nonfinancial instruments:
Lease financing, net 63,705 63,705 64,736 64,736
Servicing rights 3,709 4,332 6,757 7,068
=========== ============ =========== ============
Unrealized Unrealized
Notional gains Notional gains
value (losses) value (losses)
----------- ------------ ----------- -----------
($ in thousands)
Off balance sheet instruments:
Commitments to
extend credit $ 382 - 310 -
Consumer lines of credit 82,340 - 74,134 -
Commitment to sell loans 165 - 132 -
Commitment to purchase loans - - 251 -
=========== ============ =========== ===========
</TABLE>
32
