<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A No. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): OCTOBER 1, 1996
First Interstate BancSystem of Montana, Inc.
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Montana 333-3250 81-0331430
- --------------------------------------------------------------------------------
(State or other (Commission File Number) (IRS Employer
jurisdiction of Identification
incorporation) Number)
401 North 31st Street, Billings, Montana 59116-0918
- ------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (406) 255-5300
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
The following described financial statements are being filed as an amendment to
the Report on Form 8-K dated October 1, 1996 of First Interstate BancSystem of
Montana, Inc. ("FIBM") in connection with its acquisition of First Interstate
Bank of Montana, N.A. ("Montana") and First Interstate Bank of Wyoming, N.A.
("Wyoming"), collectively called the "Combined Banks."
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
Included in this Report are unaudited combined financial
statements of the Combined Banks as of September 30, 1996,
together with the notes thereto, as well as the audited combined
financial statements of the Combined Banks as of December 31,
1995 and 1994 and for each of the years in the three-year period
ended December 31, 1995 which have been audited by the
independent accounting firm of KPMG Peat Marwick LLP, whose
opinion is also included herein.
(b) PRO FORMA FINANCIAL INFORMATION.
The Unaudited Pro Forma Combined Financial Data included herein
give effect to the acquisition of the Combined Banks described in
this Report using the purchase accounting method.
The Combined Banks' historical amounts were derived from combined
financial statements of the Combined Banks included herein. The
historical amounts of FIBM were derived from the consolidated
financial statements of FIBM incorporated herein by reference.
The Unaudited Pro Forma Combined Financial Data do not purport to
present the financial position of FIBM had the acquisition
actually been consummated at the beginning of each period set
forth herein. In addition, the Unaudited Pro Forma Combined
Financial Data are not necessarily indicative of the future
results of operations of FIBM and should be read in conjunction
with the historical financial statements of FIBM and the Combined
Banks, including the respective notes thereto, included herein or
incorporated herein by reference.
(c) EXHIBITS. THE FOLLOWING IS A LIST OF THE EXHIBITS ATTACHED
HERETO.
Exhibit No. 2.1 Stock Purchase Agreement*
Exhibit No. 23.1 Consent of KPMG Peat Marwick LLP
Exhibit No. 99 Press Release*
* Previously filed.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of FIBM (Commission File No. 333-3250) are hereby
incorporated by reference:
1. Stock Purchase Agreement dated May 24, 1996 between First Interstate
BancSystem of Montana, Inc. and Wells Fargo & Company.
<PAGE>
2. Financial statements of First Interstate BancSystem of Montana, Inc.
and subsidiaries consisting of an Independent Auditors' Report;
Consolidated Balance Sheets as of December 31, 1995 and 1994;
Consolidated Statements of Income for the three-years ended December
31, 1995; Consolidated Statement of Changes in Stockholders' Equity
for the three-years ended December 31, 1995 and Notes to Consolidated
Financial Statements (filed as pages 25 through 48 of FIBM's Annual
Report on Form 10-K filed with the Commission on March 25, 1996.
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Report to the extent
that a statement contained in this Report, or in any other subsequently filed
document which is also incorporated herein by reference, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be deemed
to constitute a part of this Report except as so modified or superseded. The
information relating to FIBM contained in this Report should be read together
with the information in the documents incorporated herein by reference.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this amended Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
First Interstate BancSystem of Montana, Inc.
By: /s/ Terrill R. Moore
Name: Terrill R. Moore
Title: Senior Vice President and Chief Financial Officer
DATED: DECEMBER 13, 1996
<PAGE>
INDEX TO FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA:
- Unaudited Pro Forma Combined Balance Sheet - September 30, 1996 PF-2
- Unaudited Pro Forma Combined Statement of Income for the
Nine Months Ended September 30, 1996 PF-3
- Unaudited Pro Forma Combined Statement of Income for the Year
Ended December 31, 1995 PF-4
- Notes to Unaudited Pro Forma Combined Financial Statements PF-5
COMBINED BANKS' COMBINED FINANCIAL STATEMENTS:
AUDITED ANNUAL FINANCIAL STATEMENTS:
- Independent Auditors' Report F-1
- Combined Balance Sheets--December 31, 1995 and 1994 F-2
- Combined Statements of Income--Years Ended December 31,
1995, 1994 and 1993 F-3
- Combined Statements of Stockholder's Equity--Years ended
December 31, 1995, 1994 and 1993 F-4
- Combined Statements of Cash Flows--Years Ended December 31,
1995, 1994 and 1993. F-5
- Notes to Combined Financial Statements F-6
UNAUDITED INTERIM FINANCIAL STATEMENTS:
- Unaudited Combined Balance Sheet--September 30, 1996 F-16
- Unaudited Combined Statements of Income--Nine Months ended
September 30, 1996 and 1995 F-17
- Unaudited Combined Statements of Stockholder's Equity--Nine
Months September 30, 1996 F-18
- Unaudited Combined Statements of Cash Flows--Nine Months
ended September 30, 1996 and 1995 F-19
- Notes to Unaudited Combined Financial Statements F-20
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information gives effect to
the acquisition by First Interstate BancSystem of Montana, Inc. ("FIBM") of
First Interstate Bank of Montana, N.A. and First Interstate Bank of Wyoming,
N.A. (collectively "FIBNA") pursuant to a stock purchase agreement with Wells
Fargo & Company ("Wells Fargo") and based on the purchase accounting
adjustments, estimates and other assumptions described in the accompanying notes
(the "Purchase"). The unaudited pro forma combined balance sheet and statement
of income as of and for the nine months ended September 30, 1996 is based upon
the unaudited consolidated balance sheet and statement of income of FIBM and the
unaudited combined balance sheet and statement of income of FIBNA. The
unaudited pro forma combined statement of income for the year ended December 31,
1995 is based upon the audited annual consolidated statement of income of FIBM
and the audited annual combined statement of income of FIBNA.
The pro forma combined financial data is presented as though the Purchase had
been consummated as of the dates set forth herein, and is not necessarily
indicative of actual operating results or the financial position that would have
occurred or will occur upon the consummation of the Purchase.
PF-1
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1996
(Dollars in Thousands)
FIBNA Accounting FIBNA Acquisition Pro Forma
Assets Historical Adjustments Pro Forma FIBM Entries Combined
------ ---------- ----------- --------- ---- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash items $ 33,044 - 33,044 91,620 - 124,664
Due from banks:
FIBNA affiliates 2,855 - 2,855 - - 2,855
Non-affiliates 9,803 - 9,803 - (2,130) 7,673
Interest bearing deposits in banks - - - 6,035 - 6,035
Federal funds sold - affiliate 49,499 - 49,499 - - 49,499
Federal funds sold - - - 22,555 - 22,555
Investment securities - available-
for-sale (AFS) 96,416 - 96,416 64,583 - 160,999
Investment securities - held-to-
maturity - - - 171,407 - 171,407
Loans 363,586 - 363,586 948,091 - 1,311,677
Less allowance for loan losses 10,059 - 10,059 15,916 - 25,975
--------- --------- --------- --------- --------- ---------
Net loans 353,527 - 353,527 932,175 - 1,285,702
Premises and equipment, net 10,361 - 10,361 33,937 9,453 53,751
Accrued interest receivable 4,365 - 4,365 16,146 - 20,511
Excess of purchase price over equity
in net assets of subsidiaries 34,754 (34,754) - 9,615 18,094 27,709
Other real estate owned, net 294 - 294 1,394 - 1,688
Deferred tax asset 2,190 (2,190) - 5,921 38 5,959
Other assets 3,739 - 3,739 8,664 330 12,733
Intangible assets - - - - 8,842 8,842
--------- --------- --------- --------- --------- ---------
$ 600,847 (36,944) 563,903 1,364,052 34,627 1,962,582
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
Liabilities and Stockholders' Equity
Deposits:
Noninterest bearing $ 143,876 - 143,876 217,196 - 361,072
Interest bearing 325,413 - 325,413 889,611 - 1,215,024
--------- --------- --------- --------- --------- ---------
Total deposits 469,289 - 469,289 1,106,807 - 1,576,096
Federal funds purchased 50,502 - 50,502 - - 50,502
Repurchase agreements - - - 99,774 - 99,774
Accounts payable and accrued
expenses 3,773 (82) 3,691 13,919 100 17,710
Other borrowed funds 4,448 - 4,448 10,790 - 15,238
Long-term debt - - - 10,234 31,000 41,234
Subordinated debentures - - - - 20,000 20,000
--------- --------- --------- --------- --------- ---------
Total liabilities 528,012 (82) 527,930 1,241,524 51,100 1,820,554
Stockholders' equity:
Preferred stock - - - - 20,000 20,000
Common stock:
FIBM - - - 9,171 - 9,171
FIBNA 7,821 - 7,821 - (7,821) -
Capital surplus 59,830 (36,862) 22,968 - (22,968) -
Retained earnings 5,279 - 5,279 113,302 (5,779) 112,802
Unrealized gain (loss) AFS
securities (95) - (95) 55 95 55
--------- --------- --------- --------- --------- ---------
Total stockholders' equity 72,835 (36,862) 35,973 122,528 (16,473) 142,028
--------- --------- --------- --------- --------- ---------
$ 600,847 (36,944) 563,903 1,364,052 34,627 1,962,582
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information
PF-2
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIBM AND FIBNA
(Dollars in thousands, except share and per share data)
Nine-Months Ended September 30, 1996
-------------------------------------------------------
Pro forma Pro forma
FIBM FIBNA Adjustments Combined
---- ----- ----------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 68,109 24,225 - 92,334
Interest on investment securities:
Taxable 10,118 4,372 - 14,490
Exempt from Federal taxes 741 1 - 742
Interest on deposit with banks 268 - - 268
Interest on Federal funds sold 839 955 - 1,794
---------- ---------- ---------- ----------
Total interest income 80,075 29,553 - 109,628
Interest expense:
Interest on deposits 29,250 7,491 - 36,741
Interest on Federal funds purchased 437 3,119 - 3,556
Interest on repurchase agreements 3,155 - - 3,155
Interest on other borrowed funds 229 146 - 375
Interest on long-term debt 835 - 2,872 3,707
---------- ---------- ---------- ----------
Total interest expense 33,906 10,756 2,872 47,534
---------- ---------- ---------- ----------
Net interest income 46,169 18,797 (2,872) 62,094
Provision for loan losses 1,852 1,112 - 2,964
---------- ---------- ---------- ----------
Net interest income after provision 44,317 17,685 (2,872) 59,130
Other operating income:
Income from fiduciary activities 2,182 763 - 2,945
Service charges on deposit accounts 5,369 2,274 - 7,643
Data processing 5,603 - - 5,603
Other service charges, commissions, and fees 2,025 558 - 2,583
Net investment securities gains 2 266 - 268
Other income 900 1,325 - 2,225
---------- ---------- ---------- ----------
Total other operating income 16,081 5,186 - 21,267
Other operating expense:
Salaries and employee benefits 18,921 4,006 - 22,927
Occupancy expense/furniture and equipment 7,342 1,420 284 9,046
Other real estate expense, net (162) - - (162)
FDIC insurance 4 4 - 8
Allocated expenses from FIBNA affiliates - 5,272 - 5,272
Other expenses 9,160 2,211 1,558 12,929
---------- ---------- ---------- ----------
Total other operating expenses 35,265 12,913 1,842 50,020
---------- ---------- ---------- ----------
Income before income taxes 25,133 9,958 (4,714) 30,377
Income tax expenses 9,651 3,952 (1,791) 11,812
---------- ---------- ---------- ----------
Net income 15,482 6,006 (2,923) 18,565
Less preferred stock dividend - - 1,280 1,280
---------- ---------- ---------- ----------
Net income available for common shares $ 15,482 6,006 (4,203) 17,285
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 7.86 3.05 (2.14) 8.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding of FIBM 1,970,445 1,970,445 1,970,445 1,970,445
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information
PF-3
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
FIBM AND FIBNA
(Dollars in thousands, except share and per share data)
Year Ended December 31, 1995
-------------------------------------------------------
Pro forma Pro forma
FIBM FIBNA Adjustments Combined
---- ----- ----------- --------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 83,577 32,350 - 115,927
Interest on investment securities:
Taxable 12,147 4,885 - 17,032
Exempt from Federal taxes 783 6 - 789
Interest on deposit with banks 68 - - 68
Interest on Federal funds sold 2,395 1,933 - 4,328
---------- ---------- ---------- ----------
Total interest income 98,970 39,174 - 138,144
Interest expense:
Interest on deposits 35,898 10,365 - 46,263
Interest on Federal funds purchased 1,008 3,213 - 4,221
Interest on repurchase agreements 3,560 - - 3,560
Interest on other borrowed funds 298 41 - 339
Interest on long-term debt 1,182 - 4,063 5,245
---------- ---------- ---------- ----------
Total interest expense 41,946 13,619 4,063 59,628
---------- ---------- ---------- ----------
Net interest income 57,024 25,555 (4,063) 78,516
Provision for loan losses 1,629 - - 1,629
---------- ---------- ---------- ----------
Net interest income after provision 55,395 25,555 (4,063) 76,887
Other operating income:
Income from fiduciary activities 2,619 1,036 - 3,655
Service charges on deposit accounts 6,532 3,259 - 9,791
Data processing 6,196 - - 6,196
Other service charges, commissions, and fees 2,535 1,097 - 3,632
Net investment securities gains (losses) (6) 15 - 9
Other income 888 1,726 - 2,614
---------- ---------- ---------- ----------
Total other operating income 18,764 7,133 - 25,897
Other operating expense:
Salaries and employee benefits 23,694 5,620 - 29,314
Occupancy expense/furniture and equipment 9,160 1,285 378 10,823
Other real estate expense, net (586) 14 - (572)
FDIC insurance 1,127 604 - 1,731
Allocated expenses from affiliates - 7,976 - 7,976
Other expenses 12,583 2,046 2,077 16,706
---------- ---------- ---------- ----------
Total other operating expenses 45,978 17,545 2,455 65,978
---------- ---------- ---------- ----------
Income before income taxes 28,181 15,143 (6,518) 36,806
Income tax expenses 10,844 5,644 (2,477) 14,011
---------- ---------- ---------- ----------
Net income 17,337 9,499 (4,041) 22,795
Less preferred dividend - - 1,706 1,706
---------- ---------- ---------- ----------
Net income available for common
shares $ 17,337 9,499 (5,747) 21,089
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per common share $ 8.84 4.84 (2.93) 10.75
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding of FIBM 1,960,911 1,960,911 1,960,911 1,960,911
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to unaudited pro forma combined financial information
PF-4
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
NOTE A: BASIS OF PRESENTATION
The unaudited pro forma combined balance sheet combines the historical
consolidated balance sheet of FIBM and the historical combined balance sheet of
FIBNA as if the Purchase had become effective on September 30, 1996. The
unaudited pro forma combined statements of income combines the historical
consolidated statements of income of FIBM and the historical combined statements
of income of FIBNA as if the Purchase had become effective on January 1, 1995.
The Purchase will be accounted for using the purchase method of accounting.
Under this method of accounting, assets and liabilities of FIBNA are adjusted to
their estimated fair value and combined with the historical recorded book values
of the assets and liabilities of FIBM. Although the Purchase will be
accomplished through the purchase of stock of the respective banks, the
transaction will be treated as a purchase of assets and assumption of
liabilities for income tax purposes. As such, deferred taxes are not recorded
on most of these fair value adjustments. The actual revaluation of FIBNA's net
assets acquired is subject to the completion of studies and evaluations
currently being undertaken by management and will be based on the estimated fair
value of the net assets acquired on the actual closing date of October 1, 1996.
Any transactions conducted in the ordinary course of business between FIBM and
FIBNA are immaterial and, accordingly, have not been eliminated.
Following the Purchase, and subject to regulatory approvals, FIBM intends to
merge the Montana bank operation of FIBNA into FIBM's existing bank subsidiary,
First Interstate Bank of Commerce - Montana, and merge the Wyoming bank
operations of FIBNA into FIBM's existing bank subsidiary, First Interstate Bank
of Commerce - Wyoming. The impact of any such mergers is not expected to be
material. FIBM also expects to achieve certain operating cost savings as a
result of the mergers, however, no pro forma adjustment has been included in the
unaudited pro forma combined financial information for the anticipated operating
cost savings.
NOTE B: PURCHASE PRICE
The purchase price to be paid to Wells Fargo is $72,000, subject to adjustment
up or down, to the extent the historical net book value of FIBNA at closing,
excluding net income tax assets and liabilities and Wells Fargo's "push down"
purchase accounting adjustments, are greater or less than $35,832. Such
purchase price adjustment is to be computed and settled between the parties in
the fourth quarter of 1996 and is not expected to be significant. The "push
down" purchase accounting adjustments resulted from Wells Fargo's acquisition of
First Interstate Bancorp ("FIB") effective April 1, 1996. At that date, FIBNA
was a wholly-owned subsidiary of FIB. The purchase price paid by Wells Fargo to
FIB in excess of the FIBNA historical book value was allocated to and recorded
by FIBNA as goodwill.
Total acquisition consideration is calculated as follows:
Cash purchase price $ 72,000
Estimated purchase price adjustment 141
Estimated direct acquisition costs 159
--------
Total Purchase consideration 72,300
Estimated debt issuance costs 330
Estimated preferred stock issuance costs 500
--------
Total acquisition funding requirement $ 73,130
--------
--------
PF-5
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONTINUED)
(DOLLARS IN THOUSANDS)
The purchase price adjustment is estimated as follows:
FIBNA's net assets at September 30, 1996 $ 72,835
Increase (decrease) for:
Wells Fargo "push down" adjustments - goodwill (34,754)
Net deferred tax asset (2,190)
Income taxes payable 82
--------
FIBNA net assets acquired 35,973
Specified FIBNA net assets per Purchase agreement 35,832
--------
Estimated additional purchase price $ 141
--------
--------
The acquisition funding requirement will be funded as follows:
Preferred stock $ 20,000
Subordinated debentures 20,000
Senior term debt 31,000
Working capital 2,130
--------
Total acquisition consideration paid in cash $ 73,130
--------
--------
NOTE C: ALLOCATION OF PURCHASE PRICE
Certain matters are still pending that will have an effect on the ultimate
allocation of the Purchase price, and accordingly, the portion of the purchase
price allocated to fair value adjustments, identifiable intangibles and goodwill
is subject to change. Subject to the foregoing, the Purchase price has been
allocated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
FIBNA's net assets acquired $ 35,973
Increase (decrease) to FIBNA's net assets acquired as a result
of estimated fair value adjustments:
Premises and equipment $ 9,453
Mortgage servicing rights 750
Accrued expenses (100)
Core deposit intangible 8,092
--------
18,195
Applicable income tax effects(1) 38
--------
Net fair value adjustments 18,233
--------
Estimated fair value of identifiable tangible and intangible
net assets 54,206
Unidentifiable intangible assets (goodwill) 18,094
--------
Total Purchase consideration $ 72,300
--------
</TABLE>
NOTE D: PRO FORMA ACQUISITION ENTRIES
For the unaudited pro forma statements of income, the pro forma adjustments are
based on the allocation of Purchase price of the net assets acquired based on
the fair value estimates described above as if the Purchase occurred as of the
dates set forth above.
- --------------
(1) Deferred tax asset on increase in accrued expenses.
PF-6
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION (CONCLUDED)
(DOLLARS IN THOUSANDS)
The increase in the carrying value of premises and equipment is being
depreciated over the remaining economic life of the related assets, currently
estimated at 25 years.
The core deposit intangible and mortgage servicing rights will be amortized on
an accelerated basis over their respective economic lives, currently estimated
not to exceed ten years. Goodwill resulting from the Purchase is expected to be
amortized over 25 years.
Interest or dividend rates on obligations incurred to fund the acquisition
consideration paid in cash are assumed to be as follows for all periods:
Preferred stock 8.53%
Subordinated debentures 7.50%
Senior term debt 8.25%
Preferred stock and subordinated debenture principal amounts are assumed to be
outstanding for all periods indicated. Principal payments on senior term debt
of $2,000 are assumed to commence on September 30, 1995 and continue to be
payable every six months thereafter.
The incremental effect on pro forma combined net income of these purchase
accounting adjustments for the 12-month periods beginning after October 1, 1996
is estimated to be an after-tax increase in pro forma combined expense as
follows:
Subsequent 12 month
period ending September 30,
---------------------------
1997 $ 3,686
1998 3,282
1999 3,049
2000 2,838
2001 2,634
---------
---------
Applicable income tax effects have been recorded using an estimated marginal tax
rate of 38%.
NOTE E: PRO FORMA INCOME PER COMMON SHARE
Pro forma weighted average shares outstanding is based on the historical
weighted average number of common shares outstanding for FIBM. There were no
additional FIBM common shares issued as a result of the Purchase.
Preferred dividends are estimated to be $1,706 for the year ended December 31,
1995 and $1,280 for the nine-month period ended September 30, 1996.
PF-7
<PAGE>
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
[LOGO]
The Board of Directors
First Interstate BancSystem of Montana, Inc.:
We have audited the accompanying combined balance sheets of First Interstate
Bank of Montana, N.A. and First Interstate Bank of Wyoming, N.A. (the "Combined
Banks") as of December 31, 1995 and 1994, and the related combined statements of
income, stockholder's equity, and cash flows for each of the years in the
three-year period ended December 31, 1995. These combined financial statements
are the responsibility of the Combined Banks' management. Our responsibility is
to express an opinion on these combined 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of First Interstate
Bank of Montana, N.A. and First Interstate Bank of Wyoming, N.A. at December 31,
1995 and 1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in note 1, the Combined Banks changed their method of accounting
for impairment of loans to adopt the provisions of the Financial Accounting
Standards Board's ("FASB") Statement on Financial Accounting Standards ("SFAS")
No. 114, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended by SFAS
No. 118, ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION
AND DISCLOSURES, on January 1, 1995. As discussed in notes 1 and 9, the
Combined Banks also changed their method of accounting for investment securities
to adopt the provisions of SFAS No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, at January 1, 1994 and a change in their method of
accounting for postretirement benefits other than pensions to adopt the
provisions of SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS at January 1, 1993.
Billings, Montana
October 18, 1996
F-1
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A.
COMBINED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
December 31, 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and cash items $ 26,336 40,995
Due from banks:
Affiliates 38,811 21,932
Non-affiliates 3,574 94
Federal funds sold to Affiliates 17,090 4,035
Investment securities:
Available-for-sale 110,307 1,100
Held-to-maturity - 125,970
- ------------------------------------------------------------------------------------------------------------------
Total investment securities 110,307 127,070
- ------------------------------------------------------------------------------------------------------------------
Loans, net 387,831 362,346
Less allowance for loan losses 10,692 10,547
- ------------------------------------------------------------------------------------------------------------------
Net loans 377,139 351,799
- ------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 10,761 9,859
Accrued interest receivable 4,429 4,168
Deferred tax asset 2,732 3,643
Other assets 3,023 1,410
- ------------------------------------------------------------------------------------------------------------------
$ 594,202 565,005
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest bearing $ 112,207 108,888
Interest bearing 345,637 355,000
- ------------------------------------------------------------------------------------------------------------------
Total deposits 457,844 463,888
- ------------------------------------------------------------------------------------------------------------------
Federal funds purchased from Affiliates 91,958 60,502
Accounts payable and accrued expenses 2,869 3,806
- ------------------------------------------------------------------------------------------------------------------
Total liabilities 552,671 528,196
- ------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Common stock:
Montana - $10 par value; authorized 664,608 shares; issued and
outstanding 664,608 shares in 1995 and 1994 6,646 6,646
Wyoming - $100 par value; authorized 11,751 shares; issued and
outstanding 11,751 shares in 1995 and 1994 1,175 1,175
Capital surplus 25,002 25,002
Retained earnings 8,039 3,919
Unrealized holding gain on investment securities
available-for-sale, net 669 67
- ------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 41,531 36,809
- ------------------------------------------------------------------------------------------------------------------
$ 594,202 565,005
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-2
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A.
COMBINED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)
Year Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 32,350 26,099 23,320
Interest and dividends on investment securities:
Taxable 4,885 8,887 11,999
Exempt from Federal taxes 6 9 14
Interest on Federal funds sold to Affiliates 1,933 334 421
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 39,174 35,329 35,754
- ------------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 10,365 10,058 11,660
Interest on Federal funds purchased from Affiliates 3,213 1,289 228
Interest on other borrowed funds 41 24 1
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 13,619 11,371 11,889
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 25,555 23,958 23,865
Provision for loan losses - - 130
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 25,555 23,958 23,735
Other operating income:
Income from fiduciary activities 1,036 1,151 1,225
Service charges on deposit accounts 3,259 3,308 3,393
Other service charges, commissions, and fees 1,097 1,210 1,003
Investment securities gains, net 15 - -
Other income 1,726 1,609 1,757
- ------------------------------------------------------------------------------------------------------------------------------
Total other operating income 7,133 7,278 7,378
- ------------------------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and benefits 5,620 6,875 6,935
Occupancy expense, net 1,285 1,869 2,030
Other real estate expense, net 14 4 -
FDIC assessments 604 1,173 1,292
Allocated expenses from Affiliates 7,976 5,378 5,026
Other expenses 2,046 3,307 2,941
- ------------------------------------------------------------------------------------------------------------------------------
Total other operating expenses 17,545 18,606 18,224
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative
effect of accounting changes 15,143 12,630 12,889
Income taxes 5,644 4,441 5,022
- ------------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of accounting changes 9,499 8,189 7,867
Cumulative effect of accounting changes - post-retirement
benefits other than pensions - - (1,074)
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 9,499 8,189 6,793
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A.
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except share and per share data)
Montana Wyoming Unrealized Total
Common Common Capital Retained holding stockholder's
stock stock surplus earnings gains, net equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 6,646 1,175 25,002 32,824 - 65,647
Cash dividends declared:
Montana ($25.13 per share) - - - (16,703) - (16,703)
Net income - - - 6,793 - 6,793
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1993 6,646 1,175 25,002 22,914 - 55,737
Effect of change in accounting for investment
securities January 1, 1994 - - - - 67 67
Cash dividends declared:
Montana ($4.01 per share) - - - (2,666) - (2,666)
Wyoming ($2,086.46 per share) - - - (24,518) - (24,518)
Net income - - - 8,189 - 8,189
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 6,646 1,175 25,002 3,919 67 36,809
Cash dividends declared:
Montana ($5.15 per share) - - - (3,424) - (3,424)
Wyoming ($166.37 per share) - - - (1,955) - (1,955)
Increase in unrealized holding gain on available-
for-sale investment securities, net - - - - 602 602
Net income - - - 9,499 - 9,499
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 $ 6,646 1,175 25,002 8,039 669 41,531
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-4
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A.
COMBINED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,499 8,189 6,793
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses - - 130
Depreciation and amortization 847 835 822
Net premium amortization on investment securities 459 1,440 2,816
Gain on sale of investments (15) - -
Gain on sales of premises and equipment (59) (9) -
Provision for deferred income taxes 566 (294) 574
(Increase) decrease in accrued interest receivable (261) 761 (292)
(Increase) decrease in other assets (1,613) 2,180 2,824
(Decrease) increase in accounts payable and accrued expenses (937) (3,071) 2,427
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,486 10,031 16,094
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of held-to-maturity investment securities (60,302) (30,355) (70,515)
Proceeds from maturities and paydowns of held-to-maturity
investment securities 77,172 111,876 64,772
Sales of available-for-sale investment securities 396 - -
Extensions of credit to customers, net of repayments (29,308) (72,208) (15,137)
Recoveries on loans charged-off 3,968 2,300 2,811
Capital expenditures, net (1,690) (853) (791)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (9,764) 10,760 (18,860)
- -------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net decrease in deposits (6,044) (39,899) (16,799)
Net increase in federal funds purchased 31,456 42,239 14,949
(Repayments) advances of other borrowed funds, net - (734) 683
Dividends paid on common stock (5,379) (27,184) (16,703)
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 20,033 (25,578) (17,870)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,755 (4,787) (20,636)
Cash and cash equivalents at beginning of year 67,056 71,843 92,479
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 85,811 67,056 71,843
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Cash paid for:
Interest $ 13,741 11,191 12,034
Income taxes paid, net 4,627 5,069 2,666
-------- -------- --------
-------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO COMBINED FINANCIAL STATEMENTS.
F-5
<PAGE>
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
First Interstate Bank of Montana, N.A. and First Interstate Bank of
Wyoming, N.A. (collectively, the "Banks") provide a full range of banking
services to individual and corporate customers through bank branch offices
located in the states of Montana and Wyoming. The Banks are subject to
competition from other financial institutions and financial service
providers. The Banks are subject to the regulations of certain Federal and
state agencies and undergo periodic examinations by those regulatory
authorities. The following is a summary of significant accounting policies
utilized by the Banks:
PRINCIPLES OF COMBINATION. The combined financial statements include the
accounts of First Interstate Bank of Montana, N.A. (Montana) and First
Interstate Bank of Wyoming, N.A. (Wyoming). All material intercompany
transactions have been eliminated in the combination. Through March 31,
1996, the Banks were wholly-owned subsidiaries of First Interstate Bancorp
("FIB"). Effective April 1, 1996, Wells Fargo & Company (Wells Fargo)
merged with FIB. Effective October 1, 1996, the Banks were sold to First
Interstate BancSystem of Montana, Inc., (FIBM) who is unrelated to FIB
except that it operated its own bank subsidiaries pursuant to a master
franchise agreement with FIB.
FIB and its other subsidiaries are herein referred to as Affiliates. The
Affiliates provide certain administrative, financial, data processing and
other services to the Banks. Charges for these services are allocated to
the Banks on a pro rata basis with the other Affiliates. The Banks also
purchase and sell federal funds, loans and loan participations from and to
Affiliates. Although transactions with these Affiliates cannot be presumed
to be at arm's length, it is the intention of the Affiliates that these
transactions be conducted at terms comparable to those from unaffiliated
third parties.
BASIS OF PRESENTATION. The financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing the
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as
of the date of the balance sheet and revenues and expenses for the period.
Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for loan losses and real estate owned,
management obtains independent appraisals for significant properties.
Management believes the allowances for losses on loans and real estate
owned are adequate. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
allowances for losses on loans and real estate owned. While management
uses available information to recognize losses on loans and real estate
owned, future additions to the allowances may be necessary based on changes
in economic conditions or regulatory requirements.
CASH AND CASH EQUIVALENTS. For purposes of reporting cash flows, cash and
cash equivalents include cash, cash items, due from banks, and federal
funds sold. Generally, federal funds are purchased and sold for one-day
periods.
At December 31, 1995 the Banks were required to have aggregate reserves in
the form of cash on hand and deposits with the Federal Reserve Bank of
approximately $12,267.
INVESTMENT SECURITIES. Investment securities are classified based on their
purpose and holding period, taking into account the financial position,
liquidity and future plans of the Banks.
Effective January 1, 1994, with the adoption of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115), securities are classified as
held-to-maturity, available-for-sale or trading. Investment securities the
Banks have the ability and intent to hold to maturity are carried at cost,
adjusted for amortization of premium or accretion of discount using the
interest method, and are classified as held-to-maturity. Investment
securities that may be sold prior to maturity for asset/liability purposes
or in response to market or other changes are classified as
available-for-sale and carried at fair value. Fair values are estimated
based on available market quotations with unrealized gains and losses
included as a separate component of stockholder's equity, net of related
income taxes. Dividends and interest income, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses, which are calculated using the specific
identification method, are included in non-interest income. The impact
from adoption was not material.
F-6
<PAGE>
In October 1995, the Financial Accounting Standards Board (FASB) approved a
proposal to allow organizations a one-time opportunity to reconsider their
ability and intent to hold securities to maturity and transfer securities
from their held-to-maturity portfolios without requiring the remaining
portfolio to be reported at fair value. Transfers were permitted at a
single date between November 15, 1995 and December 31, 1995. During 1995
there were no sales or transfers of held-to-maturity securities, other than
those permitted under this one-time reclassification opportunity. For
additional information regarding the one-time transfer of held-to-maturity
securities, refer to Note 3 - Investment Securities.
LOANS. Loans are carried at the principal amount net of unearned discounts
and deferred origination fees and costs. Interest income on loans not
discounted is computed on the loan balance outstanding. Interest income on
discounted loans is generally recognized based upon methods that
approximate the interest method. Net loan origination fees are amortized
over the contractual lives of the loans as an adjustment of the yield using
the interest method or the straight-line method, if not materially
different. Loans identified as held-for-sale are classified separately and
are carried at the lower of cost or market.
Loans are generally placed on nonaccrual status when full collectibility of
principal or interest is in doubt or when they become 90 days past due and
are not fully secured or in the process of collection, whichever occurs
earlier. Previously accrued but unpaid interest is reversed and charged
against interest income and future accruals are discontinued. If there is
doubt as to the ultimate collectibility of principal or interest, all cash
received is applied as a reduction of the loan principal.
In January 1995, the Banks adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan,"
amended in October 1994 by Statement of Financial Accounting Standards No
118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures," hereinafter collectively referred to as SFAS 114. Under
SFAS 114, a loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan. SFAS 114
applies to all loans except large groups of smaller-balance homogeneous
loans, which are collectively evaluated, loans measured at fair value or at
the lower of cost or fair value, leases and debt securities. SFAS 114 does
not address the overall adequacy of the allowance for credit losses. When
a loan is identified as "impaired," accrual of interest ceases and any
amounts that are recorded as receivable are reversed from interest income.
Impaired loans of the Banks include only commercial (including financial
and agricultural), real estate construction and commercial real estate
mortgage loans classified as nonperforming loans. The Banks measure their
impaired loans by using the fair value of the collateral if the loan is
collateral-dependent and the present value of the expected future cash
flows, discounted at the loan's effective interest rate, if the loan is not
collateral-dependent. The difference between the recorded value of the
impaired loan and the fair value of the loan is defined as the impairment
allowance. Impairment allowances are considered by the Banks in
determining the overall adequacy of the allowance for credit losses. The
adoption of SFAS 114 resulted in no material change in the unallocated
portion of the allowance for credit losses.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses has been
established to absorb losses inherent in the loan portfolio. The allowance
for loan losses is available to absorb losses related to the loan and lease
portfolio as well as other credit extensions. Additions to the allowance
for loan losses are made by provisions which are charged to earnings and
reduced by charge-offs, net of recoveries.
The adequacy of the allowance for loan losses is evaluated regularly by
management with consideration given to the probability of loss based upon
industry and historical trends as well as economic conditions. Estimates
of potential loss are consistent with accounting and regulatory guidelines.
PREMISES AND EQUIPMENT. Buildings, furniture and equipment are stated at
cost less accumulated depreciation. Depreciation is provided over
estimated useful lives of 5 to 35 years for buildings and improvements, and
5 to 10 years for furniture and equipment using straight-line methods.
Leasehold improvements are amortized using straight-line methods over the
lesser of the estimated useful lives of the improvements or the terms of
the related leases. Combined depreciation expense was $847 in 1995, $835
in 1994 and $822 in 1993. Maintenance and repairs are charged to expense
as incurred.
F-7
<PAGE>
OTHER REAL ESTATE OWNED. Other real estate owned (ORE), which is included
in other assets, is comprised of real estate acquired in satisfaction of
loans. Property acquired by foreclosure or deed in lieu of foreclosure is
transferred to ORE and is recorded at the lower of the loan balance on the
property at the date of transfer or the fair value of the property
received, less estimated cost to sell. Valuation losses at the date of
transfer are charged to the allowance for loan losses. Subsequent gains
(to the extent allowable) and losses that result from the ongoing periodic
valuation of these properties are included in ORE expense in the period in
which they are identified.
FEDERAL FUNDS PURCHASED. The Banks have Federal funds lines of credit and
cash management advance programs with Affiliates amounting to $235,000 and
$85,000 for Montana and Wyoming, respectively, subject to the availability
of funds.
INCOME FROM FIDUCIARY ACTIVITIES. Consistent with industry practice,
income for trust services is recognized on the basis of cash received.
However, use of this method in lieu of accrual basis accounting does not
materially affect reported earnings.
INCOME TAXES. The Banks and their parent company, FIB, have elected to be
included in a consolidated Federal income tax return. For state income tax
purposes, for Montana a separate return is filed and for Wyoming there is
no state income tax. Federal income taxes attributable to the
subsidiaries, computed on a separate return basis, are paid to or received
from FIB. State income taxes are paid directly to the State of Montana.
Deferred tax assets and liabilities are reflected at currently enacted
income tax rates applicable to the period in which the deferred tax assets
or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
EARNINGS PER SHARE. Due to the common ownership of the Banks, and the
difference in shares outstanding at each bank, earnings per common share is
not considered meaningful.
(2) REGULATORY MATTERS
The Federal Reserve Board (FRB) and the Federal Deposit Insurance
Corporation (FDIC) have issued risk-based capital guidelines to more
accurately consider the credit risk inherent in the assets and
off-balance-sheet activities of a bank or bank holding company and their
assessment of capital adequacy.
Under the guidelines, total capital has been redefined as core capital and
supplementary capital. Core capital consists primarily of stockholder's
equity, while supplementary capital consists primarily of the allowance for
loan losses (not to exceed 1.25% of risk weighted assets). Under the
guidelines, all goodwill is to be excluded from the components of core
capital. The definition of assets has also been modified to include items
on and off the balance sheet, with each item being assigned a predefined
credit "risk-weight".
At December 31, 1995, Montana's risk-based capital (core plus
supplementary) and core capital ratios, calculated in accordance with the
guidelines, were 10.82% and 9.57%, respectively, and Wyoming's risk-based
and core capital ratios, calculated in accordance with the guidelines, were
13.88% and 12.59%, respectively.
In addition to the risk-based guidelines discussed above, the FRB and FDIC
also established a leverage ratio defined as core capital as a percentage
of average tangible assets. Montana's and Wyoming's leverage ratios at
December 31, 1995 were 7.15% and 7.01%, respectively.
The Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), which
was enacted on December 19, 1992, substantially revises the bank regulatory
and funding provisions of the Federal Deposit Insurance Act and makes
revisions to several other federal banking statutes.
F-8
<PAGE>
Among other things, FDICIA requires the federal banking agencies to
implement differing levels of oversight depending on the institution's
capital category, as defined in the regulations. A depository
institution's capital category will depend upon where its capital ratios
are in relation to various relevant capital measures, which include the
risk-based capital and leverage ratios. The capital categories represent
minimum standards that will generally be applied to all institutions.
However, the regulatory agencies may impose higher minimum standards on
individual institutions or may downgrade an institution at the applicable
agency's discretion. FDICIA generally restricts a depository institution
from making any capital distribution (including payment of a dividend) or
paying any management fee to its holding company if the depository
institution would thereafter be undercapitalized (less than 8% total
risk-based capital or 4% core capital and leverage). At December 31, 1995,
the Banks' capital ratios exceed the highest capital category, which
requires total risk-based capital of at least 10%, core capital of at least
6% and a leverage ratio of at least 5%.
(3) INVESTMENT SECURITIES
In November 1995, the Financial Accounting Standards Board staff issued a
Special Report, "A Guide to Implementation of SFAS 115 on Accounting for
Certain Investments in Debt and Equity Securities," which provided a
one-time opportunity for reassessment of intent with regard to the
classification of securities. The Banks reclassified all held-to-maturity
securities to available-for-sale on December 27, 1995. At the date of
transfer, the amortized cost of those securities was $108,259 and the net
unrealized gain on those securities was $948, which is included in
stockholder's equity.
The amortized cost and approximate market values of investment securities
are summarized as follows:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1994 cost gains losses value
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 90,554 814 - 91,368
Obligations of U.S. Government agencies 13,140 196 (23) 13,313
States, county and municipal securities 70 6 - 76
Corporate securities 3,504 14 - 3,518
Other mortgage-backed securities 1,002 5 - 1,007
Other securities 987 38 - 1,025
----------------------------------------------------------------------------------------------------
Total $ 109,257 1,073 (23) 110,307
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<CAPTION>
AVAILABLE-FOR-SALE Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1994 cost gains losses value
----------------------------------------------------------------------------------------------------
Other securities 998 102 - 1,100
----------------------------------------------------------------------------------------------------
Total $ 998 102 - 1,100
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
<CAPTION>
HELD-TO-MATURITY Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1994 cost gains losses value
----------------------------------------------------------------------------------------------------
U.S. Treasury securities $ 91,702 62 (1,532) 90,232
Obligations of U.S. Government agencies 26,414 122 (535) 26,001
States, county and municipal 89 8 - 97
Other mortgage-backed securities 1,593 10 (6) 1,597
Other securities 6,172 - (159) 6,013
----------------------------------------------------------------------------------------------------
Total $ 125,970 202 (2,232) 123,940
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
Gross gains of $15 and no gross losses were realized on the sale of available-for-sale securities in 1995.
There were no gains or losses realized on the sale of securities in 1994 and 1993.
</TABLE>
F-9
<PAGE>
Maturities of investment securities by contractual maturity at December 31,
1995 are shown below. Maturities of securities do not reflect rate
repricing opportunities present in many adjustable rate mortgage-backed and
corporate securities, nor do they reflect expected shorter maturities based
upon early prepayments of principal. At December 31, 1995 and 1994,
$10,561 and $13,360, respectively, of floating rate securities are included
in investment securities.
December 31,1995 Available-for-Sale
---------------------------------------------------------------------------
Amortized Estimated
cost market value
---------------------------------------------------------------------------
Within one year $ 30,289 30,400
After one but within five years 64,679 65,419
After five years but within ten years 1,682 1,772
After ten years 10,685 10,774
---------------------------------------------------------------------------
Total 107,335 108,365
---------------------------------------------------------------------------
Collateralized mortgage obligations and other 1,922 1,942
---------------------------------------------------------------------------
Total $ 109,257 110,307
---------------------------------------------------------------------------
---------------------------------------------------------------------------
There are no significant concentrations of investments at December 31, 1995
(greater than 10 percent of stockholder's equity) in any individual
security issuer, except for U.S. Government or Government agency-backed
securities.
Investment securities with a carrying amount of $90,073 and $58,981 at
December 31, 1995 and 1994, respectively, were pledged to secure public
deposits and for other purposes required or permitted by law. The
approximate market value of securities pledged at December 31, 1995 and
1994 was $90,736 and $58,351, respectively.
(4) LOANS AND RELATED COMMITMENTS
Major categories and balances of loans are as follows:
December 31, 1995 1994
---------------------------------------------------------------------------
Installment:
Automobile $ 137,669 119,949
Home equity 31,498 31,400
Other 36,916 39,658
Commercial, financial, agricultural 73,030 66,972
Real estate mortgage 99,764 99,356
Real estate construction 1,461 2,859
Lease receivables 7,493 2,152
---------------------------------------------------------------------------
Total loans $ 387,831 362,346
---------------------------------------------------------------------------
---------------------------------------------------------------------------
At December 31, 1995, the Banks had no concentrations of loans which
exceeded 10% of total loans other than the categories disclosed above.
Impaired loans, consisting of nonaccrual commercial, real estate
construction and commercial real estate loans, amounted to $1,547 and
$1,690 at December 31, 1995 and 1994, respectively. If interest on these
impaired loans had been accrued, such income would have approximated $150
and $165, respectively. Loans contractually past due ninety days or more
aggregating $687 on December 31, 1995 and $123 on December 31, 1994 were on
accrual status. Such loans are deemed adequately secured and in the
process of collection.
The impairment allowance for nonaccrual commercial, real estate
construction and commercial real estate loans is included in the Banks'
allowance for loan losses.
F-10
<PAGE>
Most of the Banks' business activity is with customers within the state of
Montana and Wyoming. Loans where the customers or related collateral are
out of the Banks' trade area are not significant and management's
anticipated credit losses arising from these transactions compare favorably
with the Banks' credit loss experience on their loan portfolio as a whole.
Certain executive officers and directors of the Banks and certain
corporations and individuals related to such persons, incurred indebtedness
in the form of loans, as customers, of approximately $791 at December 31,
1995 and $591 at December 31, 1994. These loans were made on substantially
the same terms, including interest rates and collateral, as those
prevailing at the time for comparable risk of collectibility.
(5) ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
A summary of changes in the allowance for loan losses follows:
Year ended December 31, 1995 1994 1993
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 10,547 10,465 10,760
Less loans charged-off (3,823) (2,218) (3,236)
Add back recoveries on loans previously charged-off 3,968 2,300 2,811
-----------------------------------------------------------------------------------------------
Net recoveries (charge-offs) 145 82 (425)
Provision charged to operating expense - - 130
-----------------------------------------------------------------------------------------------
Balance at end of year $ 10,692 10,547 10,465
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
(6) PREMISES AND EQUIPMENT
Premises and equipment and related accumulated depreciation are as follows:
December 31, 1995 1994
-----------------------------------------------------------------------------------------------
Land $ 3,476 3,300
Buildings and improvements 13,629 14,443
Furniture and equipment 10,782 8,479
-----------------------------------------------------------------------------------------------
27,887 26,222
Less accumulated depreciation 17,126 16,363
Premises and equipment, net $ 10,761 9,859
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
(7) DEPOSITS
Deposits are summarized as follows:
December 31, 1995 1994
-----------------------------------------------------------------------------------------------
Noninterest bearing demand $ 112,207 108,888
Interest bearing:
Demand 126,571 128,953
Savings 113,160 123,438
Time, $100 and over 17,244 12,559
Time, other 88,662 90,050
-----------------------------------------------------------------------------------------------
Total interest bearing 345,637 355,000
-----------------------------------------------------------------------------------------------
$ 457,844 463,888
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
F-11
<PAGE>
<TABLE>
<CAPTION>
Maturities of time deposits of $100 or more are as follows:
December 31, 1995
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three months or less $ 4,015
Three through six months 2,749
Six months through twelve months 9,283
Over twelve months 1,197
-----------------------------------------------------------------------------------------------
$ 17,244
-----------------------------------------------------------------------------------------------
<CAPTION>
Interest expense on time deposits of $100 or more was $693, $520 and $698 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(8) INCOME TAXES
Income tax expense (benefit) consists of the following:
Year ended December 31, 1995 1994 1993
-----------------------------------------------------------------------------------------------
Current:
Federal $ 4,615 4,210 3,956
State 463 525 492
-----------------------------------------------------------------------------------------------
5,078 4,735 4,448
-----------------------------------------------------------------------------------------------
Deferred:
Federal 492 (214) 643
State 74 (80) (69)
-----------------------------------------------------------------------------------------------
566 (294) 574
-----------------------------------------------------------------------------------------------
$ 5,644 4,441 5,022
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
Total income tax expense differs from the amount computed by applying the Federal income tax rate of 35 percent in 1995, 1994
and 1993 to income before income taxes as a result of the following:
Year ended December 31, 1995 1994 1993
-----------------------------------------------------------------------------------------------
Tax expense at the statutory tax rate $ 5,300 4,421 4,511
Increase (decrease) in tax resulting from:
State income tax, net of Federal income tax benefit 348 289 262
Other, net (4) (269) 249
-----------------------------------------------------------------------------------------------
$ 5,644 4,441 5,022
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
The tax effects of temporary differences between the financial statement carrying amounts and tax bases of assets and
liabilities that give rise to significant portions of the net deferred tax asset relate to the following:
December 31, 1995 1994
-----------------------------------------------------------------------------------------------
Deferred tax assets:
Allowance for loan losses $ 3,664 3,691
Compensation and benefits 269 261
Other 79 308
-----------------------------------------------------------------------------------------------
Deferred tax assets 4,012 4,260
Deferred tax liabilities:
Lease receivables 357 89
Fixed assets 226 204
Investment securities 310 71
Loan fees 235 217
State income taxes payable 82 36
Other 70 -
-----------------------------------------------------------------------------------------------
Deferred tax liabilities 1,280 617
-----------------------------------------------------------------------------------------------
Net deferred tax asset $ 2,732 3,643
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
F-12
<PAGE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the existence of, or generation of, taxable income
in the periods which those temporary differences are deductible.
Management considers the scheduled reversal of deferred tax liabilities,
taxes paid in carryback years, projected future taxable income, and tax
planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over
the periods which the deferred tax assets are deductible, at December 31,
1995 and 1994 management believes it is more likely than not that the Banks
will realize the benefits of these deductible differences.
(9) EMPLOYEE BENEFIT PLANS
The Banks participate in a qualified noncontributory defined benefit plan
that provides retirement benefits based on years of service and the highest
level of compensation during any consecutive five year period during the
last ten years before retirement. In addition to the noncontributory
defined benefit plan, the Banks also participate in several nonqualified
noncontributory defined benefit plans covering certain senior employees'
benefits in excess of those covered under the qualified noncontributory
defined benefit plan.
The Banks provide certain health care benefits to retired employees through
the Master Welfare Benefit Plan (Post-Retirement Plan). Under the terms of
the Post-Retirement Plan, employees hired prior to January 1, 1992 and who
retire at or after age 55 with at least 10 years of service will be
eligible for a fixed maximum contribution from FIB. Employees hired on or
after January 1, 1992 will not be eligible for retiree health care
benefits.
Liabilities for these benefit obligations are initially recorded by the
Banks. Periodically, the Banks settle these liabilities through payment to
FIB. All of the benefit plans are administered by FIB.
All liabilities associated with the qualified noncontributory defined
benefit plan had been settled with FIB as of December 31, 1995. The plan
liability was $53 as of December 31, 1994. The expense related to this
plan was $138 in 1995, $88 in 1994, and ($92) in 1993.
All liabilities associated with the nonqualified noncontributory defined
benefit plans had been settled with FIB as of December 31, 1995. The plan
liability was $90 as of December 31, 1994. The recorded expense related to
this plan was $ 90 in 1995 and 1994, and $139 in 1993.
The Banks also have a contributory employee savings plan covering
substantially all employees. The expense related to this plan was $93 in
1995, $121 in 1994, and $116 in 1993.
As of December 31, 1995, the Post-Retirement Plan liability had been
settled with FIB. The liability was $53 as of December 31, 1994. The
expense related to the Post-Retirement Plan was $8 in 1995, $296 in 1994,
and $123 in 1993.
Effective in the first quarter of 1993, the Banks adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
(SFAS 106), on an immediate recognition basis. SFAS 106 requires the
Corporation to accrue the estimated cost of retiree benefit payments, other
than pensions, during employees' active service period. The cumulative
effect of adopting SFAS 106 was the recognition of accrued postretirement
health care costs totaling $1,235. After related tax benefits of $436, net
income for 1993 was reduced by $799.
(10) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Banks are involved in various claims
and litigation. Management believes it has meritorious defenses against
these claims and intends to vigorously defend the matters. Due to the
preliminary stages of the complaints, however, management is unable to
determine the possible impact or the range of potential liability on
financial position or results of operations of an unfavorable outcome, if
any. Accordingly, no provisions for any losses, if any, that may result
from resolution of these matters have been made in the accompanying
combined financial statements.
The Banks also lease certain premises and equipment from third parties
under operating leases. Total rental expense to third parties was $20 in
1995, $37 in 1994, and $45 in 1993.
F-13
<PAGE>
(11) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Banks are party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. These instruments involve, to varying degrees,
elements of credit and interest rate risk in excess of amounts recorded in
the combined balance sheet.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Banks to guarantee the performance of a customer
to a third party. Most commitments extend less than two years. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. The Banks hold various
collateral supporting those commitments for which collateral is deemed
necessary.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the commitment
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 Banks evaluate each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained is based on management's credit
evaluation of the customer. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
The Banks' exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. At December 31, 1995, stand-by letters of credit in the
amount of $972 were outstanding. Commitments to extend credit to existing
and new borrowers approximated $50,221 at December 31, 1995, which includes
$19,535 on unused credit card lines.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
<CAPTION>
The estimated fair value of financial instruments of the Bank is as follows:
December 31, 1995 December 31, 1994
--------------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
amount fair value amount fair value
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 85,811 85,811 67,056 67,056
Investment securities held-to-maturity - - 125,970 123,940
Available-for-sale 110,307 110,307 1,100 1,100
Net loans 377,139 377,401 351,799 345,147
--------------------------------------------------------------------------------------------------------------
Total financial assets $ 573,257 573,519 545,925 537,243
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Financial liabilities:
Total deposits $ 457,844 457,960 463,888 463,981
Federal funds purchased 91,958 91,958 60,502 60,502
Accounts payable and accrued expenses 2,869 2,869 3,806 3,806
--------------------------------------------------------------------------------------------------------------
Total financial liabilities $ 552,671 552,787 528,196 528,289
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
The following methods and assumptions were used by the Company to estimate the fair value of each class of
financial instruments:
</TABLE>
CASH AND CASH EQUIVALENTS. Due to the liquid or short-term nature of
the instruments, the carrying amounts for due from banks and federal
funds sold approximates those assets' fair value.
INVESTMENT SECURITIES (HELD-TO-MATURITY AND AVAILABLE-FOR-SALE). Fair
values are based on quoted market prices, where available. If quoted
market prices are not available, fair values are based on quoted
market prices of comparable instruments.
F-14
<PAGE>
NET LOANS. For loans with variable rates and no fixed maturities, and for
loans with maturities of three months or less, fair value is considered to
be equal to carrying value. The fair value of other types of loans is
estimated by discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar credit ratings
and maturities.
DEPOSITS. The carrying value for all deposits without fixed maturities,
and for time deposits greater than $100 with maturities of three months or
less, is considered to be equal to the fair value. The fair value for time
deposits greater than $100 with maturities greater than three months as
well as time deposits less than $100 is based upon the appropriate discount
rate for similar pools.
The fair value of demand deposits is the amount payable on demand, and is
not adjusted for any value derived from retaining those deposits for an
expected future period of time. That component, commonly referred to as
deposit base intangible, was not estimated at December 31, 1995 and 1994,
and is not considered in the fair value amounts.
FEDERAL FUNDS PURCHASED. Carrying amounts of federal funds purchased
approximate fair values.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. Carrying amounts of accounts
payable and accrued expenses approximate fair values.
(13) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of." This statement,
effective for fiscal years beginning after December 15, 1995, requires a
company to assess impairment of "assets held or used" and "assets to be
disposed of." Whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable, the related
undiscounted cash flows are compared to the asset's book value. If the sum
of the undiscounted cash flows is less than the book value, a loss is
recorded based upon the excess of the book value over the fair value of the
asset. Assets to be disposed of are recorded at fair value less cost to
sell and are not depreciated while held. The Banks do not expect the
adoption of this pronouncement in 1996 to have a material effect on their
financial statements.
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting of Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 125 provides guidance on
accounting for transfers and servicing of financial assets, recognition and
measurement of servicing assets and liabilities, financial assets subject
to repayment, secured borrowings and collateral, and extinguishment of
liabilities.
SFAS No. 125 specifically provides that mortgage banking enterprises, which
includes the Banks, recognize as a separate asset rights to service loans
for others, regardless of how those servicing rights are acquired. Rights
to service loans must also be assessed for impairment based on the fair
value of the servicing assets, including those purchased before the
adoption of this statement. SFAS No. 125 also specifies that financial
assets subject to prepayment, including loans, that can be contractually
prepaid of otherwise settled in such a way that the holder would not
recover substantially all of its recorded investment be measured like debt
securities available-for-sale or trading securities under SFAS No. 115, as
amended by SFAS No. 125.
SFAS No. 125 is effective for all financial asset transactions occurring
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. The Banks do not expect the
adoption of this pronouncement to have a material effect on their financial
position or operations.
(14) SUBSEQUENT EVENTS
On April 1, 1996, FIB merged with Wells Fargo. The merger was accounted
for as a purchase business combination. The purchase price in excess of
the Banks' historical book value was allocated to and recorded by the Banks
as goodwill.
Effective October 1, 1996, the Banks were acquired by FIBM. The total
purchase price of $72,000 was subject to adjustment to the extent the
historical net book value of the Banks, excluding current and deferred tax
accounts and Wells Fargo's "push down" purchase accounting adjustments, was
greater or less than $35,832. The purchase price adjustment is to be
computed and settled between the parties in the fourth quarter 1996, and is
limited to a $1,000 increase.
The FIBM purchase agreement anticipated that the Banks would declare and
pay, prior to the closing date, dividends to reduce the net assets of the
Banks to approximately $35,832. During the first quarter 1996, dividends
of $6,015 were declared and paid to FIB. Dividends of $2,751 were paid to
Wells Fargo prior to closing.
F-15
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED COMBINED BALANCE SHEET
- -----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
September 30, 1996
- -----------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Cash and cash items $ 33,044
Due from banks:
Affiliates 2,855
Non-affiliates 9,803
Federal funds sold to Affiliates 49,499
Investment securities available-for-sale 96,416
- -----------------------------------------------------------------------------------------------
Loans, net 363,586
Less allowance for loan losses 10,059
- -----------------------------------------------------------------------------------------------
Net Loans 353,527
- -----------------------------------------------------------------------------------------------
Premises and equipment, net 10,361
Accrued interest receivable 4,365
Deferred tax asset 2,190
Excess of purchase price 34,754
Other assets 4,033
- -----------------------------------------------------------------------------------------------
$ 600,847
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Deposits:
Noninterest bearing $ 143,876
Interest bearing 325,413
- -----------------------------------------------------------------------------------------------
Total deposits 469,289
- -----------------------------------------------------------------------------------------------
Federal funds purchased from Affiliates 50,502
Accounts payable and accrued expenses 3,773
Other borrowed funds 4,448
- -----------------------------------------------------------------------------------------------
Total liabilities 528,012
- -----------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholder's equity:
Common stock:
Montana - $10 par value; authorized 664,608 shares; issued and
outstanding 664,608 shares 6,646
Wyoming - $100 par value; authorized 11,751 shares; issued and
outstanding 11,751 shares 1,175
Capital surplus 59,830
Retained earnings 5,279
Unrealized holding loss on investment securities
available-for-sale, net (95)
- -----------------------------------------------------------------------------------------------
Total stockholder's equity 72,835
- -----------------------------------------------------------------------------------------------
$ 600,847
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-16
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED COMBINED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Nine Months Ended September 30, 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Interest income:
Interest and fees on loans $ 24,225 23,925
Interest and dividends on investment securities:
Taxable 4,372 3,476
Exempt from Federal taxes 1 5
Interest on Federal funds sold to Affiliates 955 1,478
- -----------------------------------------------------------------------------------------------
Total interest income 29,553 28,884
- -----------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits 7,491 7,730
Interest on Federal funds purchased from Affiliates 3,119 2,177
Interest on other borrowed funds 146 31
- -----------------------------------------------------------------------------------------------
Total interest expense 10,756 9,938
- -----------------------------------------------------------------------------------------------
Net interest income 18,797 18,946
Provision for loan losses 1,112 -
- -----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 17,685 18,946
Other operating income:
Income from fiduciary activities 763 763
Service charges on deposit accounts 2,274 2,394
Other service charges, commissions, and fees 558 890
Investment securities gains, net 266 13
Other income 1,325 1,335
- -----------------------------------------------------------------------------------------------
Total other operating income 5,186 5,395
- -----------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and benefits 4,006 4,401
Occupancy expense, net 1,420 981
FDIC assessments 4 453
Allocated expenses from Affiliates 5,272 5,982
Other expenses 2,211 1,730
- -----------------------------------------------------------------------------------------------
Total other operating expense 12,913 13,547
- -----------------------------------------------------------------------------------------------
Income before income taxes 9,958 10,794
Income taxes 3,952 4,028
- -----------------------------------------------------------------------------------------------
Net income $ 6,006 6,766
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-17
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Unrealized
Montana Wyoming holding Total
Common Common Capital Retained gains stockholder's
Nine months ended September 30, 1996 stock stock surplus earnings (losses), net equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 6,646 1,175 25,002 8,039 669 41,531
Cash dividends declared:
Montana ($2.10 per share) - - - (1,396) - (1,396)
Wyoming ($627.27 per share) - - - (7,370) - (7,370)
Decrease in unrealized holding gain (loss) on
available-for-sale investment securities, net - - - - (690) (690)
Net income - - - 6,006 - 6,006
Changes incident to business
combination, net - - 34,828 - (74) 34,754
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at September 30, 1996 $ 6,646 1,175 59,830 5,279 (95) 72,835
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-18
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED COMBINED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Nine Months Ended September 30, 1996 1995
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,006 6,766
Adjustments to reconcile net income to net cash provided by
operating activities:
Provisions for loan losses 1,112 -
Depreciation and amortization 635 629
Net premium amortization on investment securities 321 344
Gain on sale of investments (266) (13)
Provision for deferred income taxes 542 241
Decrease in interest receivable 64 881
Increase in other assets (1,010) (3,757)
Increase in accounts payable and accrued expenses 904 224
- ----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,308 5,315
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of held-to-maturity investment securities - (2,113)
Purchases of available-for-sale investment securities (14,924) -
Proceeds from maturities and paydowns of available-for-sale
investment securities 10,804 59,304
Sales of available-for-sale investment securities 17,266 211
Extensions of credit to customers, net of repayments 20,528 (28,542)
Recoveries on loans charged-off 1,972 2,589
Capital expenditures, net (235) (1,488)
- ----------------------------------------------------------------------------------------------------
Net cash provided by investing activities 35,411 29,961
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in deposits 11,445 (5,166)
Net decrease in federal funds purchased (41,456) (6,178)
Advances of other borrowed funds, net of repayments 4,448 3,579
Dividends paid on common stock (8,766) (2,040)
- ----------------------------------------------------------------------------------------------------
Net cash used in financing activities (34,329) (9,805)
- ----------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 9,390 25,471
Cash and cash equivalents at beginning of period 85,811 67,056
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 95,201 92,527
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Cash paid for:
Interest $ 10,849 9,873
Income taxes paid, net 4,643 3,084
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to unaudited combined financial statements.
F-19
<PAGE>
Notes to Unaudited Combined Financial Statements
(Dollars in thousands)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited combined financial
statements contain all adjustments (all of which are of a normal recurring
nature) necessary to present fairly the combined financial position at
September 30, 1996, and the combined results of operations and cash flows
for the nine-month periods ended September 30, 1996 and 1995 in conformity
with generally accepted accounting principles. These statements are
incomplete in that complete footnote disclosures are not presented and,
therefore, should be read in conjunction with the Bank's historical
financial statements for the years ended December 31, 1995 and 1994
included herein.
(2) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash, cash items, due from banks and federal funds sold. Generally,
federal funds purchased are for one-day periods.
(3) COMPUTATION OF EARNINGS PER SHARE
Due to the common ownership of the Banks, and the difference in shares
outstanding at each bank, earnings per common share is not considered
meaningful.
(4) MERGER AND SUBSEQUENT DISPOSITION OF BANKS
On April 1, 1996, the Bank's parent company, First Interstate Bancorp
(FIB), merged with Wells Fargo and Company (Wells Fargo). The merger was
accounted for as a purchase business combination. The purchase price in
excess of the Banks' historical book value was allocated to and recorded by
the Banks as goodwill in the amount of $34,754.
Effective October 1, 1996, the Banks were acquired by First Interstate
BancSystem of Montana, Inc. (FIBM). The total purchase price of $72,000
was subject to adjustment to the extent the historical net book value of
the Banks, excluding current and deferred tax accounts and Wells Fargo's
"push down" purchase accounting adjustments, was greater or less than
$35,832. The purchase price adjustment is to be computed and settled
between the parties in the fourth quarter 1996, and is limited to a $1,000
increase.
The FIBM purchase agreement anticipated that the Banks would declare and
pay, prior to the closing date, dividends to reduce the net assets of the
Banks to approximately $35,832. During the first quarter 1996, dividends
of $6,015 were declared and paid to FIB. Dividends of $2,571 were paid to
Wells Fargo prior to closing.
(5) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Banks are involved in various claims
and litigations. Management believes it has meritorious defenses against
these claims and intends to vigorously defend the matters. Due to the
preliminary stages of the complaints, however, management is unable to
determine the possible impact or the range of potential liability on
financial position or results of operations of an unfavorable outcome, if
any. Accordingly, no provisions for any losses, if any, that may result
from resolution of these matters have been made in the accompanying
financial statements.
F-20
<PAGE>
EXHIBIT INDEX
Sequential Exhibit No. Exhibit Description Page No.
---------------------- ------------------- --------
Exhibit No. 2.1 Stock Purchase Agreement*
Exhibit No. 23.1 Consent of KPMG Peat Marwick LLP
Exhibit No. 99 Press Release*
* Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
First Interstate BancSystem of Montana, Inc.:
We consent to the inclusion of our report dated October 18, 1996, with respect
to the combined balance sheets of First Interstate Bank of Montana, N.A. and
First Interstate Bank of Wyoming, N.A. (the "Combined Banks") as of December 31,
1995 and 1994, and the related combined statements of income, stockholder's
equity, and cash flows for each of the years in the three-year period ended
December 31, 1995 which report appears in Amendment No. 1 to the Form 8-K of
First Interstate BancSystem of Montana, Inc. dated October 1, 1996.
Our report refers to a change in their method of accounting for impairment of
loans to adopt the provisions of the Financial Accounting Standards Board's
("FASB") Statement on Financial Accounting Standards ("SFAS") No. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended by SFAS No. 118,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND
DISCLOSURES, on January 1, 1995, a change in their method of accounting for
investment securities to adopt the provisions of SFAS No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, at January 1, 1994 and a
change in their method of accounting for postretirement benefits other than
pensions to adopt the provisions of SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS at January 1, 1993.
/s/ KPMG Peat Marwick LLP
Billings, Montana
December 13, 1996
