<PAGE>
As filed with the Securities and Exchange Commission on August , 1997
Registration No. 333-25633
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Montana 6060 81-0331430
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
401 North 31st Street
Billings, Montana 59101
(406) 255-5300
(Address including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------------------------
Terrill R. Moore, Chief Financial Officer
First Interstate BancSystem of Montana, Inc.
401 North 31st Street
Billings, Montana 59101
(406) 255-5300
Fax (406) 255-5350
(Name, address, including zip code, and telephone number,
including area code of Agent for service)
----------------------------------------
Copy to:
Allan Karell, Esq.
Crowley, Haughey, Hanson, Toole & Dietrich
490 North 31st Street, Fifth Floor
Billings, Montana 59101
(406) 252-3441
Fax (406) 259-4159
--------------------------------------
If any of the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |___|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |___|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |___|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |___|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
Proposed Proposed
Amount maximum maximum
Title of each class of to be offering price aggregate Amount of
securities to be registered registered per share (1) offering price (1) registration fee
- --------------------------- ---------- ------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Common Stock (without par value) 70,571 shares $85.02 $5,999,947 $1,818.18
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS
Date: _______, 1997
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
65,693 (ANTICIPATED MAXIMUM) SHARES OF COMMON STOCK
First Interstate BancSystem of Montana, Inc. ("FIBM" or "Company"), a bank
holding company and a savings and loan holding company, is offering up to
44,417 shares of its common stock ("Company Stock") for sale, of which 19,518
shares have previously been sold at the price of $85.02 per share, and of
which 24,899 shares are being offered at the price of $94.00 per share. Homer
A. Scott, Jr. (the "Selling Shareholder") is offering up to 21,276 shares of
FIBM common stock owned by the Selling Shareholder (the "Selling Shareholder
Stock") for the purchase price of $94.00 per share. The Selling Shareholder
Stock will be available for purchase first, followed by the Company Stock.
The purchase price of $94.00 per share is based upon an independent appraisal
of a minority interest in the Company's common stock as of June 30, 1997, at
$95.00 per share prepared by Alex Sheshunoff & Co. Investment Banking,
appraisers, less the second quarter 1997 dividend paid to FIBM common
stockholders in the amount of $1.00 per share.
(continued on next page)
-------------------------------------
THERE IS NO PUBLIC TRADING MARKET FOR FIBM COMMON STOCK, AND NO ASSURANCE IS
GIVEN THAT A TRADING MARKET FOR FIBM COMMON STOCK WILL DEVELOP OR THAT
PURCHASERS WILL BE ABLE TO SELL THEIR SHARES AT OR ABOVE THE PURCHASE PRICE
FOR THIS OFFERING.
-------------------------------------
EXCEPT FOR PURCHASES OF SHARES MADE THROUGH THE COMPANY'S SAVINGS AND PROFIT
SHARING PLAN, THE SHARES OFFERED HEREBY ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN A SHAREHOLDER'S AGREEMENT WHICH MUST BE EXECUTED BY EACH PURCHASER
OF THE SHARES, PURSUANT TO WHICH THE COMPANY HAS THE OPTION TO REPURCHASE THE
SHARES IN THE EVENT OF THE SHAREHOLDER'S DEATH OR DISABILITY OR TERMINATION AS A
DIRECTOR, OFFICER OR EMPLOYEE OF THE COMPANY, OR IN THE EVENT OF AN INTENDED
TRANSFER, VOLUNTARILY OR BY OPERATION OF LAW, OR IN THE EVENT THE COMPANY
DETERMINES THAT A SHAREHOLDER'S STOCK OWNERSHIP IS EXCESSIVE IN VIEW OF FACTORS
INCLUDING BUT NOT LIMITED TO THE RELATIVE CONTRIBUTION OF THE SHAREHOLDER TO THE
COMPANY'S ECONOMIC PERFORMANCE, THE EFFORT BEING PUT FORTH BY THE SHAREHOLDER,
AND THE SHAREHOLDER'S LEVEL OF RESPONSIBILITY. SEE "RISK FACTORS" AND
"DESCRIPTION OF CAPITAL STOCK - RESTRICTIONS ON RESALE." THE TRANSFER
RESTRICTIONS NOTED ABOVE HAVE BEEN IMPOSED BY THE COMPANY'S BOARD OF
DIRECTORS.
------------------------------------------------
SEE "RISK FACTORS", AT PAGES 6 TO 9, FOR INFORMATION
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
--------------------------------------
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS
OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR BY ANY OTHER GOVERNMENT AGENCY.
--------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------
PRICE $ 94.00 PER SHARE
------------------------------------
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<CAPTION>
Underwriting Proceeds to
Price to Discounts and Estimated Proceeds to Selling
Public Commissions Expenses the Company(3) Shareholder(4)
-------- ------------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Per Share-Company Stock $85.02 (1) $0 $1.37 $83.84 $0
Per Share-Company Stock $94.00 (2) $0 $1.37 $92.63 $0
Per Share-Selling Shareholder Stock $94.00 $0 $0 $0 $94.00
Total Maximum-Company Stock $4,000,000 $0 $60,718 $3,939,282 $0
Total Maximum-Selling Shareholder
Stock $1,999,944 $0 $0 $0 $1,999,944
</TABLE>
<PAGE>
(1) Offering price based on appraisal of FIBM common stock as of March 31, 1997.
(2) Offering price based on appraisal of FIBM common stock as of June 30, 1997
(3) With respect to those shares sold by the Company, assuming all Company
stock is sold.
(4) With respect to those shares sold by the Selling Stockholder.
----------------------------------------------
The shares of Selling Shareholder Stock are being offered to certain
officers, directors and advisory directors of the Company, as
determined by the Company's board of directors, and to participants in
the Company's Savings Plan. The shares of Company Stock are being offered
to the above offerees and to certain employees of the Company, as determined
by the Company's board of directors.
Directors may purchase up to a maximum of $20,000 of stock, and advisory
directors may purchase up to $10,000 of stock, subject to total stock
ownership limits of $200,000 and $100,000, respectively. Subject to
individual exceptions, employees with 10 years or more of service or at an
annual salary level of $21,000 or above may purchase stock having a total
value not exceeding 20% of the employee's salary. Employee stock purchases
through the Savings Plan may not exceed, together with FIBM common stock
already owned, 50% of the employee's account, less rollover amounts. If this
offering is oversubscribed, shares will be allocated among purchasers on a
pro-rata basis, subject to adjustment to avoid fractional shares.
Of the total number of shares offered by the Company, 19,518 shares have been
sold by the Company at the previous offering price of $85.02, which was based
upon an appraisal of a minority interest in the Company's common stock as of
March 31, 1997. 24,899 shares of Company Stock are being offered for the
price of $94.00, which is the per share appraisal value of a minority
interest in the Company's common stock as of June 30, 1997 (See Exhibit B
attached hereto).
This offering will terminate at 5:00 p.m. Mountain Daylight Time on November 1,
1997, unless extended by FIBM for up to 90 days thereafter without further
approval or additional notice to offerees (the "Expiration Date").
----------------------------------------------
No person is authorized in connection with any offering made hereby to give any
information or to make any representation not contained in this Prospectus, and,
if given or made, such information or representation must not be relied upon as
having been authorized by the Company. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy by any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation to
such person. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any date subsequent to the date
hereof.
<PAGE>
AVAILABLE INFORMATION
First Interstate BancSystem of Montana, Inc. ("FIBM") is subject to the
informational reporting requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), and in accordance therewith files periodic reports and
other information with the Securities and Exchange Commission ("Commission"). A
copy of such reports and other information relating to FIBM can be inspected and
copied at the Public Reference Room of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such material can be obtained at prescribed
rates by writing to the Securities and Exchange Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
FIBM has filed with the Commission a Registration Statement on Form S-1 under
the Securities Act of 1933, as amended ("Securities Act"), with respect to the
FIBM Common Stock offered hereby. This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information, reference is made to the Registration Statement,
including the exhibits thereto. The Registration Statement may be inspected by
anyone without charge at the principal office of the Commission in Washington,
D.C., and copies of all or any part of it may be obtained from the Commission
upon payment of the prescribed fees.
FIBM will furnish to shareholders annual reports of the Company including
financial statements audited by independent certified public accountants.
-i-
<PAGE>
TABLE OF CONTENTS
Page
----
CERTAIN DEFINITIONS........................................................... 1
PROSPECTUS SUMMARY............................................................ 3
RISK FACTORS.................................................................. 6
USE OF PROCEEDS............................................................... 9
DETERMINATION OF OFFERING PRICE .............................................. 9
SELLING SHAREHOLDER........................................................... 9
PLAN OF DISTRIBUTION..........................................................10
DESCRIPTION OF CAPITAL STOCK..................................................10
COMMON STOCK..............................................................11
DIVIDEND RESTRICTIONS.....................................................11
PREFERRED STOCK...........................................................12
RESTRICTIONS ON RESALE....................................................12
DIVIDEND POLICY...............................................................13
COMMON STOCK MARKET AND VALUATION INFORMATION................................ 14
SELECTED FINANCIAL DATA.......................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................................17
GENERAL..............................................................17
CAUTION: FORWARD LOOKING STATEMENTS.................................17
ASSET AND LIABILITY MANAGEMENT.......................................18
LIQUIDITY............................................................19
FINANCIAL CONDITION AT JUNE 30, 1997.................................20
FINANCIAL CONDITION AT DECEMBER 31, 1996.............................21
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1997 AND 1996........................................................29
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996,
1995, AND 1994..................................................30
BUSINESS......................................................................37
FIBM.................................................................37
BUSINESS OF FIBM'S SUBSIDIARIES......................................39
COMPETITION..........................................................40
REGULATION AND SUPERVISION...........................................40
GENERAL.........................................................40
FIDICIA.........................................................41
CAPITAL ADEQUACY................................................42
SUPPORT OF SUBSIDIARY BANKS.....................................42
FIRREA..........................................................42
FEDERAL INTERSTATE BANKING ACT..................................43
MONTANA LEGISLATION.............................................43
EMPLOYEES............................................................43
PROPERTIES...........................................................43
LEGAL PROCEEDINGS....................................................43
-ii-
<PAGE>
TABLE OF CONTENTS
(Continued)
Page
----
MANAGEMENT....................................................................44
EXECUTIVE AND DIRECTOR COMPENSATION.......................................46
INDEMNIFICATION...........................................................50
PRINCIPAL HOLDERS OF VOTING SECURITIES........................................50
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................53
LEGAL MATTERS.................................................................54
EXPERTS.......................................................................54
INDEX TO FINANCIAL STATEMENTS.................................................55
EXHIBITS
A. Form of Shareholder's Agreement
B. Sheshunoff Appraisal of FIBM Common Stock
-iii-
<PAGE>
CERTAIN DEFINITIONS
"Act" means the Bank Holding Company Act of 1956, as amended.
"CBI" means Citizens BancShares, Inc., a Montana corporation prior to June 30,
1995 and formerly a subsidiary of FIBM.(1)
"CBS" means Commerce BancShares of Wyoming, Inc., a Wyoming corporation prior to
June 30, 1995 and formerly a subsidiary of FIBM.(1)
"CFI" means Commerce Financial, Inc. (formerly Security Mortgage Company),
FIBM's one non-bank subsidiary.
"Company" means FIBM, its predecessors, and its subsidiaries.
"Company Stock" means the 44,417 shares of authorized but unissued common
stock of FIBM to be offered hereunder.
"ERISA" means the Employee Retirement Income Security Act.
"FCB" means First Citizens Bank, a state-chartered Montana bank which was
formerly a subsidiary of CBI.(2)
"FIBM" means First Interstate BancSystem of Montana, Inc., a Montana
corporation.
"FIBM Stock" means the issued and outstanding shares of common stock (without
par value) of FIBM.
"FIB Montana, NA" means First Interstate Bank of Montana, N.A., a nationally
chartered Montana bank, which was formerly a subsidiary of FIBM.(4)
"FIB Montana" means First Interstate Bank, a state-chartered Montana bank,
which is a subsidiary of FIBM.
" FIB Wyoming" means First Interstate Bank, a state-chartered Wyoming bank,
which is a subsidiary of FIBM.
"FIB Whitefish" means Mountain Bank, a state-chartered Montana bank, doing
business as First Interstate Bank, which was formerly a subsidiary of FIBM.(5)
"FIB Wyoming, NA" means First Interstate Bank of Wyoming, N.A., a nationally
chartered Wyoming bank, which was formerly a subsidiary of FIBM.(7)
"First Interstate, fsb" means First Interstate Bank, fsb, a nationally chartered
savings bank, which is a subsidiary of FIBM.(6)
"FNPB" means First National Park Bank, a nationally chartered Montana bank which
was formerly a subsidiary of FPCBI.(3)
"FPCBI" means First Park County BancShares, Inc., a Montana corporation prior to
June 30, 1995 and formerly a subsidiary of FIBM.(1)
"Savings Plan" means the Savings and Profit Sharing Plan of Employees of First
Interstate BancSystem of Montana, Inc., as amended or restated from time to
time.
"Scott Family" means (i) the children, grandchildren and great grandchildren of
Homer Scott, Sr., and spouses of any of the foregoing, (ii) any estate, trust,
guardianship, conservatorship, or other fiduciary arrangement for the primary
benefit of any one or more of the individuals described in subsection (i) above,
and (iii) any corporation, limited liability company, or partnership which owns
FIBM Stock and which is owned by one or more of the individuals described in
subsection (i) above.
"Selling Shareholder" means Homer A. Scott, Jr.
1
<PAGE>
CERTAIN DEFINITIONS, Continued
"Selling Shareholder Stock" means the 21,276 shares of FIBM common stock owned
by the Selling Shareholder to be offered in whole or in part hereunder.
"Subsidiaries" means all of the subsidiaries of FIBM, which are FIB Montana,
FIB Wyoming, First Interstate, fsb, and CFI.
**********
(1) Corporation dissolved effective June 30, 1995. Assets transferred to and
liabilities assumed by FIBM.
(2) Merged with FIB Montana effective May 5, 1995.
(3) Merged with FIB Montana effective September 22, 1995
(4) Acquired effective October 1, 1996 and merged with FIB Montana effective
June 21, 1997
(5) Acquired effective December 18, 1996 and merged with FIB Montana
effective June 21, 1997
(6) A de novo subsidiary capitalized and opened for business on December 12,
1996
(7) Acquired effective October 1, 1996 and merged with FIB Wyoming effective
June 6, 1997
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. The term
"Company" when used in this Prospectus includes, when the context so requires,
First Interstate BancSystem of Montana, Inc., its predecessors, and its
subsidiaries. Prospective investors should carefully consider the information
set forth under the heading "Risk Factors".
THE COMPANY
The principal executive office of the Company is located at 401 North 31st
Street, Billings, Montana 59101, and its telephone number is (406) 255-5300.
First Interstate BancSystem of Montana, Inc. is a bank holding company under
the Bank Holding Company Act of 1956 ("Act") and is a savings and loan
holding company under the Home Owners' Loan Act. FIBM was incorporated on
March 15, 1971. FIBM's primary business is that of managing its wholly owned
subsidiaries, First Interstate Bank in Montana ("FIB Montana"), First
Interstate Bank in Wyoming ("FIB Wyoming"), First Interstate Bank, fsb in
Hamilton, Montana ("First Interstate, fsb"), and Commerce Financial, Inc.
("CFI"). FIB Montana has eighteen banking offices in thirteen Montana
communities. FIB Wyoming has nine banking offices in seven Wyoming
communities. First Interstate, fsb was opened as a de novo savings bank on
December 12, 1996 and currently has only one banking office.
In addition to management of its subsidiaries, FIBM has a data processing
division headquartered in Billings, Montana, which performs data processing
services for FIBM's subsidiaries, and 35 non-affiliated financial institutions
with 79 locations in Montana, Wyoming and Idaho. The data processing division
also provides ATM support for 138 financial institutions in Montana, Wyoming,
Idaho, Colorado and North Dakota.
In addition to being the sole shareholder, FIBM functions as a service
organization for each of its subsidiaries. FIBM provides advice, counsel and
specialized services to its subsidiaries in connection with a wide range of
banking and operating policies and activities. These services include data
processing, auditing, credit administration, planning coordination, marketing,
human resources management, asset/liability management and investments.
FIBM generates its income from (1) dividends received from Subsidiaries, (2)
undistributed earnings of Subsidiaries, (3) management fees charged to
Subsidiaries, (4) net data processing income, and (5) other income, principally
federal income tax benefits.
BUSINESS OF FIBM'S SUBSIDIARIES
FIB Montana is a Montana chartered bank originally incorporated in 1916,
having its principal office in Billings, Montana. FIB Montana currently has
eighteen banking offices in thirteen Montana communities - Billings, Bozeman,
Missoula, Hardin, Miles City, Colstrip, Livingston, Gardiner, Great Falls,
Kalespell, Whitefish, Cut Bank, and Evergreen. The present structure of FIB
Montana began December 1, 1992, when FIBM merged its eight Montana subsidiary
banks, which became a state/federal reserve member bank with eight offices.
FIB Montana opened an additional banking office in Billings, Montana in
December 1994, and an additional banking office in Missoula, Montana in
January 1995. Acquisitions in 1995 and 1996 increased FIB Montana's banking
offices to the current number of eighteen.
3
<PAGE>
FIB Wyoming is a Wyoming chartered bank originally incorporated in 1893
and currently has nine banking offices in seven Wyoming communities
- -Sheridan, Gillette, Greybull, Buffalo, Casper, Laramie, and Riverton. The
present structure of FIB Wyoming was created on December 30, 1988, when FIBM
merged its five Wyoming subsidiary banks, which became a state non-federal
reserve member bank with six offices. Acquisitions in 1996 increased FIB
Wyoming's banking offices to nine.
First Interstate, fsb is a nationally chartered savings bank with its only
office located in Hamilton, Montana. First Interstate, fsb was a de novo
charter, and first opened for business on December 12, 1996.
FIBM's banking subsidiaries are each engaged in general commercial banking
activities, including all types of demand and time deposits, trust services, and
commercial, agricultural, real estate, personal and consumer loans. The banks
also provide such other services as are generally furnished by commercial banks
located in the principal cities and towns of Montana and Wyoming.
CFI, FIBM's only nonbank subsidiary, was incorporated in 1978, principally to
originate and broker secured real estate loans. During the past five years,
CFI's principal activity has been the liquidation of assets acquired through
foreclosure actions by FIBM.
REGULATION AND SUPERVISION
Bank holding companies, commercial banks and savings banks are extensively
regulated under both federal and state law. Any change in applicable law or
regulation may have a material effect on the business and prospects of the
Company and the banks.
FIBM, as a registered bank holding company, is subject to the supervision of and
regulation by the Federal Reserve Board ("FRB") under the Bank Holding Company
Act of 1956. Also, as a registered savings and loan holding company, the
Company is subject to the supervision of and regulation by the Office of Thrift
Supervision ("OTS"). See "RISK FACTORS - REGULATION" and "BUSINESS - REGULATION
AND SUPERVISION"
First Interstate, fsb is subject to the supervision of, and regular
examination by, the OTS. FIB Wyoming is subject to the supervision of, and
regular examination by, the Federal Deposit Insurance Corporation ("FDIC")
and State of Wyoming. FIB Montana is subject to the supervision of, and
regulations by, the FRB and State of Montana.
The policy of the FRB provides that a bank holding company is expected to act as
a source of financial strength to its subsidiary banks and to commit resources
to support each subsidiary bank in circumstances which it might not do so absent
such policy.
THE OFFERING
Common Stock Offered by FIBM.......................................44,417 shares
Common Stock Offered by the Selling Shareholder....................21,276 shares
Common Stock to be Outstanding
after the Offering..........................................2,014,851 shares (1)
Use of Proceeds by FIBM.........................No specific plan for use by FIBM
(1) Assumes that all Company Stock is sold. Does NOT include 31,251 shares
of common stock for issuance pursuant to stock options granted to officers
as of July 31, 1997.
4
<PAGE>
RESTRICTIONS ON RESALE
Purchasers of the FIBM stock offered hereby, except for purchasers acquiring
stock through the Savings Plan, will be subject to a Shareholder's Agreement
which will limit transferability of the stock, and will allow FIBM the option
to repurchase the stock upon the shareholder's death or disability, or upon
termination of the shareholder's status as an officer, director, or employee of
FIBM, or upon any intended sale or transfer of the stock. Stock subject to
the Shareholder's Agreement may not be sold or transferred by the shareholder
without triggering FIBM's option to acquire the stock in accordance with the
terms of the Shareholder's Agreement. In addition, the Shareholder's
Agreement allows FIBM to repurchase any of the FIBM Stock acquired by the
shareholder after January 1, 1994 if FIBM determines that the number of
shares owned by the shareholder is excessive in view of a number of factors
including but not limited to (a) the relative contribution of the shareholder
to the economic performance of the Company, (b) the effort being put forth by
the shareholder, and (c) the level of responsibility of the shareholder.
This restriction is intended to allow FIBM to reduce or eliminate a
shareholder's stock ownership is FIBM in circumstances where the
shareholder's employment role, responsibility or contribution to the success
of the Company has been reduced or has declined. To date, FIBM has not
exercised its rights under this restriction. The Shareholders Agreement
applies to all shareholders of FIBM except Scott Family members and 13
shareholders (including the Savings Plan) owning 123,674 shares of
unrestricted FIBM stock. The repurchase price is the appraised value per
share determined using the most recent quarterly appraisal availiable to FIBM
less dividends paid since the end of the quarter for which the value of the
stock has been determined in that appraisal. See "RISK FACTORS -
RESTRICTIONS ON RESALE OF FIBM STOCK" and "DESCRIPTION OF CAPITAL STOCK -
RESTRICTIONS ON RESALE".
The Shareholder's Agreement limits the marketability of FIBM Stock, and may
preclude the development of any trading market for FIBM Stock. Shareholders
may be unable to sell their stock as and when desired, and for the highest
price available.
INTEREST OF CERTAIN PERSONS
The directors and executive officers of FIBM (11 persons) beneficially owned
as of July 31, 1997, 1,269,355 shares directly or indirectly, or 63.79%
percent, of FIBM Stock, excluding any options outstanding but unexercised.
The remaining shares of FIBM Stock are owned by 401 shareholders. See
"PRINCIPAL HOLDERS OF VOTING SECURITIES". Members of the Scott Family own
83.21% percent of the FIBM Stock as of July 31, 1997.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following financial information presents selected historical and comparative
per share data for the Company. Such data is based in part on the historical
financial statements and selected financial data of the Company appearing
elsewhere herein, and the information shown below should be read in conjunction
with such selected financial data, financial statements and the related notes.
COMPANY HISTORICAL PER SHARE FINANCIAL DATA
Six Months For the Years
Ended June 30, Ended December 31,
-------------- --------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
(unaudited)
Net income per common share $ 6.17 5.26 $10.57 $ 8.84 $ 8.02
Book value per common share (1) $67.91 59.55 63.72 56.15 48.62
Cash dividends per common share $ 1.85 1.52 3.07 1.91 1.58
Number of weighted average common
share outstanding (in thousands) 1,984 1,951 1,970 1,961 1,963
(1) Book value per common share is as of the end of the respective period.
RISK FACTORS
See "RISK FACTORS" for a discussion of certain factors which should be
considered by offerees in connection with this offering.
5
<PAGE>
RISK FACTORS
An investment in the common stock offered hereby involves a high degree of risk.
In addition to the other information contained in this Prospectus, the following
risk factors should be carefully considered before purchasing shares of common
stock offered hereby.
STOCK NOT INSURED
The shares of FIBM common stock offered hereby are not savings accounts or
deposits and are not insured by the Federal Deposit Insurance Corporation or
any other government agency.
ABSENCE OF MARKET FOR FIBM STOCK
No public trading market exists for FIBM Stock, and none is anticipated to
exist in the future. See "COMMON STOCK MARKET AND VALUATION INFORMATION".
Investors should have a long term investment intent. There have been no
sales of FIBM Stock in the past three years other than sales of stock by the
Scott Family and redemptions of stock by FIBM under the Shareholder's Agreement.
FIBM has no obligation, by contract, policy or otherwise, to purchase stock
from any shareholder desiring to sell, or to create any market for the
stock. Historically, it has been the practice of FIBM to repurchase common
stock to maintain a shareholder base with restrictions on sale or transfer of
the stock. See "RESTRICTION ON RESALE OF FIBM STOCK". In the last three
calendar years (1994-1996) FIBM has redeemed a total of 52,066 shares of
common stock, all of which was restricted by the Shareholder's Agreement.
FIBM has no present intention to change its historical practice for redemption
of stock, but no assurances can be provided that FIBM will not change or end
its practice of redeeming stock. Furthermore, FIBM redemptions of stock
are subject to corporate law and regulatory restrictions which could prevent
stock redemptions.
RESTRICTIONS ON RESALE OF FIBM STOCK
Resale of FIBM Stock may be restricted pursuant to the Securities Act of 1933
and applicable state securities laws. In addition, most shares of FIBM Stock
are subject to one of two shareholder's agreements. Members of the Scott
Family, as majority shareholders of FIBM, are subject to a Shareholder's
Agreement (referred to herein as the "Scott Agreement"). The Scott Family,
under the Scott Agreement, has agreed to limit the transfer of shares owned by
members of the Scott Family to family members or charities, or with FIBM's
approval, to the Company's officers, directors, advisory directors, or to the
Company's Savings Plan.
Shareholders of FIBM who are not Scott Family members (with the exception of
13 shareholders (including the Savings Plan) who own 123,674 shares of
unrestricted stock) are subject to a different Shareholder's Agreement
(referred to herein as the "Shareholder's Agreement"). SEE EXHIBIT A HERETO.
Stock subject to the Shareholder's Agreement may not be sold or transferred
by the shareholder without triggering FIBM's option to acquire the stock in
accordance with the terms of the Shareholder's Agreement. The Shareholder's
Agreement grants FIBM the option to purchase the FIBM Stock restricted
thereby at the minority appraised value per share based upon the most recent
quarterly appraisal available to FIBM less dividends paid since the end of
the quarter for which the value of the stock has been determined in that
appraisal. FIBM is required under the Shareholder's Agreement to obtain, at
its expense, an appraisal of FIBM shares of common stock as of the last day
of each calendar quarter prepared by an unaffiliated firm qualified to make
such an appraisal. The appraiser will take into account the minority, or
non-controlling, size of the block of stock to be valued, which will result
in an appraised value which is less than a majority, or controlling, block of
stock. FIBM's purchase option arises in any of the following events: (1)
the shareholder's intention to sell the stock, (2) the shareholder's death,
(3) transfer of the stock by operation of law, (4) termination of the
shareholder's status as a director, officer or employee of FIBM, and (5)
total disability of the shareholder. In addition, the Shareholder's
Agreement allows FIBM to repurchase any of the FIBM Stock acquired by the
shareholder after January 1, 1994 if FIBM determines that the number of
shares owned by the shareholder is excessive in view of a number of factors
including but not limited to (a) the relative contribution of the shareholder
to the economic performance of the Company, (b) the effort being put forth by
the shareholder, and (c) the level of responsibility of the shareholder.
This restriction is intended to allow FIBM to reduce or eliminate a
shareholder's stock ownership in FIBM in circumstances where the
shareholder's employment role, responsibility or contribution to the success
of the Company has been reduced or has declined. To date, FIBM has not
exercised its rights under this restriction.
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Any of the FIBM Stock purchased through this offering, except for purchases
through the Savings Plan, will be subject to the terms of the Shareholder's
Agreement, and the purchaser will be required to accept in writing the terms and
conditions of the Shareholder's Agreement. See "DESCRIPTION OF CAPITAL STOCK -
RESTRICTIONS ON RESALE". FIBM has not sought an opinion of counsel regarding
the validity or enforceability of any of the restrictions contained in the
Shareholder's Agreement. Enforcement of the excess stock ownership restriction
contained in the Shareholder's Agreement may be an unsettled issue, since no
Montana legal authority exists with respect to the enforceability of such a
restriction. Initial determinations as to any claimed violation of the
Shareholder's Agreement will be made by FIBM, although any final determination
may be made in court.
Purchases of FIBM Stock made through the Savings Plan will not be restricted by
the Shareholder's Agreement, due to requirements of ERISA and the Internal
Revenue Code. However, since the Savings Plan does not allow distributions in
kind, any distributions from an employee's account in the Savings Plan will
allow, and may require, the Savings Plan trustee to sell the FIBM stock. While
FIBM has no obligation to repurchase the stock, it is possible that FIBM will
repurchase FIBM stock sold out of the Savings Plan. Any such repurchases would
be upon terms set by the Savings Plan trustee and accepted by FIBM.
The restrictions on resale of FIBM common stock will greatly limit the
marketability of the stock, and the appraised value price prescribed under the
Shareholder's Agreement may be less than the purchase price paid by a
shareholder for the stock and may be less than the actual value of the stock.
CONTROL BY SCOTT FAMILY
The Scott Family owns 83.21% of the outstanding common stock of FIBM as of July
31, 1997, and will therefore be able to control the election of directors and
the determination of business issues including merger, share exchange, sale of
assets outside the ordinary cause of business, and dissolution. See
"DESCRIPTION OF CAPITAL STOCK - COMMON STOCK" and "PRINCIPAL HOLDERS OF VOTING
SECURITIES". A purchaser of the common stock offered hereby will be a minority
shareholder, and will have no control over business decisions of the Company,
including those issues stated above.
STOCK PRICE FLUCTUATION
Determination of the minority appraised value of FIBM Stock subject to the
Shareholder's Agreement may fluctuate depending upon factors such as the results
of operations of the Company, changes in the value of assets of the Company,
accuracy of estimates of future cash flows of the Company, the factors
considered and methodology employed by the appraiser, and possible changes in
the appraiser hired by FIBM to complete the appraisal. No assurance can be
given that the appraised value and price of the stock offered herein will not
fluctuate substantially in the future, or that the appraised value will
accurately reflect the value of the stock.
RESTRICTIONS ON DIVIDENDS
As a bank holding company, FIBM is dependent upon cash flow from its
Subsidiaries, received through dividends or other intercompany transfers of
funds, to service its debt and meet operating expenses and other obligations.
The loan agreement governing FIBM's existing indebtedness with its primary
lenders contains certain limitations on the payment of dividends by subsidiaries
of FIBM, and contains limitations on FIBM's payment of dividends to its
shareholders. See "DESCRIPTION OF CAPITAL STOCK - DIVIDEND RESTRICTIONS",
"DIVIDEND POLICY", "BUSINESS - GENERAL" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS -
GENERAL". In addition, FIBM's banking subsidiaries may pay dividends and make
certain other inter-company transfers of funds only as permitted by federal and
state banking laws and regulations. See "DESCRIPTION OF CAPITAL STOCK -
DIVIDEND RESTRICTIONS" and "BUSINESS - REGULATION AND SUPERVISION". Dividends
from FIBM's banking subsidiaries are expected to be FIBM's major source of
liquidity. These limitations on the payment of dividends and transfers of funds
could adversely restrict payment of dividends to stockholders.
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KEY PERSONNEL
The Company believes that its continued success depends to a significant extent
on the management skills of its directors and executive officers, many of whom
have held director and officer positions with the Company for a number of years.
See "MANAGEMENT". The Company maintains key person life insurance on Homer
Scott, Jr., Dan Scott, Thomas W. Scott, James R. Scott, and Susan Scott Heyneman
in the amount of $1,650,000, $1,650,000, $1,500,000, $1,000,000 and $1,200,000,
respectively, the proceeds of which are payable to the Company, but which may be
required to be used to redeem FIBM stock owned by the decedent if the decedent's
personal representative so elects, pursuant to the terms of the Scott Agreement.
Although the Company has been able to attract and retain experienced and
qualified management personnel, the loss or unavailability of current members of
management could have an adverse effect on the Company.
COMPETITION
The banking business in both Montana and Wyoming is highly competitive with
respect to both loans and deposits. Many of the Company's competitors are
substantially larger and have more capital and other resources than the Company.
The Company's future performance will be subject to a number of legal and
economic factors beyond its control, such as state and federal banking
legislation, regulatory changes, unforeseen legal outcomes, inflation, material
lending and deposit rates, interest rate changes, and local market economies.
The Riegel-Neal Interstate Banking and Branching Efficiency Act of 1994 is
expected to increase competition, particularly from larger, multi-state banks.
See "BUSINESS - COMPETITION" and "BUSINESS - REGULATION AND SUPERVISION".
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES
The profitability of FIBM's bank subsidiaries, like that of many financial
institutions, is dependent to a large extent upon their net interest income,
which is the difference between their interest income on interest-earning
assets, such as loans and investments, and their interest expense on interest-
bearing liabilities, such as deposits and borrowings. When interest-bearing
liabilities mature or reprice more quickly than interest-earning assets in a
given period, a significant increase in market rates of interest could adversely
affect net interest income. Conversely, a significant decrease in market rates
of interest could result in increased net interest income. Increases in
interest rates also can result in disintermediation, which is the flow of funds
away from banking organizations into direct investments, such as U.S. Government
and corporate securities, and other investment vehicles which, due in part to
the absence of federal insurance premiums and reserve requirements, generally
can pay higher rates of return than banks.
At December 31, 1996, the Company's interest-bearing liabilities which were
estimated to mature or reprice within one year exceeded interest-earning assets
with the same characteristics by $437 million or 24.5% of the Company's total
interest-earning assets. This large rate sensitivity gap could subject the
Company to risk during periods of rising interest rates, which would have
negative effects on net interest income and net income. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - ASSET AND LIABILITY MANAGEMENT".
REGULATION
FIBM's banking subsidiaries are subject to extensive regulation under both state
and federal law. The restrictions imposed by such laws and regulations could
limit the Company's discretion in operating its banks. No assurance can be
given that existing laws and rules will not be amended or that new laws and
rules will not be adopted, the effect of which could be to adversely affect the
operations of the Company. See "BUSINESS - REGULATION AND SUPERVISION".
MATERIAL BENEFIT TO SELLING SHAREHOLDER
The Selling Shareholder acquired nearly all of his stock in FIBM when it was
incorporated in 1971, except for FIBM common stock acquired in the share
exchange with CBS in 1993, although nearly all the CBS stock exchanged by the
Selling Shareholder had been acquired on the incorporation of CBS in 1974.
The acquisition price of the FIBM common stock owned by the Selling
Shareholder is significantly less than the current minority appraised value
of the FIBM common stock, which will be received by the Selling Shareholder
upon sale of the Selling Shareholder's stock offered hereby. See "SELLING
SHAREHOLDER" and "COMMON STOCK MARKET AND VALUATION INFORMATION". By selling
FIBM stock to offerees hereunder, the Selling Shareholder will be able to
obtain more favorable tax treatment for his sale proceeds than if FIBM
redeemed his shares.
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USE OF PROCEEDS
Of the 65,693 shares of FIBM common stock to be offered for sale
hereunder, 21,276 shares of common stock of the Selling Shareholder, or the
portion thereof which the Selling Shareholder decides to sell, will be
offered for sale first, with all proceeds of such sale going to the Selling
Shareholder. After the stock offered for sale by the Selling Shareholder has
been sold, 44,417 shares of common stock to be issued by FIBM will next be
offered for sale, with all proceeds of such sale going to the Company, less
expenses of this offering which will be paid by the Company. The Company has
no current specific plan for use of the proceeds it will receive from the
offering, but it may apply some or all of the proceeds to the reduction of
debt or to operating expenses. The Company is making this offering not to
raise funds for the Company, but as a means to continue to offer stock for
purchase by certain officers, directors (including advisory directors), and
employees of the Company and by employee participants in the Company's
Savings Plan.
DETERMINATION OF OFFERING PRICE
The offering price of FIBM common stock is based upon an appraisal of a
minority block of the stock as of June 30, 1997 by Alex Sheshunoff & Co.
Investment Banking ("Sheshunoff"), minus dividends paid since June 30, 1997.
The appraisal concluded that the fair market value of a minority block of
common stock in FIBM at June 30, 1997 is $95.00 per share. Subtracting the
dividend of $1.00 per share paid on July 21, 1997, the offering price of the
stock has been set at $94.00 per share. A copy of the appraisal is attached
as EXHIBIT B.
The appraisal takes into consideration the nature and history of the Company,
the economic outlook in the Company's trade area and for the banking industry
in general, the financial performance and condition of the Company, its future
earnings and dividend paying capacities, previous sales of FIBM stock, the
size of the block of stock valued, the market price of selected comparable
banking institutions, and other factors deemed relevant by the appraiser.
In preparing its appraisal, Sheshunoff reviewed financial information regarding
the Company's financial performance and condition for the three years ending
December 31, 1996 and the six months ending June 30, 1997, together with
Company projected income, asset growth, book value and dividends for the five
fiscal years ending December 31, 2001. The appraiser did not independently
verify the asset quality or financial condition of the Company.
Company management has reviewed the independent appraisal, including the stated
methodology of the independent appraiser and the assumptions used in the
preparation of the independent appraisal. The board of directors and management
of the Company is relying upon the expertise, experience and independence of the
appraiser and is not qualified to determine the appropriateness of the
assumptions.
The appraisal is not a recommendation of any kind as to the advisability of
purchasing these shares. In preparing the appraisal, Sheshunoff has relied
upon and assumed the accuracy and completeness of financial and statistical
information provided by FIBM. Sheshunoff did not independently verify the
financial statements and other information provided by FIBM, nor did Sheshunoff
value independently FIBM's assets and liabilities. The appraisal considers FIBM
only as a going concern and does not value the shares based upon a liquidation
or other restructuring of the Company. Moreover, because the appraisal is based
upon estimates and projections of a number of matters which are subject to
change, the appraised market value of the common stock could decline below
$94.00 in the future.
SELLING SHAREHOLDER
21,276 shares of the common stock of FIBM offered hereby are being offered by
Homer A. Scott, Jr., the Selling Shareholder, for whom the following information
is provided:
BEFORE THE OFFERING AFTER THE OFFERING(1)
------------------------- -------------------------
Number of Number of Number of % of
Name and Address FIBM Shares FIBM Shares FIBM Shares FIBM Shares
of Beneficial Owner Owned to be Offered Owned Outstanding
- ------------------- ----------- ------------- ----------- -----------
Homer A. Scott, Jr. 200,968 21,276 179,692 9.01%
Director and Chairman
of Board
122 Scott Drive
Sheridan, WY 82801
(1) Assumes all shares to be offered are sold. This table does not reflect any
other disposition or acquisition of shares by the Selling Shareholder during
the period of this offering.
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The Selling Shareholder reserves the right to offer and sell less than the total
amount of stock registered on behalf of the Selling Shareholder.
The offer and sale of up to 21,276 shares of the Selling Shareholder's common
stock of FIBM has been approved by the board of directors of FIBM in accordance
with the requirements of the Scott Agreement. The Selling Shareholder's stock
sold hereunder will be free of the restrictions contained in the Scott
Agreement.
PLAN OF DISTRIBUTION
The common stock of FIBM offered hereby will be offered only to certain
officers, directors, advisory directors, employees, and participants in the
Savings Plan of the Company, and will be subject to the Shareholder's Agreement,
the form of which is attached hereto as EXHIBIT A, except for stock purchased
through the Savings Plan which will not be so restricted. See "DESCRIPTION OF
CAPITAL STOCK - RESTRICTIONS ON RESALE".
No underwriter is involved in this offering, and no underwriting commissions
will be paid in connection with this offering.
The offering will be conducted as a one-time offer to each group of specific
designated offerees. Offerees will be mailed or delivered a letter advising
them of this offering, accompanied by a copy of this Prospectus, and except
for Savings Plan offerees, a copy of the Shareholder's Agreement for
execution and return with the election to purchase stock.
Several FIBM officers designated by the Board of Directors will assist in
mailing and delivering the offering notification letters and Prospectus, and in
processing the purchase elections. These officers will be registered as
salesmen on behalf of FIBM in Montana and Wyoming, where this offering will be
made. The Company is relying upon Rule 3a4-1 of the Securities Exchange Act of
1934 (the "Exchange Act") for exemption of the officers from the broker-dealer
registration requirements of the Exchange Act.
The designated officers will answer any questions from offerees. Responses will
be limited to the information contained in this Prospectus, and no investment
advice has been authorized to be given.
The shares of Selling Shareholder Stock are being offered to certain officers,
directors and advisory directors of the Company, as determined by the Company's
board of directors, and to participants in the Company's Savings Plan. The
shares of Company Stock are being offered to the above offerees and to employees
of the Company.
Directors may purchase up to a maximum of $20,000 of stock, and advisory
directors may purchase up to $10,000 of stock, subject to total stock ownership
limits of $200,000 and $100,000, respectively. Subject to individual
exceptions, employees with 10 years or more of service or at an annual salary
level of $21,000 or above may purchase stock having a total value not exceeding
20% of the employee's salary. Employee stock purchases through the Savings Plan
may not exceed, together with FIBM common stock already owned, 50% of the
employee's account, less rollover amounts.
This offering will terminate at 5:00 p.m. Mountain Daylight Time on November
1, 1997, unless extended by FIBM for up to 90 days thereafter without further
approval or additional notice to offerees (the "Expiration Date").
Purchasers must deliver or mail a completed purchase election form to the
Company prior to the Expiration Date, together with a check for the purchase
price. If the offering is oversubscribed, shares will be allocated among
purchasers on a pro-rata basis, subject to adjustment to avoid fractional
shares, and excess funds will be promptly returned to purchasers.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of FIBM consists of 5,000,000 shares of common
stock without par value, of which 1,989,952 shares were outstanding as of July
31, 1997, and 100,000 shares of preferred stock without par value, 20,000 shares
of which were outstanding as of July 31, 1997. The following description of
the capital stock of FIBM and certain provisions of FIBM's Articles of
Incorporation and Bylaws is a summary and is qualified in its entirety by the
provisions of the Articles of Incorporation and Bylaws, copies of which have
been filed as exhibits to FIBM's Registration Statement of which this Prospectus
is a part. As of July 31, 1997, the FIBM Stock was held of record by
approximately 401 stockholders, including the Company's Savings Plan as trustee
for shares held on behalf of 448 individual participants in the Savings Plan.
155 individual participants in the Savings Plan also own shares of FIBM Stock
outside the Savings Plan.
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COMMON STOCK
Each share of FIBM Stock is entitled to one vote in the election of directors
and in all other matters submitted to a vote of stockholders. Accordingly,
holders of a majority of the shares of common stock entitled to vote in any
election of directors may elect all of the directors standing for election if
they choose to do so, subject to the rights of holders of the Preferred Stock
(see "Preferred Stock" below). Voting for directors is non-cumulative.
Subject to the preferential rights of any preferred stock that may at the time
be outstanding, each share of FIBM Stock has an equal and ratable right to
receive dividends when, if and as declared by the Board of Directors out of
assets legally available therefor. See "DIVIDEND RESTRICTIONS" below. In the
event of a liquidation, dissolution or winding up of FIBM, the holders of FIBM
Stock will be entitled to share equally and ratably in the assets available for
distribution after payments to creditors and to the holders of any preferred
stock that may at the time be outstanding.
Holders of FIBM Stock have no conversion rights or preemptive or other rights to
subscribe for any additional shares of FIBM Stock or for other securities. All
outstanding FIBM Stock is fully paid and non-assessable.
Montana corporate law provides that dissenting shareholders have dissenters'
rights with respect to mergers, consolidations, and plans of exchange.
DIVIDEND RESTRICTIONS
The holders of FIBM Stock will be entitled to dividends when, as and if declared
by FIBM's Board of Directors out of funds legally available therefor. FIBM has
a loan agreement with its primary lenders which prohibits declaration or payment
of any dividends to common stockholders in excess of 33% of net income for the
immediately preceding year. FIBM has also agreed with its primary lenders that
subsidiary banks will maintain ratios of tangible primary capital to tangible
primary assets not less than the ratios required by regulators or applicable law
or regulation, and that subsidiary banks will at all times maintain capital at
levels that the Federal Deposit Insurance Corporation ("FDIC") would categorize
as "Adequately Capitalized" or better under applicable regulations. The loan
restrictions limit the funds available for the payment of dividends from the
Subsidiaries to FIBM and from FIBM to its shareholders.
Funds for the payment of dividends of FIBM are expected to be obtained
primarily from dividends of FIBM's banking subsidiaries. Under Montana
banking law, FIB Montana may not declare dividends in excess of their
respective net undivided earnings (as defined) less any required transfers to
surplus, and may not declare a dividend larger than the previous two years'
net earnings unless prior notice is given to the Montana Commissioner of
Banking and Financial Institutions. Under Wyoming banking law, FIB Wyoming
may not declare dividends without meeting surplus fund requirements and may
not, without the approval of the Wyoming Banking Commissioner, declare
dividends in any one calendar year in excess of its net profits (as defined)
in the current year combined with retained net profits of the preceding two
years, less any required transfers to surplus or to a fund for the retirement
of any preferred stock.
In addition, federal regulatory agencies (e.g., the FDIC, OTS, and FRB) have
authority to prohibit a bank under their supervision from engaging in
practices which, in the opinion of the particular federal regulatory agency,
are unsafe or unsound or constitute violations of applicable law. For
example, depending upon the financial condition of a bank in question and
other factors, the appropriate federal regulatory agency could determine that
the payment of dividends might under some circumstances constitute an unsafe
and unsound practice. Moreover, each federal regulatory agency has
established guidelines for the maintenance of appropriate levels of capital
for a bank under its supervision. Compliance with the standards set forth in
such guidelines could limit the amount of dividends which FIBM or any of its
subsidiaries could pay. See "BUSINESS - REGULATION AND SUPERVISION".
Preferred stock of FIBM is senior to common stock with respect to dividends.
Before any dividends on common stock can be paid or declared and set apart for
payment, FIBM must: (1) comply with all conditions and restrictions of any and
all series of preferred stock for which dividends are noncumulative; (2) pay, or
declare and set aside a sum sufficient for payment, of dividends, past and
current, on any and all series of preferred stock for which dividends are
cumulative; and (3) satisfy all accrued sinking fund obligations, if any, of any
and all series of preferred stock.
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PREFERRED STOCK
The authorized capital stock of FIBM includes 100,000 shares of preferred stock
of which 20,000 shares have been designated as Noncumulative Perpetual Preferred
Stock (the "Preferred Stock"). The 20,000 shares of Preferred Stock were issued
in September, 1996 at a price of $1,000 per share, and are the only series of
preferred stock issued and outstanding. The holders of Preferred Stock are
entitled to the following preferences, powers and special rights: (i) in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
affairs of FIBM, holders of Preferred Stock are entitled to receive $1,000 per
share before any payments to holders of common stock; (ii) holders of Preferred
Stock are entitled to one vote per share, with a required super majority vote of
66 2/3% of outstanding shares to take action, on the issuance of any stock
having dividend and liquidation rights in preference and priority to the
Preferred Stock and on the amendment of FIBM's articles of incorporation or the
Certificate of Designation of the Preferred Stock having an adverse affect on
the rights of holders of Preferred Stock; (iii) holders of Preferred Stock are
entitled to payment of specified dividends when and as declared by FIBM's board
of directors; (iv) holders of Preferred Stock are entitled to elect 2 directors
to FIBM's board of directors if full dividends are not paid for six quarters to
holders of the Preferred Stock, which right continues until full dividends have
been paid for four consecutive quarters. The Preferred Stock is not convertible
and is not redeemable prior to 7 years from its issuance.
The Board of Directors is authorized, without approval of the holders of
common stock, to provide for the issuance of additional preferred stock from
time to time in one or more series in such number and with such designations,
preferences, powers and other special rights as may be stated in the
resolution or resolutions providing for such preferred stock. The Board of
Directors may cause FIBM to issue preferred stock with voting, conversion and
other rights that could adversely affect the holders of the FIBM Stock or
make it more difficult to effect a change of control of the Company.
In the event of any dissolution, liquidation or winding up of the affairs of
FIBM, before any distribution or payment may be made to the holders of common
stock of FIBM, the holders of preferred shares would be entitled to be paid in
full with the respective amounts fixed by the Board of Directors in the
resolution or resolutions authorizing the issue of such series, together with a
sum equal to the accrued and unpaid dividends thereon to the date fixed for such
distribution or payment. After payment in full of the amount which the
preferred shareholders are entitled to receive, the remaining assets of FIBM
would be distributed ratably to the holders of the common stock. If the assets
available are not sufficient to pay in full the amount so payable to the holders
of all outstanding preferred stock, the holders of all series of such shares
would share ratably in any distribution of assets in proportion to the full
amounts to which they would otherwise be respectively entitled. The
consolidation or merger of FIBM into or with any other corporation or
corporations would not be deemed a liquidation, dissolution, or winding up of
the affairs of FIBM.
Preferred stock of FIBM is senior to common stock with respect to dividends.
See "DIVIDEND RESTRICTIONS" above.
RESTRICTIONS ON RESALE
Public resale of FIBM Stock by certain persons deemed to be affiliates or
control persons of the Company will be restricted pursuant to certain provisions
of Rule 144 promulgated under the Securities Act of 1933. See "PRINCIPAL
HOLDERS OF VOTING SECURITIES".
Resale of FIBM Stock may be restricted pursuant to the Securities Act of 1933
and applicable state securities laws. In addition, most shares of FIBM Stock
are subject to one of two shareholder's agreements. Members of the Scott
Family, as majority shareholders of FIBM, are subject to a Shareholder's
Agreement (referred to herein as the "Scott Agreement"). The Scott Family,
under the Scott Agreement, has agreed to limit the transfer of shares owned by
members of the Scott Family to family members or charities, or with FIBM's
approval, to the Company's officers, directors, advisory directors, or to the
Savings Plan.
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Shareholders of FIBM who are not Scott Family members (with the exception of
13 shareholders (including the Savings Plan) who own 123,674 shares of
unrestricted stock) are subject to a different Shareholder's Agreement
(referred to herein as the "Shareholder's Agreement"). SEE EXHIBIT A HERETO.
Stock subject to the Shareholder's Agreement may not be sold or transferred
by the shareholder without triggering FIBM's option to acquire the stock in
accordance with the terms of the Shareholder's Agreement. The Shareholder's
Agreement grants FIBM the option to purchase the FIBM stock restricted
thereby at the minority appraised value per share based upon the most recent
quarterly appraisal available to FIBM less dividends paid since the end of
the quarter for which the value of the stock has been determined in that
appraisal. FIBM is required under the Shareholder's Agreement to obtain, at
its expense, an appraisal of FIBM shares of common stock as of the last day
of each calendar quarter prepared by an unaffiliated firm qualified to make
such an appraisal. The appraiser will take into account the minority, or
non-controlling, size of the block of stock to be valued, which will result
in an appraised value which is less than a majority, or controlling, block of
stock. FIBM's purchase option arises in any of the following events: (1)
the shareholder's intention to sell the stock, (2) the shareholder's death,
(3) transfer of the stock by operation of law, (4) termination of the
shareholder's status as a director, officer or employee of FIBM, and (5)
total disability of the shareholder. In addition, the Shareholder's
Agreement allows FIBM to repurchase any of the FIBM stock acquired by the
shareholder after January 1, 1994 if FIBM determines that the number of
shares owned by the shareholder is excessive in view of a number of factors
including but not limited to (a) the relative contribution of the shareholder
to the economic performance of the Company, (b) the effort being put forth by
the shareholder, and (c) the level of responsibility of the shareholder. This
restriction is intended to allow FIBM to reduce or eliminate a shareholder's
stock ownership in FIBM in circumstances where the shareholder's employment
role, responsibility or contribution to the success of the Company has been
reduced or has declined. To date, FIBM has not exercised its rights under
this restriction.
Any of the FIBM common stock purchased through this offering, except for
purchases through the Savings Plan, will be subject to the terms of the
Shareholder's Agreement, and the purchaser will be required to accept in
writing the terms and conditions of the Shareholder's Agreement. FIBM has
not sought an opinion of counsel regarding the validity or enforceability of
any of the restrictions contained in the Shareholder's Agreement. Enforcement
of the excess stock ownership restriction contained in the Shareholder's
Agreement may be an unsettled issue, since no Montana legal authority exists
with respect to the enforceability of such a restriction. Initial
determination as to any claimed violation of the Shareholder's Agreement will
be made by FIBM, although any final determination may be made in court.
Purchases of FIBM common stock made through the Savings Plan will not be
restricted by the Shareholder's Agreement, due to requirements of ERISA and the
Internal Revenue Code. However, since the Savings Plan does not allow
distributions in kind, any distributions from an employee's account in the
Savings Plan will allow, and may require, the Savings Plan trustee to sell the
FIBM stock. While FIBM has no obligation to repurchase the stock, it is
possible that FIBM will repurchase FIBM stock sold out of the Savings Plan. Any
such repurchases would be upon terms set by the Savings Plan trustee and
accepted by FIBM.
The restrictions on resale of FIBM common stock will greatly limit the
marketability of the stock, and the appraised value price prescribed under the
Shareholder's Agreement may be less than the purchase price paid by a
shareholder for the stock and may be less than the actual value of the stock.
DIVIDEND POLICY
It is the policy of FIBM to pay a dividend to all common shareholders
quarterly. Dividends are declared and paid in the month following the
calendar quarter and the amount has been determined based upon a percentage
of net income for the calendar quarter immediately preceding the dividend
payment date. Dividends for the second and third quarters of 1995 were
calculated at the rate of 25% of net income. Prior to July 1995, 20% of net
income was paid quarterly as a dividend. Effective with the dividend for the
fourth quarter of 1995 paid in January 1996, the dividend was increased to
30% of quarterly net income. The Board of Directors of FIBM has no current
intention to change its dividend policy, but no assurance can be given that
the Board may not, in the future, limit or eliminate the payment of dividends.
13
<PAGE>
Historical quarterly dividends for 1995, 1996, and the first two quarters of
1997 were as follows:
Amount Total Cash
Quarter Month Paid Per Share Dividend
------- ---------- --------- --------
1st quarter 1995 April 1995 $ .39 $ 763,700
2nd quarter 1995 July 1995 .56 1,093,372
3rd quarter 1995 October 1995 .58 1,131,304
4th quarter 1995 January 1996 .71 1,384,775
1st quarter 1996 April 1996 .81 1,572,131
2nd quarter 1996 July 1996 .76 1,505,941
3rd quarter 1996 October 1996 .79 1,564,878
4th quarter 1996 January 1997 .87 1,721,584
1st quarter 1997 April 1997 .98 1,934,003
2nd quarter 1997 July 1997 1.00 1,991,274 (1)
(1) Includes dividends paid on 19,518 shares of stock sold pursuant to this
offering to certain officers, directors, and advisory directors of the
Company.
Payment of dividends to common shareholders by FIBM is dependent upon the
ability of FIBM's subsidiaries to pay dividends to FIBM. Payment of dividends
by FIBM's subsidiaries are subject to restrictions imposed by state and federal
banking laws and by federal and state regulatory agencies. Payments of
dividends by the banks to FIBM and by FIBM to its shareholders are subject to
restrictions imposed by FIBM's primary lenders and by state and federal
regulatory agencies. See "DESCRIPTION OF CAPITAL STOCK - DIVIDEND
RESTRICTIONS". Payment of future dividends is at the discretion of FIBM's Board
of Directors and will also depend upon, among other things, the Company's
earnings, financial condition, capital requirements, extent of indebtedness,
regulatory limitations, and contractual restrictions with respect to the payment
of dividends. There can be no assurance that FIBM will continue to pay
dividends.
COMMON STOCK MARKET AND VALUATION INFORMATION
The common stock of FIBM is not actively traded, and there is no established
public trading market for the stock. There have been no sales of FIBM Stock
in the last three years other than sales by the Scott Family and redemptions
of stock by FIBM under the Shareholder's Agreement.
There is only one class of common stock, with 93.8% of the shares restricted
by agreement and 6.2% held by 13 shareholders which are unrestricted. FIBM
has the right of first refusal to purchase the restricted stock at the
minority appraised value per share based upon the most recent quarterly
appraisal available to FIBM less dividends paid. All unrestricted stock is
purchased and sold at a price per share that is acceptable to the shareholder.
No trades of unrestricted stock within the past three years are known to FIBM.
FIBM has no obligation to puchase unrestricted stock, but has historically
purchased such stock in order to reduce the amount of its stock not subject to
transfer restrictions.
FIBM has no obligation, by contract, policy or otherwise, to purchase stock
from any shareholder desiring to sell, or to create any market for the stock.
Historically, it has been the practice of FIBM to repurchase common stock to
maintain a shareholder base with restrictions on sale or transfer of the
stock. See "RESTRICTIONS ON RESALE OF FIBM STOCK". In the last three calendar
years (1994-1996) FIBM has redeemed a total of 52,066 shares of common stock,
all of which was restricted by the Shareholder's Agreement. FIBM has redeemed
the stock at the price determined in accordance with the Shareholder's
Agreement. FIBM has no present intention to change its historical practice
for redemption of stock, but no assurances can be provided that FIBM will not
change or end its practice of redeeming stock. Furthermore, FIBM redemptions
of stock are subject to corporate law and regulatory restrictions which could
prevent stock redemptions.
14
<PAGE>
Quarter-end minority appraisal values for the past two years, determined by
appraisal of Alex Sheshunoff and Co. Investment Banking, follow:
Appraised
Valuation Date(1) Minority Value(2)
-------------- --------------
March 31, 1995 $67.50
June 30, 1995 69.50
September 30, 1995 72.00
December 31, 1995 75.00
March 31, 1996 77.50
June 30, 1996 79.50
September 30, 1996 81.00
December 31, 1996 86.00
March 31, 1997 86.00
June 30, 1997 95.00
(1) Sales of stock between valuation dates are adjusted for cash dividends
paid.
(2) Prior to dividends.
See "DETERMINATION OF OFFERING PRICE" for a discussion of the factors
considered by the appraiser in determining an appraised value for FIBM common
stock, and the conditions, assumptions and limitations of the appraisal. A
copy of the June 30, 1997 appraisal is attached as Exhibit B to this Prospectus.
As of July 31, 1997, options for 31,251 shares of FIBM's common stock were
outstanding at various contractual exercise prices, ranging from $18.97 to
$80.21. The aggregate cash proceeds to be received by FIBM upon exercise of all
options outstanding at July 31, 1997 would be $1,581,344, or a weighted
average exercise price of $50.60 per share.
15
<PAGE>
SELECTED FINANCIAL DATA
(in thousands except per share data)
<TABLE>
<CAPTION>
Six Months Ended
June 30, Year ended December 31,
-------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
(unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
COMMON STOCK DATA:
Earnings per common share $ 6.17 5.26 10.57 8.84 8.02 7.83 6.94
Dividends paid per common share 1.85 1.52 3.07 1.91 1.58 1.35 1.12
Book value at end of period 67.91 59.55 63.72 56.15 48.62 42.73 36.28
Appraised minority value at
end of period 95.00 79.50 86.00 75.00 66.25 50.00 42.00
Dividend payout 30.0% 28.9 29.1 21.6 19.7 17.2 16.1
Common shares outstanding:
End of period 1,972 1,940 1,978 1,948 1,959 1,970 1,981
Weighted average 1,984 1,951 1,970 1,961 1,963 1,973 1,996
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME:
Net interest income $ 45,957 30,303 67,906 57,024 51,779 50,076 46,718
Provision for loan losses 2,281 1,152 3,844 1,629 1,344 1,345 1,630
Noninterest income 13,485 10,740 23,927 18,764 16,387 15,724 14,936
Noninterest expense 35,987 23,207 53,395 45,978 41,227 39,686 37,985
Income taxes 8,080 6,414 13,351 10,844 9,861 9,321 8,179
Net income 13,094 10,270 21,243 17,337 15,734 15,448 13,860
Net income applicable to
common stock 12,247 10,270 20,818 17,337 15,734 15,448 13,860
- ---------------------------------------------------------------------------------------------------------------------------------
AVERAGE BALANCE SHEET:
Investment securities $ 387,818 263,018 285,282 230,501 239,284 234,244 228,263
Loans, net of unearned income 1,412,513 897,833 1,014,901 837,288 705,690 641,411 595,026
Allowance for loan losses 28,300 15,296 18,150 14,927 13,736 13,330 12,852
Total interest earning assets 1,829,601 1,188,024 1,332,200 1,109,587 975,809 915,080 865,310
Total assets 2,063,138 1,330,295 1,506,088 1,244,499 1,094,415 1,028,204 971,814
Interest-bearing deposits 1,313,530 878,240 969,068 816,248 734,903 722,213 707,131
Short-term borrowings 183,937 105,197 126,135 97,799 72,367 46,453 34,502
Long-term debt 63,087 13,847 23,760 13,147 6,195 6,614 5,883
Total interest-bearing liabilities 1,560,554 997,284 1,125,763 927,194 813,465 775,280 747,516
Total deposits 1,645,182 1,085,202 1,211,185 1,019,506 916,788 888,178 854,447
Stockholders' equity 149,318 112,847 121,721 102,086 89,210 77,351 67,833
- ---------------------------------------------------------------------------------------------------------------------------------
END OF PERIOD BALANCE SHEET:
Investment securities $ 396,931 247,317 403,571 258,737 251,745 249,754 226,821
Loans, net of unearned income 1,475,852 940,248 1,375,479 870,378 751,518 667,385 607,125
Allowance for loan losses 28,757 15,406 27,797 15,171 13,726 13,373 12,965
Total interest earning assets 1,892,095 1,201,558 1,790,540 1,196,575 1,011,531 984,265 911,971
Total assets 2,131,351 1,350,478 2,063,837 1,351,215 1,134,105 1,097,469 1,022,392
Interest-bearing deposits 1,319,846 870,054 1,294,053 868,933 742,557 747,560 726,240
Short-term borrowings 228,710 129,315 155,658 113,517 84,111 60,251 35,040
Long-term debt 56,184 10,234 64,667 15,867 5,449 6,853 5,254
Total interest-bearing liabilities 1,604,740 1,009,603 1,514,378 998,317 832,117 814,664 766,534
Total deposits 1,673,035 1,082,487 1,679,424 1,099,069 939,857 936,793 900,465
Stockholders' equity 153,925 115,547 146,061 109,366 95,272 84,163 71,852
- ---------------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS:
Return on average assets 1.27% 1.54 1.41 1.39 1.44 1.50 1.43
Return on average common
stockholders' equity 18.94% 18.20 17.84 16.98 17.64 19.97 20.43
Net interest margin, FTE 5.05% 5.19 5.16 5.19 5.34 5.51 5.45
Net interest spread, FTE 4.47 4.45 4.76 4.98 4.87
Efficiency ratio 58.07% 55.65 56.78 60.46 60.78 60.73 62.87
Equity to assets, end of period 7.22% 8.56 7.08 8.09 8.40 7.67 7.03
Equity to assets, average 7.24% 8.48 8.08 8.20 8.15 7.52 6.98
Average loans to average deposits 85.86% 82.73 83.56 82.13 76.97 72.22 69.64
Average loans to average assets 68.46% 67.49 67.39 67.28 64.48 62.38 61.23
Allowance for loan losses to loans
at end of period 1.95% 1.64 2.02 1.74 1.83 2.00 2.14
Net loans charged off to average loans .19% .21 0.17 0.13 0.14 0.15 0.15
NM - Not Meaningful
FTE - Fully taxable equivalent
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
GENERAL
The profitability of FIBM is primarily dependent on the net interest income of
its subsidiary banks. Net interest income is the difference between the bank's
interest and dividend income on interest-earning assets (principally loans and
investment securities) and interest expense on interest-bearing liabilities and
borrowings. Net income is also affected by the quality of its loan portfolio
and related provisions for loan losses, as well as the amount of non-interest
income, including loan fees, service charges and other fees, and non-interest
expenses. Operating results of FIBM's banking operations are also affected, to
a lesser extent, by the type of lending, fixed rate versus adjustable or short-
term, each of which has a different rate and fee structure. Operating expenses
of FIBM's banking operations principally consist of employee compensation,
occupancy expenses, furniture and equipment expenses and other general and
administrative expenses.
FIBM generates its income from (1) dividends received from its bank
subsidiaries, (2) undistributed earnings of subsidiaries, (3) management fees
charged to subsidiaries, (4) net data processing income, and (5) other income,
principally federal income tax benefits. In 1996, 69%, 14%, 6%, 7% and 4% of
FIBM's income was generated by each of the above five sources, respectively.
FIBM's net income is also affected by the profitability of its data processing
division. Income of the data division includes data service fees for item
processing, ATM services, and bank data processing services, including general
ledger, investment securities, loans, deposits and asset/liability management.
Expenses of the data division are primarily employee compensation, equipment
maintenance and depreciation, leased telephone lines and supplies.
To a lesser extent, FIBM's net income is also affected by the profitability of
its trust operations. Income of FIBM's trust operations are the result of trust
administration fees charged to trust customers. Expenses of FIBM's trust
operations are principally employee compensation and related benefits, and other
general administrative expenses.
CAUTION: FORWARD LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, which are
subject to the safe harbor provisions created by that statute. A
forward-looking statement may contain words such as "will continue to be",
"will be", "continue to", "expect to", "anticipates that", "to be", or "can
impact". Management cautions that forward-looking statements are subject to
risks and uncertainties that could cause the Company's actual results to
differ materially from those projected in such forward-looking statements.
These risks and uncertainties include, but are not limited to, the following:
(i) the effect of changes in laws and regulations, including federal and
state banking laws and regulations, with which the Company and its banking
subsidiaries must comply, the cost of such compliance, and the potential
material adverse effects if the Company or any of its banking subsidiaries
were not in substantial compliance either currently or in the future as
applicable; (ii) the effect of changes in accounting policies and practices,
as may be adopted by the regulatory agencies as well as by the Financial
Accounting Standards Board, or changes in the Company's organization,
compensation and benefit plans; (iii) the effect on the Company's competitive
position within its market area of increasing consolidation within the
banking industry and increasing competition from larger "super regional" and
other out-of-state banking organizations as well as non-banking providers of
various financial services; (iv) the effect of unforeseen changes in interest
rates; and (v) the effects of changes in the business cycle and downturns in
the local, regional or national economies.
17
<PAGE>
ASSET AND LIABILITY MANAGEMENT
The primary objective of the asset/liability management process is to optimize
the net interest income while prudently managing balance sheet risks.
Specifically, these risks include interest rate risk, maintaining sufficient
levels of capital, and a sufficient level of liquidity to meet the needs of
depositors and borrowers. Fundamental to most risk management decisions are the
inherent tradeoffs between risk reduction and Company profitability. In certain
circumstances, a measured amount of interest rate sensitivity in the balance
sheet may produce an improved level of earnings for the Company. Thus, it is
not the intent of the Asset/Liability Committee (ALCO) to eliminate interest
rate risk. Rather, the Company attempts to understand the level of risk
accompanying its decisions and to monitor and manage these risks.
The ability to optimize the net interest income is largely dependent upon the
achievement of an interest rate spread which can be managed during fluctuations
of prevailing market interest rates. Interest rate sensitivity is a measure of
the extent to which net interest income will be affected by market interest
rates over a period of time. Interest rate sensitivity is related to the
difference between amounts of interest earning assets and interest bearing
liabilities which either reprice or mature within a given period of time. The
difference is known as interest rate sensitivity "gap".
<TABLE>
<CAPTION>
STATIC REPRICING AND INTEREST RATE SENSITIVITY
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Three Months Three Months One Year to After
As of December 31, 1996 or Less to One Year Five Years Five Years Total
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED ASSETS
Loans (1) $ 497,593 191,752 535,595 143,717 1,368,657
Investment securities 119,057 38,737 223,796 21,981 403,571
Interest-bearing deposit in bank 6,545 - - - 6,545
Federal funds sold 4,945 - - - 4,945
-----------------------------------------------------------------------------------------------------
$ 628,140 230,489 759,391 165,698 1,783,718
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
SELECTED LIABILITIES (2)
Interest-bearing demand
accounts $ 316,964 - - - 316,964
Savings deposits 396,845 - - - 396,845
Time deposits, $100 or more 74,470 19,711 26,400 1,661 122,242
Other time deposits 205,859 86,868 164,658 617 458,002
Federal funds purchased 13,450 - - - 13,450
Securities sold under repurchase
agreements 129,137 - - - 129,137
Other borrowed funds 13,071 - - - 13,071
Long-term debt 16,726 22,960 710 24,271 64,667
-----------------------------------------------------------------------------------------------------
1,166,522 129,539 191,768 26,549 1,514,378
-----------------------------------------------------------------------------------------------------
Rate gap $ (538,382) 100,950 567,623 139,149 269,340
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Cumulative rate gap $ (538,382) (437,432) 130,191 269,340
------------------------------------------------------------------------------------------------------
Cumulative rate gap as a percentage
of total interest-earning assets (30.2)% (24.5)% 7.3% 15.1%
------------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include nonaccrual loans of $6,822.
(2) Does not include noninterest-bearing demand deposits of $385,371.
There have been no material changes in trends from December 31, 1996 to
June 30, 1997.
18
<PAGE>
The declining interest rate environment FIBM experienced in the early 1990's
provided for growth in net interest income as the Company's funding costs
declined, which improved the spread realized between the yields on assets and
the cost of funds. This factor, along with loan volume growth, has provided the
Company with favorable interest margins. In anticipation of interest rates
rising during 1994, and in order to protect its net interest margin, FIBM
undertook actions to promote the lengthening of deposit maturities and the
generation of variable rate loans. No swaps, financial futures or options
contracts have been utilized by the Company. Interest earning assets maturing
or repricing within one year at December 31, 1996 provide some cushion to the
net interest margin when interest rates are flat or rising.
FIBM uses interest sensitivity "gap" analysis, income statement simulation
models, and, to a limited extent, duration analysis (including estimation of
borrower prepayment options) to evaluate the potential effects of changing
interest rates on the net interest margin of the subsidiary banks. By specific
policy, FIBM will attempt to maintain a mix of earning assets and deposits in
the one year time period, such that no more than 5% of the net interest margin
will be at risk should interest rates rise or fall 1%. In evaluating exposure
to interest rate movements, Management does not view the gap amounts as
presenting an unusually high risk potential, although no assurances can be given
that FIBM is not at risk in the event of rate increases or decreases. Also,
certain assets have features which restrict changes in interest rates on a
short-term basis as well as over the life of the asset. In the event of a
change in interest rates, prepayment of assets and deposit outflows would likely
deviate significantly from historical or expected levels. The rate gap set
forth in the table above fails to consider the interest rate sensitivities of
those asset and liability accounts. It is recognized that a rising rate
environment may decrease the ability of many borrowers to service their debt.
Management cannot provide any assurance as to what the actual affect of changes
in interest rates will be on FIBM's interest margin.
The ALCO attempts to keep informed as to the inherent tradeoffs resulting from
risk elimination and profitability objectives.
LIQUIDITY
FIBM's ALCO has established specific policies and procedures for managing
existing liquidity levels and has also developed contingency plans to address
potential liquidity needs. The Company's current liquidity position is
supported in large part through core deposits generated from the Company's
banking offices and from a high quality investment portfolio.
FIBM's current investment portfolio contains a mix of maturities which provide a
structured flow of maturing and reinvestable funds that can be converted to
cash, should the need arise. Maturing balances in the loan portfolio also
provide options for managing cash flows. The ability to redeploy these funds is
an important source of intermediate to long-term liquidity.
Backup sources of liquidity are provided by Federal funds lines carried with
both upstream and downstream correspondent banks. Additional liquidity could be
generated through borrowings from the Federal Reserve Bank of Minneapolis, of
which FIB Montana is a member. Additionally, liquidity and/or matched funding
can be obtained from the Federal Home Loan Bank of Seattle, of which FIB
Montana and FIB Wyoming are members. At June 30, 1997, the Company had
$8.8 million available on its revolving term loan.
The Company is not aware of any current recommendations by the regulatory
authorities which, if they were to be implemented, would have a material effect
on the Company's liquidity, capital resources or results of operations.
19
<PAGE>
FINANCIAL CONDITION AT JUNE 30, 1997
ACQUISITION ACTIVITY
On October 1, 1996, the Company purchased all of the outstanding capital
stock of First Interstate Bank of Wyoming, N.A. and First Interstate Bank of
Montana, N.A.; and, on December 18, 1996 , acquired all of the outstanding
capital stock of Mountain Bank of Whitefish (collectively, "the acquired
banks"). The transactions were accounted for under purchase accounting
rules. Goodwill, representing the excess of cost over net assets acquired,
is being amortized using the straight-line method over periods of 15 to 25
years.
EARNING ASSETS
Earning assets of $1.9 billion at June 30, 1997 were $96.2 million, or 5%,
higher compared to December 31, 1996 primarily due to growth in loan volume.
The mix of earning assets changed little from December 31, 1996 with net
loans comprising approximately 77%, held-to-maturity investment securities
comprising approximately 17% and interest bearing deposits,
available-for-sale investment securities and federal funds sold comprising
the remaining 6%.
LOANS. All major categories of loans showed increases in volumes from
December 31, 1996 due to continued strong economic conditions in the
communities served by the Company's banking subsidiaries and some seasonal
increases, particularly in agricultural lending, following traditional
paydowns during the fourth quarter. Growth in net loans of 7% during the
first six months of 1997 is slightly lower than the 8.1% growth rate
experienced during the same period of 1996 indicating a slight slowing in the
economy that has been attributed to a slowing of consumer borrowing as
consumer debt rises.
INVESTMENT SECURITIES. The Company manages its investment portfolio within
established policies which provide for the management of interest rate
sensitivity risks, to meet earning objectives, to provide ample liquidity and
to provide adequate collateral to support deposit and repurchase agreement
activities. Cash proceeds from maturities, sales and principal payments
during the first six months of 1997 were generally reinvested in
held-to-maturity investment securities or used to provide additional
liquidity to fund increases in other earning assets.
FEDERAL FUNDS SOLD. Federal funds sold balances increased approximately $14
million from December 31, 1996 as the Company's banking subsidiaries funded
the cash requirements of correspondent banks. Average federal funds sold
balances during the first half of 1997 of $25,753 and during 1996 of $25,462
showed only slight variance.
FUNDING SOURCES
The Company utilizes various traditional funding sources to support its
earning asset portfolio including deposits, borrowings, federal funds
purchased and repurchase agreements.
DEPOSITS. Overall, total deposits decreased slightly from December 31, 1996
to June 30, 1997. Decreases in non-interest bearing deposits of $32.0
million during the first six months of 1997, were partially offset by
increases in interest-bearing deposits of $25.8 million during the same
period. The Company historically has experienced similar seasonal cycles in
overall deposit growth during the first half of the year.
FEDERAL FUNDS PURCHASED AND OTHER BORROWED FUNDS. Federal funds purchased
for one day periods and other borrowed funds consisting primarily of
short-term borrowings from the Federal Home Loan Bank increased $72.7 million
from December 31, 1996 to June 30, 1997. The increased borrowings were the
result of funding requirements related to increases in loans and Federal
funds sold during the first half of 1997.
LONG TERM DEBT. During the first half of 1997, the Company reduced its
long-term indebtedness by $8.5 million or 14%. Payments of approximately
$8.4 million on the Company's revolving term debt were funded by earnings of
the Company's banking subsidiaries.
20
<PAGE>
FINANCIAL CONDITION AT DECEMBER 31, 1996
FIBM's earning assets include a mix of 76.8% in loans and 22.5% in investment
securities, with the balance in short term Federal funds and an interest-bearing
deposit in another bank.
GENERAL. During 1996, total assets increased $712,622 or 52.7% from $1,351,215
at December 31, 1995 to $2,063,837 at December 31, 1996.
The increase in consolidated assets was largely the direct result of
acquisitions which occurred in the last quarter of 1996. FIB Montana, NA and
FIB Wyoming, NA with consolidated assets of approximately $276,000 and $324,000,
respectively, at the transaction date were acquired on October 1, 1996. FIB
Whitefish with total assets of approximately $71,000 at the transaction date was
acquired effective December 18, 1996. Exclusive of acquired assets, total
assets at December 31, 1996 increased approximately $45,000 or 3.3% from
December 31, 1995.
INVESTMENT SECURITIES. FIBM manages its investment portfolio within established
policies which seek to manage interest rate sensitivity risks, to meet earnings
objectives, to provide sufficient liquidity and to provide adequate collateral
to support deposit and repurchase agreement activities. There are no
significant concentrations of investments as of December 31, 1996 (greater than
10% of stockholders' equity) in any individual security issuer, except for the
U.S. Government and U.S. Government-sponsored agencies.
Increases in investment securities associated with the acquisitions of FIB
Montana, NA, FIB Wyoming, NA and FIB Whitefish in 1996 aggregated approximately
$100,000. The investment policy does not permit the use of portfolio securities
for speculative purposes, including, but not limited to, gains trading (selling
investment assets prior to maturity in order to recognize market appreciation,
while continuing to hold securities which have unrealized market losses).
Management has, however, identified certain investment securities as available-
for-sale which, in the event of changing market conditions, may be sold prior to
their stated maturities.
The investment portfolio, representing 22.5% of earning assets, is well
diversified. Approximately 95.5% of the investment portfolio is at fixed rates
of interest, with the remaining portion at variable rates, of which most are
issues of agencies of the U.S. government. U.S. treasury securities comprise
53.2% of the investment portfolio, with 30% maturing within one year. No U.S.
Treasury securities held at December 31, 1996 have maturities beyond five years.
An additional 35.9% of the investment portfolio is comprised of obligations of
U.S. government agencies. 35% of the agency securities mature within one year,
an additional 38% within five years, an additional 7% within ten years, and the
remaining 20% in over ten years. 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. Tax exempt investments in issues of state,
county and municipal entities represent 4.9% of the investment portfolio, and
are all at fixed rates with slightly over two-thirds of the securities maturing
within five years. The remaining 6.0% of the investment portfolio is
principally comprised of a mix of corporate, mortgage backed, and other
securities with varying maturities. It is currently management's intent to hold
most investment securities to maturity.
21
<PAGE>
<TABLE>
<CAPTION>
SECURITY MATURITIES AND YIELD
1996 1995
Average Average
As of December 31, Yield (1) 1996 Yield (1) 1995
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY SECURITIES
Maturing within one year 5.26% $49,368 5.21% $ 42,043
Maturing in one to five years 5.75% 165,100 5.23% 79,043
-------------------------------------------------------------------------------------------------------------------------
214,468 121,086
Mark-to-market adjustments on securities available-for-sale 153 -
-------------------------------------------------------------------------------------------------------------------------
Total 5.63% 214,621 5.22% 121,086
-------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES
Maturing within one year 5.51% 50,639 5.88% 34,641
Maturing in one to five years 6.27% 55,447 5.93% 37,771
Maturing in five to ten years 6.79% 9,916 6.30% 9,424
Maturing after ten years 6.67% 28,517 6.67% 18,051
-------------------------------------------------------------------------------------------------------------------------
144,519 99,887
Mark-to-market adjustments on securities available-for-sale 226 413
-------------------------------------------------------------------------------------------------------------------------
Total 6.11% 144,745 6.06% 100,300
-------------------------------------------------------------------------------------------------------------------------
TAX EXEMPT SECURITIES
Maturing within one year 6.67% 1,927 7.22% 3,805
Maturing in one to five years 8.43% 8,698 8.17% 8,887
Maturing in five to ten years 8.87% 7,977 8.70% 5,086
Maturing after ten years 10.02% 908 10.00% 716
-------------------------------------------------------------------------------------------------------------------------
19,510 18,494
Mark-to-market adjustments on securities available-for-sale 293 236
-------------------------------------------------------------------------------------------------------------------------
Total 8.38% 19,803 8.09% 18,730
-------------------------------------------------------------------------------------------------------------------------
CORPORATE SECURITIES
Maturing within one year 5.65% 1,591 5.94% 2,272
Maturing in one to five years 5.80% 9,373 5.68% 7,388
Maturing after 10 years - - 7.82% 308
-------------------------------------------------------------------------------------------------------------------------
10,964 9,968
Mark-to-market adjustments on securities available-for-sale 2 (3)
-------------------------------------------------------------------------------------------------------------------------
Total 5.78% 10,966 5.81% 9,965
-------------------------------------------------------------------------------------------------------------------------
OTHER MORTGAGE-BACKED SECURITIES
Maturing in one to five years 5.48% 1,652 5.90% 1,201
Maturing in five to ten years - - 6.44% 91
Maturing after ten years 7.15% 2,051 7.37% 1,914
-------------------------------------------------------------------------------------------------------------------------
3,703 3,206
Mark-to-market adjustments on securities available-for-sale 6 2
-------------------------------------------------------------------------------------------------------------------------
Total 6.40% 3,709 6.79% 3,208
-------------------------------------------------------------------------------------------------------------------------
Other equity securities with no
stated maturity - 9,727 5,448
-------------------------------------------------------------------------------------------------------------------------
Total 5.81% $403,571 5.81% $258,737
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average yields have been calculated on a fully-taxable equivalent
basis.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
22
<PAGE>
LOANS. The loan portfolio is well diversified, including a mix of commercial,
consumer, agricultural and real estate loans as well as a mix of fixed and
variable rate loans. Approximately 67% of total loans are at fixed rates.
34.3% of the Company's loan portfolio is comprised of commercial loans, of which
54% are at adjustable rates and 46% are at fixed rates. 35.4% of the loan
portfolio is direct and indirect consumer loans and credit card loans, over 90%
of which are at fixed rates. Approximately 94% of fixed rate consumer loans are
for terms of less than five years. Agricultural loans comprise 10.4% of the
portfolio, of which 59% are at adjustable rates. 20.0% of the loan portfolio is
comprised of real estate loans, 77% of which are at fixed rates. Two-thirds of
fixed rate real estate loans mature within five years.
Loan increases related to the acquisitions in 1996 aggregated approximately
$401,000 (net of allowances for possible loan losses aggregating $10,553).
Other increases in net loans during 1996 totaled approximately $91,500 or an
increase of over 10% from consolidated net loans of $855,207 at December 31,
1995. There were increases in loan volumes in all major categories of loans in
1996. Increases in loan demand are attributed to continued economic growth in
the communities served by FIBM's bank subsidiaries.
<TABLE>
<CAPTION>
LOANS OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------------
As of December 31,
----------------------------------------------------------------------------------------------------
1996 Percent 1995 Percent 1994 Percent 1993 Percent 1992 Percent
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS
Agricultural $143,572 10.4% $113,827 13.1% $98,194 13.1% $85,059 12.7% $73,898 12.2%
Commercial 471,458 34.3 311,982 35.9 262,290 34.9 241,535 36.2 224,715 37.0
Real estate 274,141 19.9 142,097 16.3 112,251 14.9 92,906 13.9 90,671 14.9
Consumer 484,865 35.3 300,711 34.5 277,367 36.9 245,493 36.8 216,222 35.6
Other loans 1,443 0.1 1,761 0.2 1,416 .2 2,392 .4 1,619 .3
- ----------------------------------------------------------------------------------------------------------------------------
Total loans 1,375,479 100.0% 870,378 100.0% 751,518 100.0% 667,385 100.0% 607,125 100.0%
- ----------------------------------------------------------------------------------------------------------------------------
Less allowance for
loan losses 27,797 15,171 13,726 13,373 12,965
- ----------------------------------------------------------------------------------------------------------------------------
Total net loans $1,347,682 $855,207 $737,792 $654,012 $594,160
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Ratio of allowance
to total loans 2.02% 1.74% 1.83% 2.00% 2.14%
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITIES AND INTEREST RATE SENSITIVITIES(1)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Within One Year to After
As of December 31, 1996 One Year Five Years Five Years Total
- -------------------------------------------------------------------------------
Agricultural $ 87,877 35,278 20,417 143,572
Commercial 215,483 186,458 69,517 471,458
Real estate 70,833 103,126 100,182 274,141
Consumer 157,951 298,247 28,667 484,865
- -------------------------------------------------------------------------------
$ 532,144 623,109 218,783 1,374,036
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Loans at fixed interest rates $ 275,266 505,102 136,684 917,052
Loans at variable interest rates 250,056 118,007 82,099 450,162
Nonaccrual loans 6,822 - - 6,822
- -------------------------------------------------------------------------------
$ 532,144 623,109 218,783 1,374,036
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Loan amounts exclude "other loans", consisting primarily of
overdrafts.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
23
<PAGE>
Unlike residential mortgage loans and consumer installment loans, which
generally are made on the basis of the borrower's ability to make repayment from
his or her employment and other income, and which are secured by real property
whose value tends to be more easily ascertainable, commercial business loans are
of higher risk and typically are made on the basis of the borrower's ability to
make repayment from the cash flow of the borrower's business. As a result, the
availability of funds for the repayment of commercial business loans may be
substantially dependent on the success of the business itself. Further, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business. The
Company attempts to limit these risks by employing underwriting and
documentation standards contained in written loan policies and procedures.
These policies and procedures are reviewed on an ongoing basis by management and
adherence to stated policies are monitored by credit administration.
PROBLEM AND CLASSIFIED LOANS. Federal regulations require that each financial
institution classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, examiners have authority to identify
problem loans and, if appropriate, classify them. There are three
classifications for classified loans; "substandard", "doubtful", and "loss".
Substandard loans have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful loans have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high probability of partial
loss. A loan classified loss is considered uncollectible and of such little
value that continuance as an asset of the institution is not warranted. Problem
loans include classified loans and another category designated "special mention"
maintained for loans which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification as substandard, doubtful or
loss. Loans classified as substandard or doubtful usually require the
institution to establish general allowances for loan losses. If a loan or
portion thereof is classified loss, the insured institution must either
establish specific allowances for loan losses in the amount of 100% of the
portion of the loan classified loss, or charge-off such amount.
Exclusive of assets classified loss and which have been fully reserved or
charged-off, FIBM's problem loans at December 31, 1996 consisted of $24,966 of
loans classified as special mention, $19,994 of loans classified as substandard
and $4,585 of loans classified as doubtful.
There are no loans classified as loss, doubtful, substandard, or special mention
that have not been disclosed above that represent or result from trends or
uncertainties which management reasonably expects will materially impact future
operating results, liquidity, or capital resources, or represent material
credits about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to comply
with the loan repayment terms.
24
<PAGE>
<TABLE>
<CAPTION>
PROBLEM ASSETS
- -------------------------------------------------------------------------------------------------------------------------
5-Year
1996/95 Compound
As of December 31, 1996 1995 1994 1993 1992 % Change % Change
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Impaired loans:
Renegotiated loans on nonaccrual
status $ - 15 47 11 490 (100.0)% (100.0)%
Other nonaccrual loans 5,122 3,216 NA NA NA 59.3 NA
- -------------------------------------------------------------------------------------------------------------------------
Total impaired loans (1) 5,122 3,231 NA NA NA 58.5 NA
Total nonaccrual loans (1) 6,822 3,632 3,134 3,629 5,496 87.8 (2.9)
Total renegotiated loans 1,763 1,755 1,619 1,526 4,020 0.5 (17.8)
Loans 90 days or more past due
and still accruing 6,432 1,123 534 1,353 2,940 472.8 16.6
Total problem loans 49,545 27,097 21,765 23,220 27,749 82.8 3.8
Total classified loans 24,579 16,687 14,517 13,875 17,283 47.3 (0.1)
Total loans charged off 3,758 2,117 1,880 1,852 2,352 77.5 3.4
Total recoveries on previously
charged-off loans 1,987 1,016 889 915 1,430 95.6 10.4
- -------------------------------------------------------------------------------------------------------------------------
Other Real Estate Owned (OREO):
Other real estate owned $ 2,057 1,903 2,851 4,580 6,737 8.1 (25.4)
Allowances for devaluation
of OREO 511 554 1,048 1,448 1,800 (7.8) (24.7)
Provisions for OREO losses (21) (28) 10 85 80 (25.0) NM
- -------------------------------------------------------------------------------------------------------------------------
Selected Ratios (as of December 31):
Allowance for loan losses
at December 31 to:
Total problem loans 56.1% 56.0 63.1 57.6 46.7
Total classified loans 113.1 90.9 94.6 96.4 75.0
Allocated allowance
to gross capital funds (2) 1.3 1.8 2.0 2.2 3.3
Total problem loans to
gross capital funds (2) 28.5 21.8 20.0 23.8 32.7
Total classified loans to
gross capital funds (2) 14.1 13.4 13.3 14.2 20.4
Total nonaccrual loans to
total loans 0.5 0.4 0.4 0.5 0.9
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NA Not Applicable
NM Not Meaningful
(1) Approximately $405, $318, $296, $440 and $691 of gross interest income
would have been accrued if all loans on nonaccrual had been current in
accordance with their original terms for the years ended December 31,
1996, 1995, 1994, 1993 and 1992, respectively. Of this amount,
approximately $357 and $283 of gross interest income would have been
recognized in 1996 and 1995, respectively, if impaired loans had been
current in accordance with their original terms.
(2) Gross capital funds is defined as total stockholders' equity plus the
allowance for loan losses.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
25
<PAGE>
<TABLE>
<CAPTION>
RECONCILIATION OF THE ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, $ 15,171 13,726 13,373 12,965 12,257
Beginning allowances of acquired 10,553 917 - - -
banks
Charge-offs:
Agricultural 220 25 4 20 69
Commercial 1,127 393 398 777 1,036
Real estate 27 20 53 20 134
Consumer 2,384 1,679 1,425 1,035 1,113
Other loans - - - - -
- ---------------------------------------------------------------------------------------------
Total charge-offs 3,758 2,117 1,880 1,852 2,352
- ---------------------------------------------------------------------------------------------
Recoveries:
Agricultural 154 88 82 100 450
Commercial 850 252 299 353 467
Real estate 9 119 36 7 22
Consumer 974 557 472 455 491
Other loans - - - - -
- ---------------------------------------------------------------------------------------------
Total recoveries 1,987 1,016 889 915 1,430
- ---------------------------------------------------------------------------------------------
Net charge-offs 1,771 1,101 991 937 922
Provision for loan losses 3,844 1,629 1,344 1,345 1,630
- ---------------------------------------------------------------------------------------------
Balance as of December 31, $ 27,797 15,171 13,726 13,373 12,965
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
Period end loans $ 1,375,479 870,378 751,518 667,385 607,125
Average loans 1,014,901 837,288 705,690 641,411 595,026
- ---------------------------------------------------------------------------------------------
Ratio of net charge-offs to
average loans 0.17% .13 .14 .15 .15
Ratio of reserve to period end loans 2.02% 1.74 1.83 2.00 2.14
- ---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
- ----------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1996 1995 1994 1993 1992
ALLOCATED % OF Allocated % Of Allocated % Of Allocated % Of Allocated % Of
RESERVES LOANS Reserves Loans Reserves Loans Reserves Loans Reserves Loans
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic
Agricultural $ 390 10.4% $ 322 13.1% $ 280 13.1% $ 230 12.7% $ 315 12.2%
Commercial 594 34.3 789 35.9 791 34.9 896 36.2 1,445 37.0
Consumer 436 15.0 372 15.2 330 21.1 879 19.0 383 16.0
Floor plan 48 1.9 45 2.5 45 1.8 - 2.1 29 2.3
Real estate - 19.9 - 16.3 3 14.9 23 13.9 98 14.9
Dealer indirect 797 18.4 701 16.8 778 14.0 128 15.7 503 17.3
Other loans,
principally
overdrafts - 0.1 - 0.2 - 0.2 - 0.4 - 0.3
Foreign - 0.0 - 0.0 - 0.0 - 0.0 - 0.0
Unallocated 25,532 12,942 11,499 11,217 10,192
- ----------------------------------------------------------------------------------------------------------------------------------
Totals $ 27,797 100.0% $15,171 100.0% $13,726 100.0% $13,373 100.0% $12,965 100.0%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in the allocated reserves are $436 related to impaired loans at
December 31, 1996.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
26
<PAGE>
The provision for loan losses provides a reserve (the allowance for loan losses)
to which loan losses are charged as those losses become evident. Management of
the banks determine the appropriate level of the allowance for loan losses on a
quarterly basis utilizing a report containing loans with a more than normal
degree of risk. This report is the by-product of an ongoing loan review
process, the purpose of which is to determine the level of credit risk within
the portfolio and to ensure proper adherence to underwriting and documentation
standards. Utilizing this report, a specific portion of the reserve is
allocated to those loans which are considered to represent significant exposure
to risk. In addition, estimates are made for potential losses on all other
loans, not specifically reviewed, based on historical loan loss experience and
other factors and trends. See summary of transactions affecting the allowance
for loan losses at page F-32, and management's discussion of results for the
second quarter of 1997 at page 29.
FUNDING SOURCES. Earning assets are funded by various sources, each of which is
continuously monitored to ensure an appropriate level of liquidity to meet
customer demand and to support the Company's operating needs. The primary
funding source is a broad and diversified base of core deposits gathered by its
twenty-eight banking offices in Montana and Wyoming. Non-interest bearing
demand deposit accounts comprise 22.9% of total customer deposits. Low cost
interest bearing demand and savings deposits comprise an additional 42.5% of
total deposits. Higher cost certificates of deposit and IRA accounts comprise
the remainder (34.6%) of total deposits. Large certificates of deposit, those
for $100 and over, represent only 7.3% of total deposits and 21.1% of total time
deposits.
Deposits increased $580,355 from $1,099,069 at December 31, 1995 to $1,679,424
at December 31, 1996. Again, the increase in deposits was principally the
direct result of the acquisitions of FIB Montana, NA, FIB Wyoming, NA and FIB
Whitefish. Aggregate additions to deposits on the respective acquisition dates
were approximately $524,000, of which approximately $365 were interest-bearing.
The remaining increase of over $56,000 or approximately 5.1% of deposits at
December 31, 1995 is reflective of moderate growth in overall customer deposits
in the last half of 1996 following a seasonal slowdown in overall deposit growth
during the first half of the year.
<TABLE>
<CAPTION>
AVERAGE CUSTOMER DEPOSITS
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
AMOUNT PERCENT Amount Percent Amount Percent Amount Percent Amount Percent
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Demand $ 242,117 19.9% $203,258 19.9% $181,885 19.8% $165,965 18.7% $147,316 17.2%
Demand -
interest-bearing 210,153 17.3 171,933 16.9 163,318 17.8 159,321 17.9 152,768 17.9
Savings 301,003 24.8 264,198 25.9 265,521 29.0 261,984 29.5 254,910 29.8
- ------------------------------------------------------------------------------------------------------------------------
753,273 62.0 639,389 62.7 610,724 66.6 587,270 66.1 554,994 64.9
- ------------------------------------------------------------------------------------------------------------------------
Time deposits:
Time, $100
and over 98,683 8.1 81,191 8.0 66,751 7.3 63,002 7.1 54,818 6.4
Time, other 362,628 29.9 298,926 29.3 239,313 26.1 237,906 26.8 244,635 28.7
- ------------------------------------------------------------------------------------------------------------------------
Total time
deposits 461,311 38.0 380,117 37.3 306,064 33.4 300,908 33.9 299,453 35.1
- ------------------------------------------------------------------------------------------------------------------------
Total average
deposits $1,214,584 100.0% $1,019,506 100.0% $916,788 100.0% $888,178 100.0% $854,447 100.0%
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
CAPITAL. A significant measure of the strength of a financial institution is
its shareholders' equity, which should expand in close proportion to asset
growth. At December 31, 1996, shareholders' equity totaled more than $146
million or 7.08% of total assets, compared with $109.4 million or 8.09% at year
end 1995. Although FIBM has achieved steady internal capital generation
throughout the past five years, it also issued $20 million of noncumulative
preferred stock in conjunction with acquisitions in 1996. Stockholders' equity
to assets declined in 1996 as the result of acquisitions during the year.
27
<PAGE>
Risk based guidelines define a two tier capital framework. Tier 1 capital
consists of common shareholders' equity less disallowed intangibles, while total
risk based capital consists of Tier 1 capital, the allowance for loan losses up
to 1.25% of risk adjusted assets and long-term subordinated debt. Risk adjusted
assets are determined by assigning various levels of risk to different
categories of assets and off-balance-sheet activities.
The following table details capital components and ratios for the Company on a
consolidated basis and each of its significant subsidiaries as of December 31,
1996 and 1995:
<TABLE>
<CAPTION>
CAPITAL RATIOS
- -----------------------------------------------------------------------------------------------------------------------
FIBM FIB FIB FIB FIB
Consolidated Montana Wyoming Wyoming NA Montana NA
As of December 31, 1996 1995 1996 1995 1996 1995 1996(6) 1996(6)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total shareholders' equity
(excluding fair value
adjustment) (1) $145,554 108,973 88,096 85,567 29,167 28,136 38,774 35,051
Less disallowed intangible
assets (37,958) (10,221) (6,779) (7,295) - - (13,901) (11,092)
- -----------------------------------------------------------------------------------------------------------------------
Tier 1 capital 107,596 98,752 81,317 78,272 29,167 28,136 24,873 23,959
Subordinated debt 20,000 - - - - - - -
Allowance for loan losses (2) 18,265 11,914 9,697 8,647 3,467 3,217 2,279 2,430
- -----------------------------------------------------------------------------------------------------------------------
Total risk-based capital $145,861 110,666 91,014 86,919 32,634 31,353 27,152 26,389
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Risk-adjusted assets $1,461,228 949,880 773,936 690,132 275,568 255,658 177,277 193,646
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
Risk-based capital ratios:
Tier 1 capital to
risk-adjusted assets(3) 7.35% 10.40 10.51 11.34 10.58 11.01 14.03 12.37
Total risk-based capital
to risk-adjusted
assets(4) 9.98 11.65 11.76 12.59 11.84 12.26 15.32 13.63
Leverage(5) 5.26 7.28 7.76 7.96 7.68 7.61 7.92 8.48
Tier 1 capital to total assets
less intangible assets 7.19 8.13 8.43 8.80 7.69 7.72 12.89 12.43
Total equity to total assets 7.08 8.09 8.41 8.77 7.70 7.72 12.01 11.96
Average equity to average
assets 8.08 8.20 9.03 8.86 8.13 8.01 12.05 12.81
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For computation of capital ratios, the regulatory agencies have
determined that the FASB 115 fair value adjustment does not enter into
the calculation of capital ratios.
(2) Limited to 1.25% of risk-adjusted assets, with the excess deducted from
risk-adjusted assets.
(3) The regulatory "minimum" and requirement for "well capitalized" Tier 1
capital are 4.00% and 6.00%, respectively.
(4) The regulatory "minimum" and requirement for "well capitalized" total
risk-based capital are 8.00% and 10.00%, respectively.
(5) The regulatory "minimum" and requirement for "well capitalized"
leverage capital are 3.00% and 5.00%, respectively.
(6) Subsidiary acquired in 1996.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
28
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
INCOME FROM EARNING ASSETS. Income from earning assets was $41.2 million for
the three month period ended June 30, 1997, as compared to $26.6 million for
the same period in 1996. The increase of $14.6 million or 55% resulted from
increases in earning assets through internal growth and the bank acquisitions
discussed previously. Exclusive of income from the acquired banks, interest
income for the three months ended June 30, 1997 increased approximately 13%
from the same period in 1996. Yields on average total earning assets during
the second quarter of 1997 and 1996 were 8.81% and 8.90%, respectively.
For the six month periods ended June 30, 1997 and 1996, income from earning
assets was $80.3 million and $52.9 million, respectively. Approximately 84%
of the increase is due to interest income of the acquired banks. The yield
on average total earning assets for the first six months of 1997 was 8.78%
compared to 8.85% during 1996.
EXPENSE OF INTEREST BEARING LIABILITIES. The Company's interest expense for
the three months ended June 30, 1997 was $18.0 million, a $ 6.8 million or
61% increase over the same period in 1996. Interest expense of the acquired
banks and additional interest costs to fund the acquisitions aggregated
approximately $6 million during the second quarter and $10.6 million
year-to-date. The remaining increase was caused by higher levels of interest
bearing liabilities, particularly federal funds purchased for one day periods
and other borrowed funds. The cost of total average interest bearing
liabilities during the first six months of 1997 of 4.4% did not change from
the same period in 1996.
PROVISION FOR LOAN LOSSES. The balance of the provision for loan losses is
maintained at a level that is, in management's judgment, adequate to absorb
losses inherent in the loan portfolio given past, present and expected
conditions. The provision for loan losses increased $397 and $1,129 for the
three and six month periods ended June 30, 1997, respectively, from the same
periods in 1996. A significant portion of these increases relate directly to
the acquired banks, $353 for the three month period and $919 for the six
month period. The remaining increases are associated with growth in loan
volumes and slight deteriorations in the agricultural and consumer loan
portfolios. Although non-performing and problem assets have shown some
increases, the fundamental economies within the Company's markets remain
strong.
OTHER OPERATING INCOME
Exclusive of income attributable to the acquired banks, other operating
income increased $261 or 5% during the second quarter of 1997 and decreased
less than 1% during the six months ended June 30, 1997 compared to the same
periods in the prior year. Trust and data division revenues contributed to
the increase in other operating income during the second quarter,
contributing an additional $121 of income primarily due to increases in
number of customers and transaction volumes. Year-to-date trust and data
revenues, however, show declines from the same period last year due to
non-recurring accrual adjustments made during January 1996. Service charges
on deposit accounts also contributed to the overall increase in other income,
up 5% for the quarter and year-to-date.
OTHER OPERATING EXPENSES
Overall, quarter-to-date and year-to-date other operating expense increased
approximately 55% from the same periods in the prior year. Expenses incurred
directly by the acquired banks aggregated approximately $3.6 million for the
three months ended June 30, 1997 and $8.1 million for the six months ended
June 30, 1997. In addition to the direct other operating expenses incurred
by the acquired banks, other operating expenses of the holding company and
other banking subsidiaries increased, particularly in the operations and data
divisions, due to the additional costs associated with providing support
services to the acquired banks.
SALARIES AND BENEFITS EXPENSE. Salaries and benefits expense of $18 million
for the six months ended June 30, 1997 increased 55% over the same period in
1996. Salaries and benefits expenses for the three month period ended June
30, 1997 showed a similar increase over the same period in 1996. A
significant portion of the quarter-to-date and year-to-date increases are
attributable to the acquisitions and increased staffing levels necessary to
provide operational and other support functions to the acquired banks. The
remaining increases are primarily inflationary in nature.
FURNITURE, EQUIPMENT AND OCCUPANCY EXPENSE. Exclusive of increases directly
related to the acquired banks, occupancy, furniture and equipment expenses
increased approximately $255 or 10% during the three month period ended
29
<PAGE>
June 30, 1997 and $654 or 14% for the six month period ended June 30, 1997.
Increases are principally due to increased depreciation on data processing
equipment upgrades occurring during the second half of 1996 and the first
half of 1997 and the continuing upgrades and expansion of the Company's
micro-computer and ATM networks.
OTHER EXPENSES. Other expenses increased $2.6 million for the three months
ended June 30, 1997 compared to the same period in the prior year and $5.1
million for the six months ended June 30, 1997 compared to the same period in
the prior year. Of these increases, $1.2 million and $2.9 million for the three
and six month periods, respectively, relate directly to the acquired banks. The
remaining quarter-to-date and year-to-date increases from the previous year are
principally due to increases in advertising and public relations costs,
additional legal and professional costs, and increases in postage, supply and
telephone expenses.
Exclusive of expenses directly related to the acquired branches, advertising and
public relation expenses for the three and six month periods ending June 30,
1997 were approximately $229 higher than the same periods in 1996. These
increases are attributable to budgeted increases in advertising expense of
approximately $109 for the first half of 1997 combined with fluctuations in the
timing of public relation events in the current year compared to 1996.
Legal and professional expenses increased $367 during the three months ended
June 30, 1997 compared to the same period in the previous year and $634 during
the first half of 1997 compared to the first half of 1996. Increases of $300
and $484, not directly related to the acquired banks, are due principally to
consulting fees associated with revision of the Company's employee job
evaluation system and accruals for financial planning activities.
Office supply, postage and telephone expenses increased $273 during the second
quarter and $588 year-to-date compared to the same periods in 1996, exclusive of
expenses incurred by the acquired banks. These additional expenses are
primarily due to increased costs resulting from growth in the Company's customer
deposit base.
The above increases in other expense were offset by decreases in royalty fees of
$151 during the first half of 1997 due to the termination of a franchise
agreement with First Interstate Bancorp during May 1996.
Other quarter-to-date and year-to-date variances in other expenses from the
previous year are not considered individually significant.
RESULTS OF OPERATIONS FOR YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
NET INCOME. 1996 was another excellent year for the Company. For the eighth
consecutive year, the Company exceeded all of its prior earnings records,
recording net income of $21,243 in 1996, which topped 1995 net income of
$17,337 by $3,906 or 22.5%. Net income in 1995 was up $1,603 or 10.2% from 1994
earnings of $15,734. The increases in 1996 and 1995 were due in large part to
the acquisitions of FIB Montana, NA and FIB Wyoming, NA at the beginning of the
fourth quarter of 1996 and the acquisition of Citizens BancShares, Inc. ("CBI")
and First Park County Bancshares, Inc. ("FPCBI") which occurred effective
January 3, 1995 and May 19, 1995, respectively. The additional consolidated
earnings as a direct result of the acquisitions in both years were partially
offset by lower short-term investment income and higher interest expense of FIBM
as a result of funding of the acquisitions.
NET INTEREST INCOME. Net interest income is the largest source of the Company's
operating income. Net interest income increased to $67,906 in 1996, up $10,882
or 19.1% from 1995 net interest income of $57,024. 1995 net interest income was
$5,245 higher than 1994 net interest income of $51,779, an increase of 10.1%.
Substantially all of the $10,882 increase in net interest income in 1996 was the
result of increases in volume which were due in large part to the acquisitions
of FIB Montana, NA and FIB Wyoming, NA at the beginning of the fourth quarter.
The acquisition of FIB Whitefish in mid-December, to a much lesser degree, also
contributed to the increase in net interest income in 1996. The net interest
income of banks acquired in 1996 aggregated approximately $6,660, but was
partially offset by approximately $1,130 of interest expense of FIBM in the
fourth quarter from increased senior indebtedness and new subordinated notes
issued to fund the acquisitions.
In 1995, approximately $4,000 of the increase in consolidated net interest
income resulted from the acquisitions of CBI and FPCBI. Additional interest
expense of FIBM resulting from increased indebtedness to fund these acquisitions
partially offset the increased net interest margin in 1995 by approximately
$800.
30
<PAGE>
The effect on FIBM's interest income and interest expense due to the changes in
volume and rate for the periods indicated are shown below (in thousands):
ANALYSIS OF INTEREST CHANGES DUE TO VOLUME AND RATES
<TABLE>
<CAPTION>
YEAR 1996 Year 1995
OVER YEAR 1995 Over Year 1994
CHANGES DUE TO Changes Due to
-------------- NET ---------------- Net
VOLUME RATE CHANGE Volume Rate Change
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits $ 17 (13) 4 128 95 223
U.S. and agencies 2,518 155 2,673 (993) 418 (575)
Tax exempt securities 266 (67) 199 486 (34) 452
Other securities 495 33 528 96 (158) (62)
Federal funds sold (640) (113) (753) 369 533 902
Loans 17,761 (1,457) 16,304 12,291 5,509 17,800
- ----------------------------------------------------------------------------------------------------
Total 20,417 (1,462) 18,955 12,377 6,363 18,740
- ----------------------------------------------------------------------------------------------------
INTEREST-BEARING LIABILITIES
Interest-bearing demand 944 (703) 241 184 577 761
Savings 216 (221) (5) (113) 332 219
Savings - market 1,253 140 1,393 90 1,537 1,627
CD's over $100,000 987 (54) 933 617 1,116 1,733
CD's under $100,000 3,010 10 3,020 2,339 3,223 5,562
IRA's 650 (8) 642 364 386 750
Federal funds purchased and securities
sold under repurchase agreements 394 (359) 35 52 316 368
Borrowed money 2,030 (216) 1,814 1,441 1,034 2,475
- ----------------------------------------------------------------------------------------------------
Total 9,484 (1,411) 8,073 4,974 8,521 13,495
- ----------------------------------------------------------------------------------------------------
Net interest income $10,933 (51) 10,882 7,403 (2,158) 5,245
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Note: Because of the numerous simultaneous volume and rate changes during
the period analyzed, it is not possible to precisely allocate the changes
between volumes and rates. For purposes of this table, changes which are not
due solely to volume changes or to rate changes have been allocated to these
categories based on the respective percent changes in average volume and average
rate as they compare to each other.
There have been no material changes in the information presented or in trends
evidenced thereby from December 31, 1996 to June 30, 1997.
The primary component of the year-to-year increases in net interest income is
the growth in the volume of earning assets. As shown in the above table, net
interest income was significantly impacted by the increases in earning assets
associated with banking acquisitions in 1996 and 1995, coupled with steady
growth in average earning assets. Net interest income in 1995 was also affected
by changes in interest rates, while rate changes in 1996 resulted in little
change in net interest income. The net interest margin for 1996 of 5.16% is
only 3 basis points lower than 1995's margin of 5.19%. The net interest margin
for 1995 is 15 basis points lower than 1994's margin of 5.34%. The effect of
these changes in percentage margin on net interest income is shown in the above
table as the change due to rate.
31
<PAGE>
AVERAGE BALANCE SHEETS, YIELDS AND RATES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995
----------------------------- ------------------------------
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits in banks $ 6,555 376 5.74% $ 6,276 372 5.93%
U.S. and agencies 244,314 13,951 5.71 199,750 11,278 5.65
Tax exempt securities(1) 19,100 1,575 8.25 15,704 1,230 7.83
Other securities 21,868 1,392 6.37 13,904 864 6.21
Federal funds sold 25,462 1,342 5.27 36,665 2,095 5.71
Loans(1)(2)(3) 1,014,901 100,039 9.86 837,288 83,735 10.00
- -----------------------------------------------------------------------------------------------------------
Total interest-bearing assets 1,332,200 118,675 8.91 1,109,587 99,574 8.97
- -----------------------------------------------------------------------------------------------------------
Cash and due from banks 104,293 81,031
Premises and equipment, net 38,664 29,477
Accrued interest receivable 15,549 13,993
Excess purchase price of subsidiaries 16,492 9,813
Other real estate owned 1,428 1,436
Allowance for loan losses (18,150) (14,927)
Other assets 15,612 14,089
- -----------------------------------------------------------------------------------------------------------
Total assets $1,506,088 $1,244,499
- -----------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing demand 210,153 4,489 2.14% 171,933 4,248 2.47
Savings 112,225 3,216 2.87 105,182 3,221 3.06
Savings - market 188,778 8,089 4.28 159,016 6,696 4.21
CD's over $100 98,683 5,514 5.59 81,191 4,581 5.64
CD's under $100 319,444 18,064 5.65 263,325 15,044 5.71
IRA's 46,585 2,750 5.90 35,601 2,108 5.92
Federal funds purchased 18,687 1,043 5.58 16,596 1,008 6.07
Securities sold under repurchase
agreements 101,046 4,508 4.46 75,252 3,560 4.73
Other borrowed funds and long-term debt 30,162 2,346 7.78 19,098 1,480 7.75
Total interest-bearing liabilities 1,125,763 50,019 4.44 927,194 41,946 4.52
- -----------------------------------------------------------------------------------------------------------
Noninterest-bearing deposits 242,117 203,258
Accounts payable and accrued expenses 16,487 11,961
- -----------------------------------------------------------------------------------------------------------
Total liabilities 1,384,367 1,142,413
- -----------------------------------------------------------------------------------------------------------
Stockholders' equity 121,721 102,086
- -----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $1,506,088 $1,244,499
- -----------------------------------------------------------------------------------------------------------
Interest income/earning assets 8.91 8.97
Interest expense/earning assets 3.75 3.78
- -----------------------------------------------------------------------------------------------------------
Net interest income/earning assets 68,656 5.16 57,628 5.19
Less FTE adjustments 750 604
- -----------------------------------------------------------------------------------------------------------
Net interest income per consolidated
statements of income $ 67,906 $57,024
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS, YIELDS AND RATES, CONTINUED
- ------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------ --------------------------------- ---------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 3,381 149 4.41% $ 9,507 $ 352 3.70% $ 301 $ 14 4.65%
218,012 11,853 5.44 206,902 12,913 6.24 190,568 14,351 7.53
8,133 522 6.42 6,345 502 7.92 6,669 640 9.59
12,599 926 7.35 20,737 1,270 6.12 30,725 1,831 5.96
27,994 1,193 4.26 30,178 873 2.89 42,021 1,396 3.32
705,690 65,936 9.34 641,411 61,619 9.61 595,026 60,923 10.24
- ------------------------------------------------------------------------------------------------------------------------
975,809 80,579 8.26 915,080 77,529 8.47 865,310 79,155 9.15
- ------------------------------------------------------------------------------------------------------------------------
75,410 69,371 65,517
26,475 27,029 23,688
11,262 10,985 11,294
3,378 3,654 3,930
2,225 4,079 5,379
(13,736) (13,330) (12,852)
13,592 11,336 9,548
- ------------------------------------------------------------------------------------------------------------------------
$1,094,415 $1,028,204 $971,814
- ------------------------------------------------------------------------------------------------------------------------
163,318 3,487 2.14 159,321 3,551 2.23 152,768 4,614 3.02
109,279 3,002 2.75 106,916 3,135 2.93 101,765 3,692 3.63
156,242 5,069 3.24 155,068 4,895 3.16 153,145 5,826 3.80
66,751 2,848 4.27 63,002 2,558 4.06 54,818 2,717 4.96
211,238 9,482 4.49 208,791 9,547 4.57 214,672 11,520 5.37
28,075 1,358 4.84 29,115 1,512 5.19 29,963 1,761 5.88
15,358 690 4.49 1,299 39 3.00 991 45 4.54
52,157 1,814 3.48 37,839 1,045 2.76 21,586 714 3.31
11,047 701 6.35 13,929 796 5.71 17,808 1,100 6.18
- ------------------------------------------------------------------------------------------------------------------------
813,465 28,451 3.50 775,280 27,078 3.49 747,516 31,989 4.28
- ------------------------------------------------------------------------------------------------------------------------
181,885 165,965 147,316
9,855 9,608 9,149
- ------------------------------------------------------------------------------------------------------------------------
1,005,205 950,853 903,981
- ------------------------------------------------------------------------------------------------------------------------
89,210 77,351 67,833
- ------------------------------------------------------------------------------------------------------------------------
$1,094,415 $1,028,204 $971,814
- ------------------------------------------------------------------------------------------------------------------------
8.26 8.47 9.15
2.92 2.96 3.70
- ------------------------------------------------------------------------------------------------------------------------
52,128 5.34 50,451 5.51 47,166 5.45
349 375 448
- ------------------------------------------------------------------------------------------------------------------------
$51,779 $50,076 $46,718
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
(1) Interest income and average rates for certain loans and securities exempt from federal income taxes are
presented on a fully-taxable equivalent basis.
(2) Average loan balances include nonaccrual loans.
(3) Loan fees included in interest income for financial reporting purposes were $5,028, $4,070, $4,213, $4,847
and $4,055 for the years ended December 31, 1996, 1995, 1994, 1993, and 1992, respectively.
</TABLE>
There have been no material changes in the information presented from
December 31, 1996 to June 30, 1997. Income and expense amounts for the
first six months of 1997 indicate no material changes in trends from 1996.
33
<PAGE>
Customer loan fees, included in interest income for financial reporting
purposes, were $5,028 in 1996, up $958 or 23.5% from $4,070 in 1995. Loan
fees in 1995 were down $143 or 3.4% from $4,213 in 1994. Customer loan fees
included in 1996 and 1995 income associated with banking acquisitions were
$136 and $131, respectively. The decline in customer loan fees in 1995 was
principally the result of reduced real estate loan processing in the first
half of 1995, However, new real estate loans and refinancing of existing
loans rebounded in the last half of 1995 and continued through 1996,
resulting in an increase in real estate loan fees of $402 in 1996 of which
only $31 was the result of acquisitions. Loan fees for other categories of
loans also increased in 1996 from 1995. Agricultural loan fees increased
$33, of which $10 was acquisition-related. But the most significant
increases were in commercial and consumer loan fees which contributed over
half the overall increase in loan fees.
Maintaining steady growth in net interest income is one of the Company's
primary objectives and is monitored by management through its asset/liability
management process. The Company has historically achieved this objective, in
part, as a result of having the necessary systems, procedures, and products
in place to manage and promote balance sheet growth, maintain a strong net
interest margin and remain competitively priced. Management believes the
Company, as in the past, is well positioned to maintain its solid growth in
net interest income.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $3,844 and
$1,629 for the years ended December 31, 1996 and 1995, respectively, as
compared to $1,344 in 1994. Of the $2,215 increase in the 1996 loan loss
provision, $500 is related to acquired banking locations. The remaining
increase of $1,715 from 1995 is principally associated with overall increases
in loan volumes and a slight deterioration in agricultural and consumer
lending loans. Net chargeoffs as a percentage of average loans was .17% in
1996, up slightly from .13% in 1995, and .14% of in 1994. The allowance for
loan losses as a percentage of loans increased to 2.02% at December 31, 1996
from 1.74% and 1.83% at December 31, 1995 and 1994, respectively, in large
part due to reserve balances of banks acquired. Loan loss provisions and
reserve levels are reflective of the levels of problem and classified loans.
Total classified loans increased $7,892 or 47.3% to $24,579 at December 31,
1996 from $16,687 at December 31, 1995. Total problem loans increased
$22,448 or 82.8% from $27,097 at December 31, 1995 to $49,545 at December 31,
1996. Total nonaccrual loans increased $3,190 or 87.8% between years to
$6,822 at December 31, 1996. These increases in levels of problem,
classified, and nonaccrual loans are due to bank acquisitions in 1995 and
1996, increases in outstanding loans, and the slight deterioration in the
agricultural and consumer sector. Further discussion on loan quality and the
allowance for loan losses is included later in this review in the PROBLEM AND
CLASSIFIED LOANS section.
Management actively monitors local industry for strengths and diversity and
unemployment levels, and evaluates its banking markets for their effects on
its loan portfolio. Although nonperforming and problem assets increased in
1996, the fundamental economies within the Company's markets have remained
strong. The loan loss provisions and current levels of loan loss reserves
reflect management's evaluation of the risks inherent in the loan portfolio
and local economic conditions. Should a significant shift in economic trends
and/or increased volumes of problem credits or charge-offs occur, such events
would likely require increased loan loss provisions in the future.
NON-INTEREST INCOME. Total noninterest income increased $5,163 to $23,927
from $18,764 for the years ended December 31, 1996 and 1995, respectively.
Of this increase, approximately $1,450 is attributed to acquisitions in 1996.
In 1995, total noninterest income was up $2,377 from $16,387 in 1994, of
which approximately $719 is attributed to the CBI and FPCBI acquisitions in
1995.
Revenue from fiduciary activities increased $542 to $3,161 in 1996 from
$2,619 in 1995, due in part to $243 of additional revenues of the banks
acquired in 1996, but also the result of fee increases that took effect at
the end of 1994, more aggressive marketing of the Company's fiduciary
services in 1995 and 1996, and increased market values of the trusts under
management.
34
<PAGE>
Revenues from data processing services increased $1,128 or 18.2% to $7,324 in
1996 from $6,196 in 1995, which were up $1,450 or 30.6% from revenues of
$4,746 in 1994. The increase in data processing revenue is the result of
increases in data processing customers and the resulting increase in
transaction volumes. During 1996 and 1995, the Company's data processing
division expanded its ATM network from 216 total ATM locations at the
beginning of 1995 to 343 at December 31, 1995 and to 477 at December 31,
1996. Although future growth in data processing revenues is not assured,
continued expansion of the Company's ATM network and, to a lesser degree,
regular data processing services is expected to continue into 1997, although
not at the rates experienced in 1996 and 1995. Increases in data processing
revenues as the result of expansion of the Data Division's customer base have
been offset by similar increases in operating expenses of the Data Division.
On a pretax basis, data processing division revenues, net of its direct
operating expenses for 1996, increased $324 or 19.4% from 1995, which was up
$359 or 27.5% from 1994. There were no increases in basic charges for data
processing services in 1996 or 1995.
Service charges on deposit accounts increased $1,220 or 18.7% to $7,752 from
$6,532 in 1995. Of this amount, approximately $650 is attributable to
banking acquisitions. The remaining increase is primarily the result of
increases in overdraft fees. Other service charges, commissions and fees
increased $322 in 1996, primarily the result of banking acquisitions during
the year.
Other income more than doubled in 1996, increasing $1,927 from $888 in 1995
to $2,815 in 1996. Banks acquired in 1996 generated other income aggregating
$135 in the last quarter of the year; however, the most significant component
was from the sale of merchant credit card processing at a gain of $1,359 in
December 1996. The sale included alignment with a specialized merchant
processing provider that enhances the Company's ability to compete in this
highly specialized area.
NON-INTEREST EXPENSES. Total non-interest expenses increased $7,417 to
$53,395 for the year ended December 31, 1996 from $45,978 for the year ended
December 31, 1995. Approximately $6,375 of the increase relates to banking
locations added as a result of the acquisitions. The remaining increase of
approximately $1,040 or 2.3%, is principally inflationary increases. Total
non-interest expenses increased $4,751 from $41,227 for the year ended
December 31, 1994. Approximately $3,320 of the increase relates to banking
locations added as a result of the CBI and FPCBI acquisitions, while an
additional $651 relates to the addition of two new banking offices opened in
Billings (December 1994) and Missoula (January 1995). The remaining increase
of $780 or 1.9% of 1994 expense is principally inflationary increases. The
following table lists significant operating expenses:
<TABLE>
<CAPTION>
Year ended December 31, 1996 Change 1995 Change 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 27,531 16.2% $ 23,694 11.9% $ 21,179
Occupancy, furniture and equipment 10,754 17.4 9,160 13.0 8,104
FDIC insurance 5 (99.6) 1,127 (43.9) 2,008
Postage and freight 1,405 (8.4) 1,534 33.0 1,153
Stationary and supplies 1,742 22.1 1,427 30.1 1,097
Legal, audit and other professional fees 1,441 41.7 1,017 37.2 741
Telecommunications 974 23.9 786 21.1 649
Amortization of intangible assets 1,383 87.9 736 150.3 294
Advertising 662 4.4 634 34.0 473
Public relations, business meals
and entertainment 704 17.7 598 9.5 546
Contributions 610 3.4 590 17.1 504
Travel 640 47.5 434 14.5 379
Dues, subscriptions and publications 526 34.2 392 10.1 356
Other real estate expense (income) (214) (63.5) (586) (28.2) (457)
Other 5,232 18.0 4,435 5.6 4,201
- -------------------------------------------------------------------------------------------------
Total non-interest expenses $53,395 16.1% $45,978 11.5% $41,227
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE>
Data division expenses, which are included throughout the various categories
above, increased in both years, principally related to increases in data
processing volumes and expansion of the ATM network, and additional
depreciation associated with upgrades of data processing equipment. Total
data processing expenses increased $1,133 or 16.9% to $7,487 in 1996 from
$6,714 in 1995, and $1,224 or 22.3% from $5,490 in 1994. FIBM acquired a
small data service center in Helena, Montana during 1994. FIBM has expanded
the customer base of the new facility, and continues to process certain
correspondent activity at the Helena location. Increases in data division
expenses in 1996 and 1995 were offset by increases in data division income.
Salaries and benefits were $27,531 and $23,694 for the years ended December
31, 1996 and 1995, respectively, an increase of $3,837 in 1996.
Approximately $1,850 of the increase in salaries and benefits directly
relates to banks acquired, while a portion of the remaining increase relates
to personnel increases indirectly the result of acquisitions, particularly in
the banks' operation centers and the data division. Other increases in
salaries and benefits are primarily inflationary in nature.
In 1995, salaries and benefits increased $2,515 from $21,179 for the year
ended December 31, 1994. Approximately two-thirds of the 1995 increase in
salaries and benefits ($1,689) related to the acquisitions of CBI and FPCBI,
and the two new facilities opened in Billings and Missoula. The remaining
increase in salaries and benefits ($826 or 3.9%) was principally the result
of inflationary increases and additional staffing of the data division in
1995, including the purchase of the data processing facility in Helena in
mid-1994.
Aggregate occupancy, furniture and equipment costs increased $1,594 or 17.4%
to $10,754 in 1996 from $9,160 in 1995. Added facilities included the six
new banking locations in Montana (Kalispell, Great Falls, Cut Bank,
Whitefish, Evergreen and Hamilton) as well as the three new banking locations
in Wyoming (Casper, Laramie and Riverton). 1996 expenses directly related to
these locations aggregated $671. In addition, higher depreciation,
maintenance and other costs associated with the major hardware and software
upgrades in the data division that began in early 1996 were the primary
reasons for additional increases in occupancy, furniture and equipment
expenses aggregating $679. The remaining increase in these expenses was less
than $250 and only 2.7% of 1995 expense totals.
Occupancy expenses increased $370 or 10.4% to $3,916 in 1995 from $3,546 in
1994, principally due to added facilities in Bozeman, Livingston, Gardiner,
Billings, Missoula and Helena. Similarly, furniture and equipment expenses
increased $686 or 15.1% in 1995 as compared to 1994 due, in part, to the
additional facilities in 1995, however, increased furniture and equipment
expenses were also the result of higher maintenance and other costs
associated with the significant growth in the ATM network supported by the
Company's Data Processing Division.
Other real estate ("OREO") expense, including provisions for OREO are
included in non-interest expenses, net of gains on sales of OREO. In 1996,
FIBM recorded net OREO income of $214 compared to net OREO income of $586 and
$457 in 1995 and 1994, respectively, or an increase in non-interest expenses
of $372 in 1996 and a reduction in noninterest expenses of $129 in 1995.
These net variances in expense were primarily the result of fluctuations in
gains on sales of OREO. OREO sales gains were $335, $527 and $578 in 1996,
1995 and 1994, respectively. Negative provisions for OREO of ($21) and ($28)
were recorded in 1996 and 1995, respectively, compared to a provision of $10
in 1994. Decreased provisions and the reversals recorded in 1996 and 1995
are reflective of dispositions of properties at gains and reduced loss
exposure on remaining unsold properties. Although expected to continue
through liquidation of remaining OREO properties, gains on disposition of
OREO properties are expected to decline as the numbers and value of
properties held in OREO continue to decrease. Continued decreases in
properties held, reductions in loss provisions and gains on disposition of
properties, however, are not assured should a shift in economic trends occur.
FDIC deposit insurance premiums decreased $1,122 to only $5 in 1996 as
compared to a decrease of $881 or 43.9% in 1995. The reduced insurance costs
in 1996 and 1995 were the result of an FDIC rate reduction of over 80% that
took effect in June 1995, followed by an additional decrease during 1996 due
to reductions in rates assessed by the FDIC that virtually eliminated FDIC
insurance premiums in 1996. These cost reductions are also reflective of the
Company subsidiaries' "well-capitalized" rating by the FDIC. So long as
FIBM's bank subsidiaries in Montana and Wyoming continue to fall into the
"well-capitalized" category, they will be assessed the lowest premium rate.
36
<PAGE>
Other expenses increased $2,736 to $15,319 in 1996 from $12,583 in 1995.
This increase is due to higher subsidiary expenses resulting from the
acquisitions in 1996, aggregating approximately $2,921 including additional
goodwill amortization of $569. FIBM also incurred additional other expenses
in 1996 which were directly related to the acquisitions. These increases
were partially offset by a decrease in First Interstate royalty fees, which
were discontinued in May 1996 after the Franchise Agreement was terminated.
In 1995, other expenses increased $2,190 to $12,583 from $10,393 in 1994.
Approximately $1,727 of this increase is higher subsidiary expenses resulting
from the acquisitions of CBI and FPCBI, including additional goodwill
amortization of $422, and the additions of new facilities in Billings and
Missoula. Further, FIBM incurred more than $200 in additional other expenses
in 1995 which were directly related to the acquisitions of CBI and FPCBI.
Net of these items, the increase in other expense was $463 or 4.5% of expense
in 1994.
INCOME TAX EXPENSE. Total income tax expense increased $2,507 from $10,844
for the year ended December 31, 1995 to $13,351 for the year ended December
31, 1996. Federal income tax expense of $11,516 in 1996 represented an
effective tax rate of 33.3% compared to Federal income tax expense of $9,328
in 1995 which was an effective rate of 33.1%. State income tax expense of
$1,835 in 1996 and $1,516 in 1995, applied only to pretax earnings of
entities operating within the state of Montana, represent effective tax rates
of 5.3% in 1996 and 5.4% in 1995.
By comparison, total income tax expense for 1995 increased $983 from $9,861
for the year ended December 31, 1994. Federal income tax expense of $8,532
for the year ended December 31, 1994 represented an effective tax rate of
33.3%. 1994 Montana income tax expense was $1,329 or an effective tax rate
of 5.2%.
BUSINESS
(Dollars in thousands, except per share data)
FIBM
First Interstate BancSystem of Montana, Inc. ("FIBM" and collectively with
its subsidiaries, the "Company") is a bank and savings and loan holding
company registered as a bank holding company under the Bank Holding Company
Act of 1956 ("Act") and is registered as a savings and loan holding company
under the Home Owners' Loan Act. FIBM was incorporated as a Montana business
corporation on March 15, 1971. FIBM's primary business is that of managing
its wholly owned subsidiaries, First Interstate Bank in Montana ("FIB
Montana"), First Interstate Bank in Wyoming ("FIB Wyoming"), First Interstate
Bank, fsb in Hamilton, Montana ("First Interstate, fsb"), and Commerce
Financial, Inc. ("CFI"). FIB Montana has eighteen banking offices in thirteen
Montana communities. FIB Wyoming has nine banking offices in seven Wyoming
communities. First Interstate, fsb was opened as a de novo savings bank on
December 12, 1996 and currently has only one banking office.
In addition to management of its subsidiaries, FIBM has a data processing
division headquartered in Billings, Montana, which performs data processing
services for FIBM's subsidiaries, and 35 non-affiliated financial
institutions with 79 locations in Montana, Wyoming and Idaho. The data
processing division also provides ATM support for 138 financial institutions
in Montana, Wyoming, Idaho, Colorado and North Dakota.
In addition to being the sole shareholder, FIBM functions as a service
organization for each of its subsidiaries. FIBM provides advice, counsel and
specialized services to its subsidiaries in connection with a wide range of
banking and operating policies and activities. These services include data
processing, auditing, credit administration, planning coordination,
marketing, human resources management, asset/liability management and
investments.
37
<PAGE>
The profitability of FIBM is primarily dependent on the net interest income
of its subsidiary banks. Net interest income is the difference between the
bank's interest and dividend income on interest-earning assets (principally
loans and investment securities) and interest expense on interest-bearing
liabilities and borrowings. Net income is also affected by the quality of
its loan portfolio and related provisions for loan losses, as well as the
amount of non-interest income, including loan fees, service charges and other
fees, and non-interest expenses. Operating results of FIBM's banking
operations are also affected, to a lesser extent, by the type of lending,
fixed rate versus adjustable or short-term, each of which has a different
rate and fee structure. Operating expenses of FIBM's banking operations
principally consist of employee compensation, occupancy expenses, furniture
and equipment expenses and other general and administrative expenses.
FIBM generates its income from (1) dividends received from its bank
subsidiaries, (2) undistributed earnings of subsidiaries, (3) management fees
charged to subsidiaries, (4) net data processing income, and (5) other
income, principally federal income tax benefits. In 1996, 69%, 14%, 6%, 7%
and 4% of FIBM's income was generated by each of the above five sources,
respectively.
FIBM's net income is also effected by the profitability of its data
processing division. Income of the data division includes data service fees
for item processing, ATM services, and bank data processing services,
including general ledger, investment securities, loans, deposits and
asset/liability management. Expenses of the data division are primarily
employee compensation, equipment maintenance and depreciation, leased
telephone lines and supplies.
To a lesser extent, FIBM's net income is also effected by the profitability
of its trust operations. Income of FIBM's trust operations are the result of
trust administration fees charged to trust customers. Expenses of FIBM's
trust operations are principally employee compensation and related benefits,
and other general administrative expenses.
Responsibility for the management of each Subsidiary is in its board of
directors and in the officers elected by that board, notwithstanding the
overall guidance by FIBM described above.
The Company has a revolving term loan with its primary lenders in the amount
of $42,000 at December 31, 1996. The available borrowing amount is reduced
by $2,000 on a semi-annual basis commencing in June, 1997. The loan is
secured by a pledge of all the outstanding capital stock of the Company's
bank subsidiaries. In connection with the loan, the Company has agreed to
certain restrictions dealing with, among other things, minimum capital and
operating ratios, the sale or issuance of capital stock, and the maximum
amount of dividends.
The Company has issued and outstanding a $20,000 subordinated term note, due
in increasing annual principal payments beginning October 1, 2002, with final
maturity on October 1, 2006. The Company has Federal funds lines of credit
with third parties amounting to $50,000, subject to funds availability. The
Company also has been approved for participation in the Federal Home Loan
Bank Cash Management Advance Program for borrowings up to approximately
$39,500.
FIB Montana is a general partner in two general partnerships which form a
joint venture which owns the building in Billings, Montana in which the home
office of FIBOC Montana and the offices of FIBM are located ("the Building").
The joint venture is the borrower under a term loan having an unpaid
principal balance of $10,937 as of December 31, 1996, which is secured by a
lien on the Building. FIBM is a guarantor of the Building loan.
The Company is the licensee under a trademark license agreement granting it
an exclusive, non-transferrable license to use the "First Interstate" name
and logo in the states of Montana, Wyoming, North Dakota, South Dakota and
Nebraska.
38
<PAGE>
BUSINESS OF FIBM'S SUBSIDIARIES
FIB Montana is a Montana chartered bank originally incorporated in 1916,
having its principal office in Billings, Montana. FIB Montana currently has
eighteen banking offices in thirteen Montana communities - Billings, Bozeman,
Missoula, Hardin, Miles City, Colstrip, Livingston, Gardiner, Great Falls,
Kalispell, Whitefish, Cut Bank, and Evergreen. The present structure of FIB
Montana began December 1, 1992, when FIBM merged its eight Montana subsidiary
banks, which became a state/federal reserve member bank with eight offices.
FIB Montana opened an additional banking office in Billings, Montana in
December 1994, and an additional banking office in Missoula, Montana in
January 1995. Acquisitions in 1995 and 1996 and increased FIB Montana's
banking offices to the current number of eighteen.
FIB Wyoming is a Wyoming chartered bank originally incorporated in 1893 and
currently has nine banking offices in seven northern Wyoming communities
- -Sheridan, Gillette, Greybull, Buffalo, Casper, Laramie and Riverton. The
present structure of FIB Wyoming was created on December 30, 1988, when FIBM
merged its five Wyoming subsidiary banks which became a state non-federal
reserve member bank with six offices. Acquisitions in 1996 increased FIB
Wyoming's banking offices to nine.
First Interstate, fsb is a nationally chartered savings bank with its only
office located in Hamilton, Montana. First Interstate, fsb was a de novo
charter, and first opened for business on December 12, 1996.
FIBM's banking subsidiaries are each engaged in general commercial banking
activities, including all types of demand and time deposits, trust services,
and commercial, agricultural, real estate, personal and consumer loans. The
banks also provide such other services as are generally furnished by
commercial banks located in the principal cities and towns of Montana and
Wyoming.
CFI, FIBM's only nonbank subsidiary, was incorporated in 1978, principally to
originate and broker secured real estate loans. During the past five years,
CFI's principal activity has been the liquidation of assets acquired through
foreclosure actions by FIBM.
39
<PAGE>
COMPETITION
The banking business in both Montana and Wyoming is highly competitive with
respect to both loans and deposits. As of December 31, 1996, according to
information compiled by management, the combined deposits for FIB Wyoming
and FIB Wyoming, NA aggregate $601 million, or approximately 8% of Wyoming's
total bank deposits, and rank third in total deposits for banking
organizations doing business in Wyoming. Two larger organizations, Norwest
Corporation and Key Corporation, headquartered in Minneapolis, Minnesota and
Cleveland, Ohio, respectively, controlled approximately 34% and 14% of
Wyoming's total bank deposits, respectively. At June 30, 1996, according to
information compiled by management, the combined deposits of FIB Montana,
FIB Montana, NA, and FIB Whitefish aggregated $994 million, approximately 14%
of Montana's total bank deposits as of June 30, 1996, and rank second in
total deposits for banking organizations doing business in Montana. Two
larger organizations, Norwest Corporation and First Bank System, Inc., both
headquartered in Minneapolis, Minnesota, controlled approximately 18% and 13%
of Montana's total deposits, respectively. By virtue of their greater total
capitalization, such institutions have substantially higher lending limits
than FIBM's banking subsidiaries since legal lending limits to an individual
customer are limited to a percentage of the bank's total capital accounts.
The enactment of the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 is expected to increase competition, particularly from larger,
multi-state banks. See "REGULATION AND SUPERVISION" below. Additionally,
savings and loan associations, credit unions, finance companies and other
companies provide competing financial services. Some non-bank competitors,
including brokerage companies, operate with certain regulatory advantages.
In addition to competing with savings institutions, including savings and
loan associations and credit unions, commercial banks compete with other
financial markets for funds. Yields on corporate and government debt
securities and other commercial paper affect the ability of commercial banks
to attract and hold deposits. Commercial banks also compete for available
funds with money market instruments. During past periods of high interest
rates, money market funds have provided substantial competition to banks for
deposits and they may continue to do so in the future.
REGULATION AND SUPERVISION
GENERAL
Bank holding companies, commercial banks and savings banks are subject to
extensive regulation under both federal and state law. Any change in
applicable law or regulation may have a material effect on the business and
prospects of the Company.
As a bank holding company, FIBM is subject to the supervision of and
regulation by the Federal Reserve Board ("FRB") under the Bank Holding
Company Act of 1956. Also, as a savings and loan holding company, FIBM is
subject to the supervision of and regulation by the Office of Thrift
Supervision ("OTS").
First Interstate, fsb is subject to the supervision of, and regular
examination by, the OTS. FIB Wyoming is subject to the supervision of, and
regular examination by, the Federal Deposit Insurance Corporation ("FDIC")
and the State of Wyoming. FIB Montana is subject to the supervision of, and
regular examination by, the FRB and the State of Montana. The FDIC insures
the deposits of FIBM's subsidiary banks to the current maximum of $100,000
per depositor.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking and Branching Act"), passed by Congress and signed into
law on September 29, 1994, significantly changed interstate banking rules.
Pursuant to the Interstate Banking and Branching Act, bank holding companies
are now able to acquire banks in states other than their home states,
regardless of applicable state law.
On March 20, 1997, Montana enacted legislation, effective July 1, 1997, which
authorizes de novo branching within the state by banks chartered under the
laws of the State of Montana. In the same legislation, Montana elected to
"opt out" of full interstate branching available under the Interstate Banking
and Branching Act, thereby precluding interstate branching in Montana until
October 1, 2001.
40
<PAGE>
FRB policy provides that a bank holding company is expected to act as a
source of financial strength to its subsidiary banks and to commit resources
to support each subsidiary bank in those circumstances where it might not do
so absent such policy.
FIBM is a legal entity separate and distinct from its subsidiaries. FIBM's
revenues (on a parent company basis) result in part from dividends of its
banking subsidiaries. Under Montana banking law, FIB Montana may not declare
dividends in any one calendar year in excess of its net earnings of the
preceding two years without giving notice to the Montana Commissioner of
Banking and Financial Institutions. Under Wyoming banking law, FIB Wyoming
may not, without the approval of the Wyoming Banking Commissioner, declare
dividends in any one calendar year in excess of its net profits in the
current year combined with retained net profits of the preceding two years,
less any required transfers to surplus or a fund for the retirement of any
preferred stock.
In addition, federal regulatory agencies (e.g., the FDIC, OCC, and FRB) have
authority to prohibit a bank under their supervision from engaging in
practices which, in the opinion of the federal regulatory agency, are unsafe,
unsound, or constitute violations of applicable law. Each federal regulatory
agency has established guidelines for the maintenance of appropriate levels
of capital for a bank under its supervision. Compliance with the standards
set forth in such guidelines could limit the amount of dividends that FIBM or
any of its subsidiaries could pay.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
among other things, requires federal banking regulators to take prompt
corrective action in respect to depository institutions that do not meet
minimum capital requirements. FDICIA establishes five capital tiers: "well
capitalized", "adequately capitalized", "undercapitalized", "significantly
undercapitalized", and "critically undercapitalized." A depository
institution is well capitalized if it significantly exceeds the minimum level
required by regulation for each relevant capital measure, adequately
capitalized if it meets each such measure, undercapitalized if it fails to
meet any such measure, significantly undercapitalized if it is significantly
below such measure, and critically undercapitalized if it fails to meet any
critical capital level set forth in regulations. A depository institution
may be deemed to be in a capitalization category that is lower than is
indicated by its actual capital position if it receives an unsatisfactory
examination rating. As of December 31, 1996, each of FIBM's banking
subsidiaries are included in the "well capitalized" capital tier.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee
to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
restrictions on borrowing from the Federal Reserve System. In addition,
undercapitalized depository institutions are subject to growth limitations
and are required to submit capital restoration plans. A depository
institution's holding company must guarantee the capital plan, up to an
amount equal to the lesser of 5% of the depository institution's total assets
at the time it becomes undercapitalized or the amount necessary to bring the
institution into compliance with all capital standards applicable to the
institution as of the time the institution fails to comply with its
restoration plan. Federal banking agencies may not accept a capital plan
without determining, among other things, that the plan is based on realistic
assumptions and is likely to succeed in restoring the depository
institution's capital. If a depository institution fails to submit an
acceptable plan, it is treated as if it is significantly undercapitalized.
Significantly undercapitalized depository institutions, or undercapitalized
institutions that either fail to submit an acceptable capital restoration
plan or to implement such plan, are subject to a number of requirements and
restrictions, including but not limited to an order to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets,
and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized depository institutions are subject to appointment of a
receiver or conservator. As of December 31, 1996, none of FIBM's banking
subsidiaries are deemed to be undercapitalized by the regulators.
41
<PAGE>
CAPITAL ADEQUACY
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. The minimum guidelines for the ratio of total capital
("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least
half of the Total Capital is to be composed of common stockholder's equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying perpetual preferred stock, less goodwill and other intangibles
required to be deducted by Federal Reserve regulations ("Tier 1 Capital").
The remainder may consist of subordinated debt, other preferred stock and a
limited amount of loan loss reserves.
In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a
minimum ratio of Tier 1 Capital to total assets ("Leverage Ratio") of 3% for
bank holding companies that meet certain specified criteria, including those
having the highest regulatory rating, well-diversified risk, excellent asset
quality, high liquidity, good earnings, and generally considered to be a
strong banking organization. All other bank holding companies generally are
required to maintain a Leverage Ratio of at least 3% plus an additional
cushion of 100 to 200 basis points. The guidelines also provide that bank
holding companies experiencing internal growth or making acquisitions will be
expected to maintain strong capital positions well above the minimum
supervisory levels without significant reliance on intangible assets.
Furthermore, the Federal Reserve Board has indicated that it will consider a
tangible Tier 1 Capital leverage ratio (deducting all intangibles) and other
indicators of capital strength in evaluating proposals for expansion or new
activities.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including the termination of deposit insurance by the
FDIC, and to certain restrictions on its business.
The Company's current consolidated capital ratio substantially exceeds the
current requirements under these capital guidelines as shown in the following
table:
"Adequately
Capitalized"
Regulatory
As of December 31, 1996 Standard Company
----------------------- ------------ -------
Risk-based capital ratios:
Tier 1 capital to risk-weighted assets 4.0% 7.35%
Total capital to risk-weighted assets 8.0% 9.98%
Leverage Ratio 3.0% 5.26%
There have been no material changes in the Company's capital position from
December 31, 1996 to June 30, 1997.
SUPPORT OF SUBSIDIARY BANKS
Under Federal Reserve Board policy, FIBM is expected to act as a source of
financial strength to, and to commit resources to support, its subsidiary
banks. This support may be required at times when, absent such Federal
Reserve Board policy, FIBM would not otherwise provide it.
FIRREA
As a result of the enactment of Section 206 of the Financial Institution
Reform, Recovery and Enforcement Act ("FIRREA") on August 9, 1989, a
depository institution insured by the FDIC can be held liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC after August
9, 1989 in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the
FDIC to any commonly controlled FDIC-insured depository institution in danger
of default. The phrase "in danger of default" is defined generally as the
existence of certain conditions indicating that a default is likely to occur
in the absence of regulatory assistance.
42
<PAGE>
FEDERAL INTERSTATE BANKING ACT
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 took
effect on September 29, 1995. The Act authorizes interstate banking and
branching, but allows states to "opt out" of interstate branching entirely. The
Act also provides caps limiting the total percentage of nationwide and statewide
deposits that may be maintained by any banking institution. Prior to passage of
the Act, approximately 45 states, including Montana and Wyoming, already had
laws in effect permitting some form of interstate banking. The Act is intended
to make the law on interstate banking more uniform and supporters of the
legislation predict that it will produce a more efficient banking system.
The Act is expected to prompt an increase in the number of bank mergers and
acquisitions as institutions expand across state lines, resulting in further
consolidation of the banking industry. While the legislation is expected to
produce more large banks and growth in the size of banks, which may produce some
competitive advantage, smaller community banks are expected to continue to
exist, although probably in reduced numbers. The effect of this legislation on
the Company and its business is difficult to assess. It is likely, however,
that the business environment in which the Company operates will become more
competitive as a result of this legislation.
MONTANA LEGISLATION
Effective March 20, 1997, the Montana Bank Act was amended by legislation
clarifying that state chartered banks may, with approval of the Commissioner of
Banking and Financial Institutions, engage in the same activities or business as
national banks, unless expressly prohibited by statute; removing a number of
geographical restrictions on the ability of banks located in this state to
establish and maintain branch banks in this state; eliminating a number of
restrictions on the consolidation and merger of state chartered banks;
authorizing the sale of branch banks within the state; authorizing the
acquisition of banks located in this state by a bank holding company
headquartered in another state, but subject to a statewide deposit cap of 22%;
and prohibiting banks located in Montana from merging with out-of-state banks
until October 1, 2001.
EMPLOYEES
The Company employed approximately 944 full time and 227 part-time employees
as of June 30, 1997. None of the Company's employees are represented by any
collective bargaining group. The Company provides a variety of employment
benefits and believes that its relationship with its employees is good.
PROPERTIES
FIBM's executive offices are located in the same building in Billings,
Montana, in which the home office of FIB Montana is located. The Billings
office of FIB Montana, which subleases space to FIBM as part of a master
lease, is the anchor tenant in the eighteen story building. FIB Montana is
the general partner in 2 partnerships which form a joint venture that owns
the building. In addition, FIB Montana leases the buildings in which the
West Billings, South Missoula and Gardiner branches are located.
FIBM's subsidiaries own twenty-four buildings in fourteen communities which are
used, in whole or in part, in their respective banking operations.
See also "Notes to Consolidated Financial Statements - Premises and Equipment"
and "Notes to Consolidated Financial Statements - Commitments and
Contingencies".
LEGAL PROCEEDINGS
In the normal course of their business, the Company's bank subsidiaries are
named or threatened to be named as defendants in various lawsuits. With respect
to each of these suits, it is the opinion of management, following consultation
with legal counsel, that the suits are without merit or in the event the
plaintiff prevails, the ultimate liability or disposition thereof will not have
a material adverse effect on the consolidated financial condition or results of
operations of the Company.
43
<PAGE>
MANAGEMENT
The directors and executive officers of FIBM are as follows:
<TABLE>
<CAPTION>
Date First
Elected
Name and Age Position Director/Officer
------------ -------- ----------------
<S> <C> <C>
DIRECTORS:
Homer A. Scott, Jr., 62 (1) Director and Chairman of the Board 1971
Dan S. Scott, 65(1) Director and Chairman of Compensation Committee 1971
James R. Scott, 47 (1) Director, Vice Chairman of the Board and
Chairman of Audit Committee 1971
Randy Scott, 43 Director 1993
Susan Scott Heyneman, 58 Director 1994
Joel Long, 56 (1) Director 1996
DIRECTORS AND EXECUTIVE OFFICERS:
Thomas W. Scott, 53 Director, President and Chief Executive Officer 1971
William H. Ruegamer, 52 Director, Chief Operating Officer and
Executive Vice President 1988
EXECUTIVE OFFICERS:
William G. Wilson, 57 Senior Vice President 1983
Terrill R. Moore, 44 Senior Vice President, Chief Financial Officer
and Secretary 1989
Edward Garding, 47 Senior Vice President, Branch Administration Officer 1996
(1) Member of compensation committee.
</TABLE>
All of the directors listed above will hold office until the next annual meeting
of shareholders, or until their successors are duly elected and qualified. All
of the officers listed will hold office until successors are appointed by the
Board of Directors. There are no arrangements or understandings between any of
the directors or officers or any other persons, pursuant to which any of the
above directors have been selected as directors, or officers have been selected
as officers, except for Randall I. Scott. The third generation of the Scott
Family recommended that Randall I. Scott be elected to the Board of Directors to
be their representative for their ownership interests.
The business of FIBM is conducted through meetings of the Board of Directors.
During the fiscal year ended December 31, 1996, the Board of Directors held 6
regular meetings and 3 special meetings and none of the existing directors
attended fewer than 80% of the total meetings, except Susan Scott Heyneman and
James R. Scott each attended 7 of the 9 board meetings (78%) in 1996.
Director Dan S. Scott is Chairman of the Compensation Committee. The
Compensation Committee meets in such capacity periodically to review the
performance of the Company's officers and to determine compensation programs and
adjustments for all employees. The Compensation Committee met formally once in
1996, and several compensation committee agenda items were dealt with in board
meetings as a matter of convenience.
Director James R. Scott is Chairman of the Audit Committee of the Company. The
Audit Committee reviews the records and affairs of the Company to determine
their financial condition, reviews with management and the independent auditors
the systems of internal control, and monitors the subsidiaries' adherence in
accounting and financial reporting to generally accepted accounting principles.
The Audit Committee of FIBM met once in 1996.
Terrill R. Moore is Chairman of the Audit Committee of the Company's Wyoming
subsidiaries. This Audit Committee met formally once in 1996.
44
<PAGE>
During the past five years, the business experience of each of the directors and
executive officers has been as follows:
HOMER A. SCOTT, JR. Has been a director of FIBM since 1971, and is currently
Chairman of the Board. Mr. Scott has also been a director and chairman of
the Board of FIB Wyoming since June 1976. Mr. Scott is also a director of
the Board of FIB Montana, and First Interstate, fsb.
THOMAS W. SCOTT Has been a director of FIBM since 1971. Mr. Scott serves as
President and Chief Executive Officer of FIBM, and has held the office of
President for more than five years. Currently Mr. Scott is also a director
of FIB Wyoming and CFI, and Chairman of the Board of FIB Montana, and First
Interstate, fsb.
JAMES R. SCOTT Has been a director of FIBM since 1971. Mr. Scott has been Vice
Chairman of the Board since January 1990. Currently Mr. Scott is also a
director of FIB Montana. Mr. Scott is President of the First Interstate Bank
Foundation.
DAN S. SCOTT Has been a director of FIBM since 1971. Currently Mr. Scott is
also a director of FIB Wyoming and FIB Montana. Mr. Scott has also been a
rancher for more than five years.
WILLIAM H. RUEGAMER Is the Executive Vice President and Chief Operating
Officer of FIBM. He has served as a director of FIBM since June 1988, and of
CFI since February 1993. Mr. Ruegamer has had 10 years of experience with
the OCC and has held various executive positions with the Company's
subsidiaries. He is a director of FIB Wyoming and is a director and
President of FIB Montana. Mr. Ruegamer is a director and executive vice
president of First Interstate, fsb.
SUSAN SCOTT HEYNEMAN Was elected to be a director of FIBM in March 1994. Ms.
Heyneman served previously as a director of FIBM, having resigned in 1989 to
pursue personal interests. Ms. Heyneman has continued to serve as a director of
FIB Montana for more than five years. With her husband, Ms. Heyneman has been
in ranching for more than five years.
RANDY SCOTT Has been a director of FIBM since August 1993. Mr. Scott was a
trust officer of FIB Montana's trust division from 1991 until 1996. From
1985 until 1991, Mr. Scott was an officer of FIBM's audit department. In
total, Mr. Scott was employed by FIBM or a subsidiary thereof for nineteen
years.
JOEL LONG Is a resident of Sheridan, Wyoming and is President of JTL Group,
Inc., a construction firm doing business in Montana and Wyoming. Mr. Long is a
past director of First Interstate Bank-West Billings and First Interstate
Bank-Billings.
WILLIAM G. WILSON Has been a Senior Vice President of FIBM since 1983. He
was also Chief Financial Officer of FIBM until November 1989. Mr. Wilson was
formerly a Vice President from 1973 to 1979 and a Senior Vice President from
1979 to 1983 of the Billings office of FIB Montana. Since December 1992 he
has been Senior Vice President, Cashier, and Secretary of FIB Montana.
TERRILL R. MOORE Has been a Senior Vice President, the Chief Financial
Officer and Secretary of FIBM since November 1989. In addition, he is a
director, senior vice president, and controller of FIB Wyoming. Since
December 1992 he has been Senior Vice President and Chief Financial Officer
of FIB Montana. Mr. Moore is a director of, and holds various officer
positions with, CFI, and First Interstate, fsb.
EDWARD GARDING Is a Senior Vice President of FIBM. He is also President of
FIB Wyoming and a senior vice president of FIB Montana, and First Interstate,
fsb. Mr. Garding has been in banking for the past 25 years. He is past
president of the Wyoming Bankers Association and is currently the Chairman of
their Government Relations Committee. He also serves on the board of the
Pacific Coast Banking School at the University of Washington, and he is the
past president of the Sheridan College Foundation. Mr. Garding is a director
of FIB Wyoming and FIB Montana.
Many of the directors and officers of FIBM are related. Homer A. Scott, Jr.,
Thomas W. Scott, Dan S. Scott, Susan Scott Heyneman and James R. Scott are
siblings. Randy Scott is a son of Dan S. Scott.
45
<PAGE>
EXECUTIVE AND DIRECTOR COMPENSATION
The following table sets forth for the three fiscal years ended December 31,
1996, certain information as to the cash compensation received by each executive
officer and director of FIBM listed above who received total cash compensation
in excess of $100,000 and by all executive officers of FIBM as a group for
services in all capacities of FIBM and its subsidiaries.
Summary Compensation Table
--------------------------
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
----------------------------------- ----------------------------------------------------
Other Restricted Long-Term All
Name and Annual Stock Options/ Incentive Other
Principal Position Year Salary Bonus Compensation(1) Awards ($) SARS (#) Payouts ($) Compensation
- ------------------ ---- ------ ----- -------------- ---------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Directors:
Homer A. Scott, Jr. 1996 $ 99,000 $ 15,000 $ 1,736 $ - - $ - $ -
Chairman 1995 - 99,000 - 4,000 - 1,575 - - - -
1994 125,000 10,000 1,500 - - - -
James R. Scott 1996 $ 102,250 $ 15,000 $ 7,200 $ - - $ - $ -
Vice Chairman 1995 102,250 10,000 - - - - -
& Chairman of 1994 102,250 10,000 - - - - -
Audit Committee
Directors and Executive Officers:
Thomas W. Scott 1996 $ 206,000 $ 75,000 $ 7,200 $ - - $ - $ -
President & CEO 1995 200,000 63,000 7,200 - - - -
1994 194,000 60,000 7,200 - - - -
William H. Ruegamer 1996 $ 190,000 $ 66,500 $ 199 $ - 350/350 $ - $ -
Executive Vice 1995 184,000 58,000 699 - 350/350 - -
President & COO 1994 173,500 55,000 167 - 300/225 - -
Executive Officers:
William G. Wilson 1996 $ 102,000 $ 39,580 $ 7,200 $ - 150/150 $ - $ -
Senior Vice 1995 99,000 27,720 7,200 - 200/200 - -
President 1994 95,500 25,785 7,200 - 200/150 - -
Terrill R. Moore 1996 $ 86,684 $ 35,184 $ 7,200 $ - 200/200 $ - $ -
Senior Vice 1995 80,800 22,624 7,200 - 200/200 - -
President & CFO 1994 77,800 21,006 7,200 - 200/150 - -
Edward Garding (3) 1996 $ 106,730 $ 30,000 $ 20,860 $ - 200/200 $ - $ -
Senior Vice 1995 NA NA NA NA NA NA NA
President 1994 NA NA NA NA NA NA NA
All executive Officers
as a Group (5 persons)(2) 1996 $ 691,414 $ 246,264 $ 42,659 $ - 900/900 $ - $ -
1995 563,800 171,344 22,299 - 750/750 - -
1994 540,800 161,791 21,767 - 700/525 - -
</TABLE>
(1) The amount included under Other Annual Compensation principally
relates to an auto allowance, or the value of personal usage of a
company owned vehicle, except that Edward Garding received
reimbursement of moving and related expenses aggregating $13,660 in
1996.
(2) FIBM has five executive officers (4 executive officers prior to 1996).
(3) Not an executive officer of FIBM prior to 1996.
BOARD FEES. Inside directors do not receive separate fees for their services.
The compensation of their services is included in the salary and bonus amount
shown in the above table. Outside directors, presently only Joel Long, receive
a $400 monthly retainer, $500 per board meeting attended plus $250 for each
attended committee meeting.
46
<PAGE>
HEALTH AND LIFE INSURANCE. The Company currently provides all full time
employees (30 or more hours per week) with health and dental insurance coverage,
as well as life insurance (up to two and one half times salary) and disability
insurance benefits at no cost to them. The contributions to the plan on behalf
of Homer A. Scott, Jr., James R. Scott, Thomas W. Scott, William H. Ruegamer,
William G. Wilson, Terrill R. Moore, Edward Garding, and all executive officers
as a group, were $3,465, $3,216, $3,307, $2,687, $2,687, $3,131, $2,870 and
$14,682, respectively, for the fiscal year ended December 31, 1996.
SURVIVOR INCOME BENEFIT. The Company has entered into Survivor Income Agreements
with certain executive employees to encourage the executives to remain employees
of the Company. Under the Agreements, designated beneficiaries are entitled to
receive a survivor income benefit if the Company owns a life insurance policy on
the executive's life and if the executive dies before otherwise terminating
employment with the Company. Pursuant to the Agreements and Addenda thereto, if
the executive voluntarily terminates employment after age sixty (60), the
agreement may convert to a split dollar insurance agreement whereby the
designated beneficiary is entitled to the death proceeds of the life insurance
policy less the cash surrender value of the policy on the day before death. The
Company has this type of Agreement with William H. Ruegamer, William G. Wilson,
and Edward Garding as well as selected other executive officers.
PROFIT SHARING PLAN. The Company has a noncontributory qualified profit sharing
plan. To be eligible to participate, an employee must complete one year of
employment and 1,000 hours or more of service. Contributions are determined by
the FIBM Board of Directors, but are not to exceed, on an individual basis, the
lesser of 25% of compensation or $30,000. There is immediate 100% vesting. The
contributions to the plan on behalf of Homer A. Scott, Jr., James R. Scott,
Thomas W. Scott, William H. Ruegamer, William G. Wilson, Terrill R. Moore,
Edward Garding, and all executive officers as a group, were $4,896, $5,056,
$10,187, $9,396, $5,044, $4,272, $5,227 and $34,126, respectively, for the
fiscal year ended December 31, 1996. Total contributions to this plan for all
participating employees were $839,360, $685,435, and $620,261 in 1996, 1995 and
1994, respectively.
EMPLOYEE SAVINGS PLAN. The Company has a contributory qualified employee
savings plan (401(k)). Eligibility requirements for this plan are the same as
those for the profit sharing plan as discussed in the preceding paragraph.
Employee participation in the plan is at the option of the employee. FIBM and
its subsidiaries are required to match $1.25 for every $1.00 of employee
contributions up to 4% of participating employee's compensation. There is
immediate 100% vesting. The contributions to the plan on behalf of Homer A.
Scott, Jr., James R. Scott, Thomas W. Scott, William H. Ruegamer, William G.
Wilson, Terrill R. Moore, Edward Garding, and all executive officers as a group,
were $4,696, $5,112, $9,508, $9,500, $4,813, $5,337, $4,334 and $33,492,
respectively, for the year ended December 31, 1996. Total contributions to this
plan for all participating employees were $814,165 in 1996, $703,128 in 1995 and
$647,565 in 1994.
PRE-TAX SPENDING PLAN. Full time employees of the Company are eligible to
participate in the qualified pre-tax spending plan. The pre-tax spending plan
allows employees to pay for dependent health insurance premiums, unreimbursed
medical and/or dependent child care expenses with before-tax dollars rather than
with after-tax dollars.
RESTRICTED STOCK AWARDS PLAN. There were no unvested shares issued and
outstanding under the plan at December 31, 1996 or December 31, 1995.
STOCK OPTION AND STOCK APPRECIATION RIGHTS PLAN. The Company has a
non-qualified Stock Option and Stock Appreciation Rights Plan ("Plan") for key
senior officers of the Company. The Plan provides for the granting of stock
options and stock appreciation rights of FIBM's common stock at a value at the
time the options are granted of not less than the existing value of stock at the
date of the grant. Each option granted under the Plan may be exercised within a
period of ten years from the date of grant. The Plan provides for the granting
of stock appreciation rights in tandem with stock options. The Plan allows the
holder to surrender an exercisable stock option in exchange for cash or shares
of common stock in an amount equal to the appraised minority value of covered
shares over the option price of such shares.
47
<PAGE>
The stock options and stock appreciation rights granted to Executive Officers in
1996 are shown in the following table:
Option/SAR Grants in 1996
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
------------------------------------------------ Value at
Assumed Annual
Number of % of Total Rates of Stock
Securities Options/SARs Price Appreciation
Underlying Granted to Exercise for Option Term
Options/SARS Employees Price Expiration ---------------------
Name Granted (#) in 1996 ($/sh) Date 5% ($) 10% ($)
---- ----------- ----------- ------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Thomas W. Scott - - $ - - $ - $ -
William H. Ruegamer 350/350 8.43% 71.42 1/16/06 31,441 79,678
William G. Wilson 150/150 3.61% 71.42 1/16/06 13,475 34,148
Terrill R. Moore 200/200 4.82% 71.42 1/16/06 17,966 45,530
Edward Garding 200/200 4.82% 71.42 1/16/06 17,966 45,530
</TABLE>
The following table indicates the number and value of FIBM Stock Options and
Stock Appreciation Rights exercised in 1996 and the number and value of
unexercised FIBM Stock Options and Stock Appreciation Rights as of December 31,
1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money
Shares Options/SARS at Options/SARS at
Acquired Value December 31, 1996 December 31, 1996 ($)
Name on Exercise(#) Realized ($) All Exercisable All Exercisable
---- -------------- ------------ --------------------- ------------------
<S> <C> <C> <C> <C>
Thomas W. Scott - $ - - $ -
William H. Ruegamer 806 75,095 2,872/1,861 195,311
William G. Wilson 152 11,906 1,300/875 79,679
Terrill R. Moore 472 43,976 1,869/1,184.5 127,912
Edward Garding 426 39,690 2,035/1,267.5 144,362
</TABLE>
OTHER AWARDS OR ARRANGEMENTS. There were no Long-Term Incentive Plan awards
granted nor any repricing of Stock Options and Stock Appreciation Rights in
1996. FIBM has no employment contracts and no compensatory plans or
arrangements relating to termination of employment or change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. Homer A. Scott,
Jr., Dan S. Scott, James R. Scott and Joel Long serve on the Compensation
Committee. Therefore, all Committee members except Joel Long were officers or
employees receiving compensation from FIBM for services rendered. Homer A.
Scott, Jr. and James R. Scott were formerly officers of FIBM.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. The Compensation
Committee establishes the general compensation policies of FIBM and its
Subsidiaries, establishes the compensation plans and specific compensation
levels for executive officers, and administers the Annual Bonus Plan, Restricted
Stock Awards Plan and Stock Option and Stock Appreciation Rights Plan.
As required by recently adopted rules designated to enhance the disclosure of
FIBM's executive compensation policies and practices, the following is the
Compensation Committee's report submitted to the Board of Directors addressing
the compensation of FIBM and its Subsidiaries' executive officers for 1996.
48
<PAGE>
COMPENSATION POLICY
FIBM's executive compensation policy is designed to establish an appropriate
relationship between executive pay and FIBM's annual performance, its long-term
growth objectives and its ability to attract and retain qualified executive
officers. The Compensation Committee attempts to achieve these goals by
integrating competitive annual base salaries with (a) bonuses based on corporate
performance and on the achievement of specified performance objectives and (b)
key officer options through the Stock Option Plan. The Compensation Committee
believes that cash compensation in the form of salary and bonus provides company
executives with short term rewards for success in operations, and that long term
compensation through the award of stock options encourages growth in management
stock ownership which leads to expansion of management's stake in the long term
performance and success of FIBM.
BASE SALARY. For 1996, the Compensation Committee approved the base salary of
the executive officers. In determining the base salary of each of the executive
officers, the company relied on three industry surveys of salaries paid to
executive officers of financial institutions with comparable asset size and
similar operating regions to that of FIBM. The Compensation Committee set the
base salaries of FIBM and its Subsidiaries' executive officers within a
reasonable range of those salaries reflected in the surveys. In 1996, executive
officers generally received raises in their base salary, with the largest raise
of $6,000 going to the Chief Operating Officer, William H. Ruegamer. Raises in
base salary reflected an inflationary increase combined with improved corporate
performance and profitability in 1995.
BONUSES. Annual incentives for the CEO and other executive officers are
intended to reflect FIBM's belief that management's contribution to stockholder
returns (via increasing return on equity and return on assets) comes from
maximizing earnings and the quality of these earnings. Awards are based on the
attainment of specified performance objectives, and the bonus amount is
determined as a percentage of the recipient's base salary. For 1996, the CEO
and other executive officers were assigned bonus amounts ranging from 28.1% to
38.8% of the base salaries paid to such persons. The varying percentages
reflect the Committee's belief that, as an executive officer's duties and
responsibilities in the company increase, the officer will be increasingly
responsible for the performance of FIBM. Accordingly, a larger portion of the
officer's compensation should be incentive compensation. Actual bonuses payable
depend on the level of achievement of specified performance objectives. For
1996, the performance objective necessary to achieve a bonus was attainment of
specified return on stockholders' equity. During 1996, the specified
performance objectives were attained and exceeded, and therefore the CEO
received the largest bonus of $75,000 (36.4%). The largest bonus as a
percentage of base salary was paid to the CFO (38.8%). Increases in bonuses
reflect the continued improved corporate performance in 1996 and completion of
significant acquisitions.
STOCK OPTIONS. In January 1996, the executive officers as well as certain other
officers of FIBM and its subsidiaries, excluding the CEO and all other Scott
Family members, were each granted options under FIBM's Stock Option Plan to
purchase a specified number of shares of FIBM common stock. The number of
shares that each officer was granted an option to purchase was in turn based
primarily on the individual's ability to influence the company's long term
growth and profitability as well as the number of options previously granted.
The Compensation Committee believes that stock option grants afford a desirable
long term compensation method because they closely ally the interests of
management with stockholder value and the grants of stock options are the best
way to link directly the financial interests of management with those of
stockholders. Options granted are immediately exercisable but must be exercised
within ten years after the date of the grant.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that the compensation of the CEO should be
heavily influenced by the performance of FIBM. Therefore, although there is
necessarily some subjectivity in setting the CEO's salary, a major element of
the compensation package is directly tied to FIBM performance. In 1996, the
annual base salary of Thomas W. Scott, FIBM's CEO, was raised from $200,000 to
$206,000. Such increase was determined to be appropriate by the Compensation
Committee based on comparable chief executive salaries, as set forth in surveys
reviewed by FIBM, and improvements in the Company's performance and
profitability in 1995. The performance targets of FIBM were attained and
exceeded in 1996 and therefore the Compensation Committee awarded a bonus of
$75,000, or 36.4% of annual base compensation. Thomas W. Scott did not
participate in the decisions of the Compensation Committee with respect to the
salary and bonus paid to him in 1996.
49
<PAGE>
INDEMNIFICATION
Officers and directors of FIBM are entitled to indemnification under the
Montana Business Corporation Act and pursuant to a Resolution of the Board of
Directors dated January 12, 1987. A summary of the indemnification provision
follows:
Pursuant to a Resolution of the Board of Directors dated January 12, 1987, and
under the authority of Section 35-1-414 of the Montana Business Corporation Act,
The Company shall indemnify each director and officer of the Company (including
former officers and directors) and each agent of the Company serving as a
director or officer of a subsidiary bank of the Company, serving at the specific
direction or request of the Company (but only to the extent that such director,
officer or agent is not indemnified by the subsidiary bank or by insurance
provided by the Company) against judgments, penalties, fines, settlements and
reasonable expenses actually and reasonably paid by such director, officer or
agent by reason of the fact that he or she is or was a director or officer of
the Company or such subsidiary bank, to the extent provided by and subject to
the limitations of the Montana Business Corporation Act.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provision, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is
therefore unenforceable.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The directors and executive officers of the Company (11 persons) beneficially
owned as of July 31, 1997, 1,269,355 shares directly or indirectly, or 63.79%
percent, of the Company Stock, excluding any options outstanding but
unexercised. The Scott Family owns 83.21 percent of the Company Stock, and
all but two directors of the Company are Scott Family members. The Scott
Family has owned a controlling interest in the common stock of FIBM since its
incorporation in 1971.
The following table sets forth as of July 31, 1997, the number of shares of
Company Stock owned of record or beneficially (including stock held in the
Savings Plan for the benefit of the shareholder) by each person who owned of
record, or to the knowledge of the Company, beneficially more than 5 percent of
the common stock of the Company or is a Scott Family member, and the number of
shares beneficially owned by all directors and executive officers of the Company
individually and as a group.
<TABLE>
<CAPTION>
Name and Address Number of FIBM % of FIBM
of Beneficial Owner Shares Outstanding Shares Outstanding
------------------- ------------------ ------------------
<S> <C> <C>
James R. Scott 189,975 9.55
439 Grandview Blvd.
Billings, Montana 59102
Managing partner, J.S. Investments
Limited Partnership (2) 140,017 7.04
Trustee for John M. Heyneman, Jr. 6,247 0.31
Trustee for Thomas Scott Heyneman 6,247 0.31
-------- -------
342,486 17.21
Dan Scott 46,267 2.32
P.O. Box 65
Ranchester, Wyoming 82839
Managing partner, Nbar5 A (2) 12,240 0.62
Managing partner, Nbar5 O (2) 10,363 0.52
Managing partner, Nbar5 K (2) 9,425 0.47
Managing partner, Nbar5 S (2) 8,486 0.43
Managing partner, Nbar5 T (2) 8,486 0.43
-------- -------
95,267 4.79
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of FIBM % of FIBM
of Beneficial Owner Shares Outstanding Shares Outstanding
------------------- ------------------ ------------------
<S> <C> <C>
Homer Scott, Jr. 200,968 10.10
122 Scott Drive
Sheridan, Wyoming 82801
Trustee for Riki Rae Scott Davidson 22,204 1.12
Trustee for Risa Kae Scott Brown 18,819 0.94
Trustee for Rae Ann Scott Morse 22,206 1.12
-------- -------
264,197 13.28
Thomas W. Scott 195,149 9.81
P.O. Box 30876
Billings, Montana 59107
Susan Scott Heyneman 61,704 3.10
Bench Ranch
Fishtail, Montana 59028
FIB Montana
P.O. Box 30918
Billings, Montana 59116
Trustee for Jonathan R. Scott 55,590 2.79
Trustee for Julie Anne Scott 57,334 2.88
Trustee for James F. Heyneman 8,800 0.44
Trustee for James R. Scott, Jr. 655 0.03
-------- -------
122,379 6.14
Jeanne I. Scott 5,402 0.27
P.O. Box 65
Ranchester, Wyoming 82839
Susan Elizabeth Scott 32,506 1.63
1241 Trojan
Casper, Wyoming 82609
James Marshall Scott 28,362 1.43
53-025 Avenida Obregon
LaQuinta, California 92253
Homer Rollins Scott 30,576 1.54
3536 Tradition Drive
Ft. Collins, Colorado 80526
Randy Scott 10,149 0.51
521 Freedom Avenue
Billings, Montana 59105
Managing partner, NBar5 Limited
Partnership (2) 279,948 14.07
-------- -------
290,097 14.58
Lynette E. Scott 7,000 0.35
521 Freedom Avenue
Billings, Montana 59105
Ronald Noel Scott 22,842 1.15
P.O. Box 65
Ranchester, Wyoming 82839
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of FIBM % of FIBM
of Beneficial Owner Shares Outstanding Shares Outstanding
------------------- ------------------ ------------------
<S> <C> <C>
John M. Heyneman 9,251 0.46
Bench Ranch
Fishtail, Montana 59028
Managing partner, Towanda Investments
Limited Partnership (2) 80,765 4.06
-------- -------
90,016 4.52
Charles Matthew Heyneman 7,756 0.39
1817 Patricia Lane
Billings, Montana 59102
Alexander Paul Heyneman 7,697 0.39
2517 Beth Drive
Billings, Montana 59102
Trustee for Alexander Paul Heyneman, Jr. 320 0.02
-------- -------
8,017 0.41
Sandra Arlene Scott Suzor 22,447 1.13
2943 Silver Plume
Ft. Collins, Colorado 80526
FIB Wyoming
P.O. Box 2007
Sheridan, Wyoming 82801
Trustee for Homer A. Scott, Jr. 14,117 0.71
Trustee for Sarah E. Scott Suzor 5,580 0.28
Trustee for Samuel Moise Suzor 3,255 0.16
Trustee for Brekken Arlene Baker 1,004 0.05
Trustee for Baylee Mae Baker 983 0.05
-------- -------
24,939 1.25
Janet E. Scott 2,752 0.14
122 Scott Drive
Sheridan, Wyoming 82801
Christine M. Scott
430 Grandview Blvd.
Billings, Montana 59102
Trustee for Courtney L. Scott 655 0.03
Trustee for Dana A. Scott 655 0.03
-------- -------
1,310 0.06
Thomas S. Heyneman 100 0.01
106-F Branegan Court
Bozeman, Montana 59705
Custodian for Jacob Ryan Heyneman 320 0.02
-------- -------
420 0.03
Joan Scott 288 0.01
P.O. Box 30876
Billings, Montana 59107
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Name and Address Number of FIBM % of FIBM
of Beneficial Owner Shares Outstanding Shares Outstanding
------------------- ------------------ ------------------
<S> <C> <C>
Scott Family shares outstanding 1,655,912 83.21
--------- -------
Minority shares (other than Scott Family)
outstanding 334,040 16.79
--------- -------
Totals 1,989,952 100.00%
--------- -------
--------- -------
Directors and executive officers:
James R. Scott 342,486 17.21%
Dan S. Scott 95,267 4.79
Homer Scott, Jr. 264,197 13.28
Thomas W. Scott 195,149 9.81
Susan Scott Heyneman 61,704 3.10
Randy Scott 290,097 14.58
William H. Ruegamer 7,478 0.38
William G. Wilson 6,141 0.31
Edward Garding 3,022 0.15
Terrill R. Moore 2,579 0.13
Joel Long 1,235 0.06
--------- -------
As a Group (11 persons) 1,269,355 63.79%
--------- -------
--------- -------
</TABLE>
(1) Shares held in trust with a bank and an individual listed as joint
trustees are listed under the name of the individual.
(2) As a part of overall estate and family succession planning, certain
Scott Family members have formed partnerships to hold FIBM stock. The
Scott Family as a group will continue to control, directly or
indirectly, the same number of shares of FIBM stock; however, each
partnership will be a specific shareholder.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FIBM and its subsidiaries have had, and expect to have in the future, banking
transactions in the ordinary course of business with related parties, including
business with directors, officers, shareholders and their associates, on the
same terms, including interest rates and collateral on loans, as those
prevailing at the same time for comparable transactions with others. Such
transactions include correspondent banking relationships with affiliated banks,
and data processing servicing for affiliated banks, in addition to other
customary banking services. To the extent that such transactions consisted of
extensions of credit to Company executive officers and directors and to the
Scott Family, they were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons, and did
not involve more than a normal risk of collectibility or present other
unfavorable features. Loans to FIBM's executive officers, directors and their
related interests represent approximately 6% of the Company's shareholders'
equity as of December 31, 1996. Loans to executive officers, directors and
related interests of officers and directors of FIBM and its subsidiaries
represent approximately 8% of the Company's shareholders' equity as of December
31, 1996.
In January 1996, 19,706 shares of the Company's capital stock were sold by the
Scott Family to 287 individual participants in the Company's 401(k) Savings
Plan. The total cash price was $1,407,403.
In July, 1996, 16,042 shares of the Company's capital stock were sold to 353
individual participants in the Company's 401(k) Savings Plan. The total cash
price was $1,262,471. Further, in July, 1996, 25,070 shares of the Company's
capital stock were sold to certain officers, directors, and employees, including
certain advisory directors and executive officers, for an aggregate cash price
of $1,922,618.
53
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the common stock being offered herein
will be passed upon for the Company by Crowley, Haughey, Hanson, Toole &
Dietrich, 490 North 31st Street, Billings, Montana 59101.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996 and
1995, and for each of the years in the three-year period ended December 31, 1996
included in this Registration Statement-Prospectus have been included herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, which appears elsewhere herein and in the Registration Statement-
Prospectus, and upon the authority of said firm as experts in accounting and
auditing.
The report of KPMG Peat Marwick LLP covering the December 31, 1996 and 1995
consolidated financial statements contains an explanatory paragraph that states
the Company changed its method of accounting for investment securities to adopt
the provisions of the Financial Accounting Standards Board's Statement on
Financial Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN
DEBT AND EQUITY SECURITIES, at January 1, 1994.
The offering price of the Company stock offered in this Prospectus has been
included herein in reliance upon the written appraisal of Alex Sheshunoff & Co.
Investment Banking attached as Exhibit B, and upon the authority of said firm as
experts in analysis of the banking business, including valuation of banks and
bank holding companies.
54
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors'. . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 . . . . . . . . F-2
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . F-6
Consolidated Balance Sheets as of June 30, 1997 (unaudited)
and December 31, 1996. . . . . . . . . . . . . . . . . . . . . . . . . . .F-28
Consolidated Statements of Income (unaudited) for the Three Months Ended
June 30, 1997 and 1996, and Six Months Ended June 30, 1997 and 1996. . . .F-29
Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended
June 30, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Notes to Unaudited Consolidated Financial Statements . . . . . . . . . . . .F-31
55
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Interstate BancSystem of Montana, Inc.:
We have audited the accompanying consolidated balance sheets of First
Interstate BancSystem of Montana, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Interstate BancSystem of Montana, Inc. and subsidiaries at December 31, 1996
and 1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996 in conformity
with generally accepted accounting principles.
As discussed in note 1, the Company changed its method of accounting for
investment securities to adopt the provisions of the Financial Accounting
Standards Board's Statement on Financial Accounting Standards No. 115,
ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES, effective
January 1, 1994.
/s/ KPMG Peat Marwick LLP
Billings, Montana
March 21, 1997
F-1
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
- ---------------------------------------------------------------------
December 31, 1996 1995
- ---------------------------------------------------------------------
ASSETS
Cash and due from banks $ 160,962 98,622
Federal funds sold 4,945 44,420
Interest-bearing deposits in banks 6,545 23,040
Investment securities:
Available-for-sale 124,502 65,790
Held-to-maturity 279,069 192,947
- ---------------------------------------------------------------------
403,571 258,737
- ---------------------------------------------------------------------
Loans 1,375,479 870,378
Less allowance for loan losses 27,797 15,171
- ---------------------------------------------------------------------
Net loans 1,347,682 855,207
- ---------------------------------------------------------------------
Premises and equipment, net 58,183 32,540
Accrued interest receivable 19,573 14,344
Goodwill and other intangibles,
net of accumulated amortization
of $5,971 in 1996 and $4,594 in 1995 39,010 10,221
Other real estate owned, net 1,546 1,349
Deferred tax asset 4,921 4,432
Other assets 16,899 8,303
- ---------------------------------------------------------------------
$2,063,837 1,351,215
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 385,371 230,136
Interest bearing 1,294,053 868,933
- ---------------------------------------------------------------------
Total deposits 1,679,424 1,099,069
- ---------------------------------------------------------------------
Federal funds purchased 13,450 3,125
Securities sold under repurchase agreements 129,137 104,898
Accounts payable and accrued expenses 18,027 13,396
Other borrowed funds 13,071 5,494
Long-term debt 64,667 15,867
- ---------------------------------------------------------------------
Total liabilities 1,917,776 1,241,849
- ---------------------------------------------------------------------
Stockholders' equity:
Non-voting noncumulative 8.53% preferred
stock without par value; authorized
100,000 shares; issued and outstanding
20,000 shares in 1996 20,000 -
Common stock without par value; authorized
5,000,000 shares; issued and outstanding
1,978,268 shares in 1996 and 1,947,760
shares in 1995 8,941 6,692
Retained earnings 116,613 102,281
Unrealized holding gain on investment
securities available-for-sale, net 507 393
- ---------------------------------------------------------------------
Total stockholders' equity 146,061 109,366
- ---------------------------------------------------------------------
$2,063,837 1,351,215
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Book value per common share $ 63.72 56.15
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-2
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
- -----------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------
Interest income:
Interest and fees on loans $ 99,882 83,577 65,778
Interest and dividends on
investment securities:
Taxable 15,343 12,147 12,790
Exempt from Federal taxes 982 783 331
Interest on deposits with banks 376 368 35
Interest on Federal funds sold 1,342 2,095 1,296
- -------------------------------------------------------------------------------
Total interest income 117,925 98,970 80,230
- -------------------------------------------------------------------------------
Interest expense:
Interest on deposits 42,122 35,898 25,246
Interest on Federal funds purchased 1,043 1,008 690
Interest on securities sold under
repurchase agreements 4,508 3,560 1,814
Interest on other borrowed funds 318 298 187
Interest on long-term debt 2,028 1,182 514
- -------------------------------------------------------------------------------
Total interest expense 50,019 41,946 28,451
- -------------------------------------------------------------------------------
Net interest income 67,906 57,024 51,779
Provision for loan losses 3,844 1,629 1,344
- -------------------------------------------------------------------------------
Net interest income after
provision for
loan losses 64,062 55,395 50,435
Other operating income:
Income from fiduciary activities 3,161 2,619 2,542
Service charges on deposit accounts 7,752 6,532 5,883
Data processing 7,324 6,196 4,746
Other service charges,
commissions, and fees 2,857 2,535 2,268
Investment securities gains
(losses), net 18 (6) 69
Other income 2,815 888 879
- -------------------------------------------------------------------------------
Total other operating income 23,927 18,764 16,387
- -------------------------------------------------------------------------------
Other operating expenses:
Salaries and wages 21,789 18,917 16,565
Employee benefits 5,742 4,777 4,614
Occupancy, net 4,505 3,916 3,546
Furniture and equipment 6,249 5,244 4,558
Other real estate expense (income), net (214) (586) (457)
FDIC insurance 5 1,127 2,008
Other expenses 15,319 12,583 10,393
- -------------------------------------------------------------------------------
Total other operating expenses 53,395 45,978 41,227
- -------------------------------------------------------------------------------
Income before income taxes 34,594 28,181 25,595
Income tax expense 13,351 10,844 9,861
- -------------------------------------------------------------------------------
Net income $ 21,243 17,337 15,734
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net income applicable to common stock $ 20,818 17,337 15,734
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Net income per common share $ 10.57 8.84 8.02
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Weighted average common shares outstanding 1,970,256 1,960,911 1,962,547
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized Total
Preferred Common Retained holding gains stockholders'
stock stock earnings (losses), net equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ - 8,119 76,044 - 84,163
Effect of change in accounting
for investment securities
January 1, 1994 - - - 122 122
Common stock transactions:
17,483 shares retired - (950) - - (950)
7,014 shares issued - 362 - - 362
Cash dividends declared ($1.58 per
common share) - - (3,101) - (3,101)
Increase in unrealized loss on
available-for-sale
investment securities, net - - - (1,058) (1,058)
Net income - - 15,734 - 15,734
- --------------------------------------------------------------------------------------------
Balance at December 31, 1994 - 7,531 88,677 (936) 95,272
Common stock transactions:
18,131 shares retired - (1,197) - - (1,197)
6,727 shares issued - 358 - - 358
Cash dividends declared ($1.91
per common share) - - (3,733) - (3,733)
Increase in unrealized gains on
available-for-sale
investment securities, net - - - 1,329 1,329
Net income - - 17,337 - 17,337
- --------------------------------------------------------------------------------------------
Balance at December 31, 1995 - 6,692 102,281 393 109,366
Preferred stock issuance:
20,000 shares issued 20,000 - - - 20,000
Preferred stock issuance costs - - (458) - (458)
Common stock transactions:
16,452 shares retired - (1,229) - - (1,229)
46,960 shares issued - 3,478 - - 3,478
Cash dividends declared:
Common ($3.07 per share) - - (6,028) - (6,028)
Preferred (8.53%) - - (425) - (425)
Increase in unrealized gains on
available-for-sale
investment securities, net - - - 114 114
Net income - - 21,243 - 21,243
- --------------------------------------------------------------------------------------------
Balance at December 31, 1996 $ 20,000 8,941 116,613 507 146,061
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Year Ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $21,243 17,337 15,734
Adjustments to reconcile net income to net
cash provided by operating activities:
Provisions for loan and other real estate losses 3,823 1,601 1,354
Depreciation and amortization 5,654 4,272 3,612
Net premium amortization on investment securities 591 1,111 1,688
Loss (gain) on sale of investments, net (18) 6 (69)
Gain on sale of other real estate net owned (335) (527) (578)
(Gain) loss on sales of premises and equipment (2) - 13
Provision for deferred income taxes (528) 129 232
Increase in interest receivable (507) (1,828) (1,440)
Decrease (increase) in other assets (1,767) 2,069 (4,621)
Increase (decrease) in accounts payable
and accrued expenses 394 3,553 7
- -----------------------------------------------------------------------------------------
Net cash provided by operating activities 28,548 27,723 15,932
- -----------------------------------------------------------------------------------------
Cash flows from investing activities:
Net change in interest-bearing deposits 16,495 (22,012) (1,028)
Purchases of investment securities:
Held-to-maturity (200,361) (88,857) (73,771)
Available-for-sale (63,477) (12,254) (13,329)
Proceeds from maturities and paydowns
of investment securities:
Held-to-maturity 150,313 116,267 70,497
Available-for-sale 62,460 12,901 11,437
Sales of investment securities:
Available-for-sale 5,523 - 117
Extensions of credit to customers,
net of repayments (98,142) (70,149) (86,118)
Recoveries on loans charged-off 1,987 1,016 889
Proceeds from sale of other real estate owned 1,121 1,236 1,942
Acquisitions of subsidiaries, net of
cash and cash equivalents acquired 24,840 (10,465) -
Capital distribution from (contribution to)
building joint venture 150 (2,100) -
Capital expenditures, net (6,324) (4,675) (3,391)
- -----------------------------------------------------------------------------------------
Net cash used in investing activities (105,415) (79,092) (92,755)
- -----------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in deposits 56,674 76,354 3,064
Net increase (decrease) in federal funds
and repurchase agreements (15,938) 29,148 23,860
Advances (repayments) of other borrowed funds, net (871) (1,594) -
Borrowings of long-term debt 66,939 13,484 122
Repayment of long-term debt (22,410) (3,066) (1,526)
Proceeds from issuance of common stock 3,478 358 362
Proceeds from issuance of preferred stock,
net of issuance costs 19,542 - -
Payments to retire common stock (1,229) (1,197) (950)
Dividends paid on common stock (6,028) (3,733) (3,101)
Dividends paid on preferred stock (425) - -
- -----------------------------------------------------------------------------------------
Net cash provided by financing activities 99,732 109,754 21,831
- -----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 22,865 58,385 (54,992)
Cash and cash equivalents at beginning of year 143,042 84,657 139,649
- -----------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $165,907 143,042 84,657
- -----------------------------------------------------------------------------------------
</TABLE>
Noncash Investing and Financing Activities - The Company transferred
loans of $668, $227 and $106 to other real estate owned
in 1996, 1995 and 1994, respectively.
On January 1, 1994, the Company reclassified investment securities
of $46,237 as available-for-sale.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company provides a full range of banking services to individual
and corporate customers through its bank and non-bank subsidiaries
and their branch offices throughout the states of Montana and
Wyoming. The Company is subject to competition from other financial
institutions and financial service providers. The Company is subject
to the regulations of certain Federal and state agencies and
undergoes periodic examinations by those regulatory authorities. The
following is a summary of significant accounting policies utilized by
the Company:
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of First Interstate BancSystem of Montana, Inc.
(Parent Company) and its operating subsidiaries: First Interstate Bank
of Commerce in Montana, First Interstate Bank of Commerce in Wyoming,
First Interstate Bank of Montana, N.A., First Interstate Bank of Wyoming,
N.A., Mountain Bank, doing business as First Interstate Bank in
Whitefish, Montana, First Interstate Bank, fsb and Commerce Financial, Inc.
All material intercompany transactions have been eliminated in
consolidation.
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 that 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 which may affect the borrowers' ability to
pay or regulatory requirements.
In addition to purchasing and selling Federal funds for their own account,
the Company purchases and sells Federal funds as an agent. These and other
assets held in an agency or fiduciary capacity are not assets of the
Company and, accordingly, are not included in the accompanying consolidated
financial statements.
CASH AND CASH EQUIVALENTS. For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, amounts due from banks and federal
funds sold for one day periods.
At December 31, 1996 the Company was required to have aggregate reserves in
the form of cash on hand and deposits with the Federal Reserve Bank of
approximately $16,060. Also, an additional $23,800 compensating balance was
maintained with the Federal Reserve Bank to mitigate the payment of service
charges for check clearing services.
INVESTMENT SECURITIES. In May 1993, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The
Company adopted the provisions of the statement as of January 1, 1994.
There were no cumulative adjustments to income as a result of adopting the
statement, however, the beginning balance of stockholders' equity was
increased by $122 (which is net of $66 in deferred income taxes) to reflect
net unrealized gains on securities classified as available-for-sale
previously carried at the lower of amortized cost or market. The Company's
accounting policy for investment securities is as follows:
TRADING ACCOUNT ASSETS
Trading account assets consist of debt and equity securities that are
bought and held principally for the purpose of selling them in the
near term and are reported at fair value, with unrealized gains and
losses included in earnings. The Company carried no trading account
assets during 1996 and 1995.
F-6
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INVESTMENT SECURITIES HELD-TO-MATURITY AND INVESTMENT SECURITIES
AVAILABLE-FOR-SALE
Management determines the appropriate classification of debt
securities at the time of purchase. Debt securities are classified
as held-to-maturity when the Company has the positive intent and
ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity or trading account
assets are classified as available-for-sale. In addition, all equity
securities not classified as trading are classified as available-
for-sale. Available-for-sale securities are stated at fair value,
with the unrealized gains and losses, net of deferred taxes, reported
as a separate component of stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity
or available-for-sale is adjusted for amortization of premiums over
the estimated average life of the security, accretion of discounts to
maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization and accretion is
included in interest income with interest and dividends. Realized
gains and losses, and declines in value judged to be other-than-temporary,
are included in investment securities gains (losses). The cost of
securities sold is based on the specific identification method.
LOANS. Loans are reported at the principal amount outstanding. Interest
is calculated by using the simple interest method on the daily balance of
the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued
either when reasonable doubt exists as to the full, timely collection of
interest or principal or when a loan becomes contractually past due by
ninety days or more with respect to interest or principal unless such
past due loan is well secured and in the process of collection. When a
loan is placed on nonaccrual status, interest previously accrued but not
collected is reversed against current period interest income. Interest
accruals are resumed on such loans only when they are brought fully
current with respect to interest and principal and when, in the
judgement of management, the loans are estimated to be fully collectible
as to both principal and interest.
Renegotiated loans are those loans on which concessions in terms have been
granted because of a borrower's financial difficulty.
Significant loan origination fees, net of related costs, are recognized
over the lives of the related loans as an adjustment of yield.
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses which is charged to expense. Loans
are charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely or, with
respect to consumer installment loans, according to an established
delinquency schedule. The allowance balance is an amount that
management believes will be adequate to absorb losses inherent in
existing loans, leases and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans,
leases and commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific
problem loans, leases and commitments, and current and anticipated
economic conditions that may affect the borrowers' ability to pay.
F-7
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company may also establish a reserve for losses on specific loans which
are deemed to be impaired. Groups of small balance homogeneous basis
loans (generally consumer loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current
information and events, it is probable that the Company will be unable
to collect, on a timely basis, all principal and interest according to
the contractual terms of the loan's original agreement. When a specific
loan is determined to be impaired, the allowance for loan losses is
increased through a charge to expense for the amount of the impairment.
The amount of the impairment is measured using cash flows discounted at
the loan's effective interest rate, except when it is determined that
the sole source of repayment for the loan is the operation or
liquidation of the underlying collateral. In such cases, the current
value of the collateral, reduced by anticipated selling costs, will be
used to measure impairment instead of discounted cash flows. The
Company's impaired loans are those non-consumer loans which are
non-accrual or a troubled debt restructuring. Interest income is
recognized on impaired loans only to the extent that cash payments are
received. The Company's existing policies for evaluating the adequacy
of the allowance for loan losses and policies for discontinuing the
accrual of interest on loans are used to establish the basis for
determining whether a loan is impaired.
GOODWILL AND OTHER INTANGIBLES. The excess of purchase price over the fair
value of net assets from acquisitions ("Goodwill") is being amortized
using the straight-line method over periods of primarily 15 to 25 years.
The Company assesses the recoverability of Goodwill by determining whether
the unamortized balance related to an acquisition can be recovered through
undiscounted future cash flows over the remaining amortization period.
Core deposit intangibles represent the intangible value of depositor
relationships resulting from deposit liabilities assumed in acquisitions
and are amortized using an accelerated method based on an estimated
runoff of the related deposits, not exceeding 10 years. Purchased
mortgage servicing rights ("MSR") represent the value of purchased
rights to service mortgage loans. The MSR are amortized in proportion
to and over the period of estimated net servicing income not expected to
exceed 12 years. MSR are evaluated for impairment based on the MSR
current fair value.
PREMISES AND EQUIPMENT. Buildings, furniture and equipment are stated at
cost less accumulated depreciation. Depreciation is provided over
estimated useful lives of 5 to 50 years for buildings and improvements
and 3 to 15 years for furniture and equipment using straight-line
methods. Leasehold improvements are amortized using straight-line
methods over the shorter of the estimated useful lives of the
improvements or the terms of the related leases. Consolidated
depreciation expense was $4,182 in 1996, $3,541 in 1995 and $3,318 in
1994.
LONG-LIVED ASSETS. The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets for Long-Lived
Assets to Be Disposed Of," on January 1, 1996. The statement requires
long-lived assets and certain identifiable intangibles (e.g. premises,
Goodwill, core deposit intangibles) be reviewed for impairment whenever
events or changes in circumstances indicate the carrying amount of an
asset may not be recoverable. An asset is deemed impaired if the sum of
the expected future cash flows is less than the carrying amount of the
asset. The amount of the impairment loss is based on the assets' fair
value, which may be estimated by discounting the expected future cash
flows. The adoption of SFAS No. 121 did not have a material impact on
the Company's consolidated financial position or consolidated results of
operations.
OTHER REAL ESTATE OWNED. Real estate acquired in satisfaction of loans is
carried at the lower of the recorded investment in the property at the
date of foreclosure or its current fair value less selling cost ("Net
Realizable Value"). The value of the underlying loan is written down to
the fair market value of the real estate acquired by a charge to the
allowance for loan losses, if necessary, at the date of foreclosure. A
provision to the real estate owned valuation allowance is charged
against other real estate expense for any current or subsequent
write-downs to Net Realizable Value. Operating expenses of such
properties, net of related income, and gains on sales are included in
other real estate expenses.
SELF-INSURANCE. The Company is self-insured with respect to employee
medical claims up to specified limits per claim. The Company has an
accrual of approximately $560 for estimated unsettled and incurred
but not reported claims.
F-8
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 Parent Company and its subsidiaries have elected to be
included in a consolidated Federal income tax return. For state income
tax purposes, the combined taxable income of the Parent Company and its
subsidiaries is apportioned between the states in which operations take
place. Federal and state income taxes attributable to the subsidiaries,
computed on a separate return basis, are paid to or received from the
Parent Company.
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.
PER SHARE DATA. Earnings per common share is calculated by dividing
net income less preferred stock dividends by the weighted average number
of common shares and common share equivalents outstanding during the
period. Book value per common share is calulated by dividing total
stockholders' equity less preferred stock by the number of common
shares outstanding at the end of the year.
STOCK-BASED COMPENSATION. The Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation," as of January 1, 1996. SFAS No. 123
encourages all entities to adopt a new method of accounting to measure
compensation cost of all employee stock compensation plans based on the
estimated fair value of the award at the date it is granted. Companies
are, however, allowed to continue to measure compensation cost for those
stock-based employee compensation plans using the intrinsic value-based
method of accounting, which generally results in compensation expense
only when the exercise price is less than the fair value of the
underlying stock at the date of grant. Companies that elect to remain
with the intrinsic value method are required to disclose in a footnote
to the financial statements pro forma net income and earnings per share,
as if the fair value method of SFAS No. 123 had been adopted. The
Company has elected to continue accounting for stock-based employee
compensation plans in accordance with Accounting Principles Board
No. 25 (see note 12).
RECLASSIFICATIONS. Certain reclassifications have been made to the 1995
and 1994 amounts to conform to the 1996 presentation.
(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 stockholders'
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 intangible assets are 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, 1996, the Company's consolidated risk-based capital (core
plus supplementary) and core capital ratios, calculated in accordance
with the guidelines, were 10.0% and 7.4%, 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. The Company's consolidated leverage ratio at
December 31, 1996 was 5.3%.
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-9
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 3% leverage). At December 31, 1996, the Company's and bank
subsidiaries' capital ratios meet or 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
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, 1996 cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 45,272 153 - 45,425
Obligations of U.S. Government agencies 54,919 340 (114) 55,145
States, county and municipal securities 7,717 295 (2) 8,010
Corporate securities 2,484 7 (5) 2,486
Other mortgage-backed securities 3,703 16 (10) 3,709
Other securities 9,607 120 - 9,727
---------------------------------------------------------------------------------------------
Total $ 123,702 931 (131) 124,502
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1996 cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 169,196 445 (731) 168,910
Obligations of U.S. Government agencies 89,600 158 (179) 89,579
States, county and municipal securities 11,793 152 (12) 11,933
Corporate securities 8,480 1 (27) 8,454
---------------------------------------------------------------------------------------------
Total $ 279,069 756 (949) 278,876
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $18 and no gross losses were realized on the sale of
available-for-sale securities in 1996.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1995 cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of U.S. Government agencies $ 48,288 576 (163) 48,701
States, county and municipal securities 7,392 382 (146) 7,628
Corporate securities 808 - (3) 805
Other mortgage-backed securities 3,206 12 (10) 3,208
Other securities 5,448 14 (14) 5,448
---------------------------------------------------------------------------------------------
Total $ 65,142 984 (336) 65,790
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HELD-TO-MATURITY
Gross Gross Estimated
Amortized unrealized unrealized market
December 31, 1995 cost gains losses value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 121,086 248 (493) 120,841
Obligations of U.S. Government agencies 51,599 314 (137) 51,776
States, county and municipal securities 11,102 206 (34) 11,274
Corporate securities 9,160 7 (21) 9,146
---------------------------------------------------------------------------------------------
Total $ 192,947 775 (685) 193,037
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
Gross gains of $6 and gross losses of $12 were realized on the sale of
available-for-sale securities in 1995. Gross gains of $70 and gross losses
of $1 were realized on the sale of securities in 1994.
Maturities of investment securities by contractual maturity at December 31,
1996 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.
<TABLE>
<CAPTION>
December 31,1996 Available-for-Sale Held-to-Maturity
---------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
cost market value cost market value
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 3,720 3,719 109,646 109,538
After one but within five years 68,523 68,809 159,029 158,868
After five years but within ten years 11,277 11,557 5,150 5,239
After ten years 26,301 26,410 619 620
---------------------------------------------------------------------------------------------
Total 109,821 110,495 274,444 274,265
---------------------------------------------------------------------------------------------
Collateralized mortgage obligations
and other 13,881 14,007 4,625 4,611
---------------------------------------------------------------------------------------------
Total $ 123,702 124,502 279,069 278,876
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
</TABLE>
There are no significant concentrations of investments at December 31,
1996 (greater than 10 percent of stockholders' equity) in any individual
security issuer, except for U.S. Government or agency-backed securities.
At December 31, 1996 and 1995, $18,148 and $15,028, respectively, of
variable rate securities are included in investment securities.
Investment securities with amortized cost of $263,459 and $182,976 at
December 31, 1996 and 1995, respectively, were pledged to secure public
deposits, securities sold under repurchase agreements and for other
purposes required or permitted by law. The approximate market value of
securities pledged at December 31, 1996 and 1995 was $263,608 and
$182,970, respectively. All securities sold under repurchase agreements
are with customers and generally mature on the next banking day. The
Company retains possession of the underlying securities sold under
repurchase agreements.
F-11
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(4) LOANS
Major categories and balances of loans included in the loan portfolios
are as follows:
December 31, 1996 1995
--------------------------------------------------------------------------
Agricultural (1) $ 143,572 113,827
Commercial (2) 471,458 311,982
Real estate 274,141 142,097
Consumer (3) 484,865 300,711
Other loans, including overdrafts 1,443 1,761
--------------------------------------------------------------------------
Total loans $ 1,375,479 870,378
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(1) Includes loans to agricultural customers secured by real estate of
$52,689 and $43,826 at December 31, 1996 and 1995, respectively.
(2) Includes loans secured by commercial real estate properties of
$198,570 and $145,380 at December 31, 1996 and 1995, respectively.
(3) Includes loans secured by second mortgages on real estate of
$74,607 and $53,046 at December 31, 1996 and 1995, respectively.
At December 31, 1996, the Company had no concentrations of loans which
exceeded 10% of total loans other than the categories disclosed above.
The Company has no loans or loan commitments to highly leveraged
companies.
Nonaccrual loans amounted to $6,822 and $3,632 at December 31, 1996 and
1995, respectively. If interest on nonaccrual loans had been accrued,
such income would have approximated $405 and $318, respectively. Loans
contractually past due ninety days or more aggregating $6,432 on
December 31, 1996 and $1,711 on December 31, 1995 were on accrual
status. Such loans are deemed adequately secured and in the process of
collection.
Included in the nonaccrual loans at December 31, 1996 and 1995 are
$5,122 and $3,231, respectively, of loans which are considered impaired.
Of this amount, an impairment allowance of $436 and $407, respectively,
is included in the Company's allowance for loan losses. The average
recorded investment in impaired loans for the years ended December 31,
1996 and 1995 was approximately $3,870 and $3,080, respectively. If
interest on impaired loans had been accrued, the amount of interest
income on impaired loans during 1996 and 1995 would have been
approximately $357 and $283, respectively.
Also included in total loans at December 31, 1996 and 1995 are loans
with a carrying value of $1,763 and $1,755, respectively, the terms of
which have been modified in troubled debt restructurings. There were no
nonaccrual loans included in restructured debt at December 31, 1996.
Restructured debt includes nonaccrual loans of $15 at December 31, 1995.
During the years then ended, the recognized interest income on
restructured loans approximated $158 and $161, respectively. At December
31, 1996, there were no commitments to lend additional funds to
borrowers whose existing loans have been restructured or are classified
as nonaccrual.
Most of the Company's business activity is with customers within the
state of Montana and Wyoming. Loans where the customers or related
collateral are out of the Company's trade area are not significant and
management's anticipated credit losses arising from these transactions
compare favorably with the Company's credit loss experience on its loan
portfolio as a whole.
Certain executive officers and directors of the Company and certain
corporations and individuals related to such persons, incurred
indebtedness in the form of loans, as customers, of approximately
$11,474 at December 31, 1996 and $12,802 at December 31, 1995 (including
outstanding loans of new executive officers and directors in 1996).
During 1996, new loans and advances on existing loans of $2,700 were
funded and repayments totaled $4,028. 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.
F-12
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- ---------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(5) ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
Year ending December 31, 1996 1995 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 15,171 13,726 13,373
Allowance of acquired banks 10,553 917 -
Provision charged to operating expense 3,844 1,629 1,344
Less loans charged-off (3,758) (2,117) (1,880)
Add back recoveries of loans previously charged-off 1,987 1,016 889
-------------------------------------------------------------------------------------
Balance at end of year $ 27,797 15,171 13,726
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
(6) PREMISES AND EQUIPMENT
Premises and equipment and related accumulated depreciation are as follows:
December 31, 1996 1995
--------------------------------------------------------------
Land $ 8,350 5,747
Buildings and improvements 53,609 33,032
Furniture and equipment 24,689 20,406
--------------------------------------------------------------
86,648 59,185
Less accumulated depreciation 28,465 26,645
--------------------------------------------------------------
Premises and equipment, net $ 58,183 32,540
--------------------------------------------------------------
--------------------------------------------------------------
The Parent Company and a branch office lease premises from an affiliated
partnership (see note 13).
(7) OTHER REAL ESTATE OWNED
Other real estate owned (OREO) consists of the following:
December 31, 1996 1995
--------------------------------------------------------------
Other real estate $ 2,057 1,903
Less allowance for OREO losses 511 554
--------------------------------------------------------------
$ 1,546 1,349
--------------------------------------------------------------
--------------------------------------------------------------
A summary of transactions in the allowance for OREO losses follows:
Year ending December 31, 1996 1995 1994
------------------------------------------------------------------------
Balance at beginning of year $ 554 1,048 1,448
Provision (reversal) during the year (21) (28) 10
Property writedowns (16) (449) (410)
Losses on sales (6) (17) -
------------------------------------------------------------------------
Balance at end of year $ 511 554 1,048
------------------------------------------------------------------------
------------------------------------------------------------------------
F-13
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The changes in the balance of other real estate for the years
ending December 31, 1996 and 1995 are summarized as follows:
1996 1995
------------------------------------------------------------------
Balance, beginning of year $1,903 2,851
Add other real estate of banks acquired 294 -
Add transfers from loans 668 227
Cash proceeds from sales $1,121 1,236
Less gains on sales 335 527
------------------------------------------------------------------
Net basis of OREO sold (786) (709)
Property writedowns (22) (466)
------------------------------------------------------------------
Balance, end of year $2,057 1,903
------------------------------------------------------------------
------------------------------------------------------------------
(8) CASH SURRENDER VALUE OF LIFE INSURANCE
The Company maintains key-executive life insurance policies
on certain principal shareholders. Under the key-executive
insurance, the Company receives the cash surrender value if the
policy is terminated, or receives all benefits payable upon the
death of the insured. The aggregate face amount of key-executive
insurance policies was $7,000 at December 31, 1996. Cash
surrender values are recorded net of outstanding policy loans,
since the Company has no current plans for repayment. Outstanding
policy loans at December 31, 1996 and 1995 are $2,540 and $1,875,
respectively. The net cash surrender value of key-executive
insurance policies included in other assets is $278 and $792 at
December 31, 1996 and 1995, respectively.
During 1994, the Company provided insurance contracts for
certain key officers. The net cash surrender value of these
contracts is $1,365 and $1,218 at December 31, 1996 and 1995,
respectively, and is included in other assets. Upon retirement,
the officers have the option of entering into a split-dollar
contract with the Company providing insurance coverage for the
difference between the Company's cash surrender value and the face
amount of the policy.
(9) DEPOSITS
Deposits are summarized as follows:
December 31, 1996 1995
------------------------------------------------------------------
Noninterest bearing demand $ 385,371 230,136
Interest bearing:
Demand 316,964 180,742
Savings 396,845 263,062
Time, $100 and over 122,242 90,257
Time, other 458,002 334,872
------------------------------------------------------------------
Total interest bearing 1,294,053 868,933
------------------------------------------------------------------
$ 1,679,424 1,099,069
------------------------------------------------------------------
------------------------------------------------------------------
Maturities of time deposits of $100 or more are as follows:
December 31, 1996
------------------------------------------------------------------
Three months or less $ 40,819
Three through six months 24,792
Six months through twelve months 43,839
Over twelve months 12,792
------------------------------------------------------------------
$ 122,242
------------------------------------------------------------------
------------------------------------------------------------------
Interest expense on time deposits of $100 or more was $5,514,
$4,581 and $2,846 for the years ended December 31, 1996, 1995 and
1994, respectively.
F-14
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(10) INCOME TAXES
Income tax expense (benefit) consists of the following:
Year ended December 31, 1996 1995 1994
------------------------------------------------------------------
Current:
Federal $ 12,004 9,194 8,318
State 1,875 1,521 1,311
------------------------------------------------------------------
13,879 10,715 9,629
------------------------------------------------------------------
Deferred:
Federal (492) 134 214
State (36) (5) 18
------------------------------------------------------------------
(528) 129 232
------------------------------------------------------------------
$ 13,351 10,844 9,861
------------------------------------------------------------------
------------------------------------------------------------------
Total income tax expense differs from the amount computed by
applying the Federal income tax rate of 35 percent in 1996, 1995
and 1994 to income before income taxes as a result of the
following:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax expense at the statutory tax rate $ 12,108 9,863 8,958
Increase (decrease) in tax resulting from:
Tax-exempt income (472) (374) (116)
State income tax, net of Federal income tax benefit 1,190 985 864
Amortization of nondeductible Goodwill 318 289 137
Other, net 207 81 18
------------------------------------------------------------------------------------------
$ 13,351 10,844 9,861
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Loans, principally due to allowance for loan losses $ 6,561 5,616
Other real estate owned, principally due to differences in bases 118 499
Employee benefits 828 845
Other 45 -
-----------------------------------------------------------------------------------------
Net deferred tax assets 7,552 6,960
Deferred tax liabilities:
Fixed assets, principally differences in bases and depreciation (926) (830)
Investment in joint venture partnership, principally due to
differences in depreciation of partnership assets (904) (845)
Prepaid amounts (138) (299)
Investment securities, principally differences in bases (370) (146)
Investment securities available-for-sale (293) (254)
Other - (154)
-----------------------------------------------------------------------------------------
Net deferred tax liabilities (2,631) (2,528)
-----------------------------------------------------------------------------------------
Net deferred income tax asset $ 4,921 4,432
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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, 1996 management continues to believe
it is more likely than not that the Company will realize the
benefits of these deductible differences.
(11) LONG-TERM DEBT AND OTHER BORROWED FUNDS
A summary of long-term debt follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
Revolving term loan due December 31, 2003 at variable interest
rates (7.53% weighted average rate at December 31,1996), with
semi-annual reductions in overall credit line of $2,000 each
June 30 and December 31 $ 39,200 -
7.5% subordinated notes, unsecured, interest payable semi-annually,
due in increasing annual principal payments beginning
October 1, 2002 in the amount of $3,400 with final maturity
on October 1, 2006 20,000 -
Various unsecured notes payable to former stockholders at various
rates of 5.80% to 8.25% due in annual installments aggregating
$486, plus interest, through March 1999 1,196 1,117
Term notes payable to bank, refinanced in 1996 - 9,750
Subsidiaries:
Various notes payable to Federal Home Loan Bank of Seattle,
interest due monthly at various rates and maturities (weighted
average rate of 6.52% at December 31, 1996) 4,271 -
Note payable to Federal Home Loan Bank of Seattle repaid in 1996 - 5,000
----------------------------------------------------------------------------------------------------------
$ 64,667 15,867
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>
Maturities of long-term debt for the years ending December 31 follow:
1997 $ 1,686
1998 4,419
1999 4,642
2000 4,096
2001 4,000
Thereafter 45,824
--------------------------------------------------------------------------
$ 64,667
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The proceeds from issuance of the revolving term note, subordinated notes
and preferred stock (see note 15) were utilized to fund acquisitions
(see note 18).
In connection with its borrowings, the Company has agreed to
certain restrictions dealing with, among other things, minimum
capital ratios, the sale or issuance of capital stock and the
maximum amount of dividends.
F-16
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -----------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The Company has a revolving term loan with its primary lender
in the amount of $42,000 at December 31, 1996. The available
borrowing amount is reduced by $2,000 on a semi-annual basis
commencing in June 1997. The revolving facility requires an
annual commitment fee of 0.15% on the unadvanced amount. The
Company may elect at various dates either prime or a Eurodollar
rate plus 1.75%. The term note payable is secured by
100% of the outstanding capital stock of the Company's bank
subsidiaries.
The notes payable to Federal Home Loan Bank of Seattle (FHLB)
are secured by FHLB stock, unencumbered residential real estate
mortgages and certain mortgage-backed securities.
The following is a summary of other borrowed funds, all of
which mature within one year:
<TABLE>
<CAPTION>
December 31, 1996 1995
----------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest bearing demand notes issued to the United States Treasury,
secured by investment securities $ 11,071 5,494
5.45% interest bearing demand note issued to Federal Home Loan Bank of
Seattle secured by unencumbered real estate mortgages and certain
mortgages and certain mortgage-backed securities 2,000 -
----------------------------------------------------------------------------------------------------
$ 13,071 5,494
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
The Company has Federal funds lines of credit with third
parties amounting to $50,000, subject to funds availability. The
Company also has been approved for participation in the Federal
Home Loan Bank Cash management Advance Program for borrowings up
to approximately $39,500.
(12) EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLAN. The Company has a noncontributory
profit sharing plan. To be eligible for the profit sharing plan,
an employee must complete one year of employment and 1,000 hours
or more of service. Quarterly contributions are determined by the
Company's Board of Directors, but are not to exceed, on an
individual basis, the lesser of 25% of compensation or $30.
Contributions to this plan were $839, $685 and $620 in 1996, 1995
and 1994, respectively.
SAVINGS PLAN. In addition, the Company has a contributory
employee savings plan. Eligibility requirements for this plan are
the same as those for the profit sharing plan as discussed in the
preceding paragraph. Employee participation in the plan is at the
option of the employee. The Company contributes $1.25 for each
$1.00 of employee contributions up to 4% of the participating
employee's compensation. The recorded expense related to this
plan was $814 in 1996, $703 in 1995 and $648 in 1994.
STOCK OPTION PLAN. The Company has a Nonqualified Stock
Option and Stock Appreciation Rights Plan for senior officers of
the Company. All options and stock appreciation rights ("SAR's")
granted have an exercise price of book value of the Company prior
to 1993 and appraised value thereafter. Each option granted under
the Plan can be immediately exercised up to ten years from the
date of grant. SAR's are granted and exercised in tandem with
options. The stock issued in conjunction with the exercise of
options is subject to a shareholder agreement (see note 15). The
consolidated expense related to this plan was $72 in 1996, $170 in
1995 and $387 in 1994.
Information with respect to the Company's stock options and
SAR's are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
Year ended December 31, Options SAR's Options SAR's Options SAR's
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 29,188 19,809 30,116 20,535 32,134 23,330
Granted 4,150 4,150 4,125 4,125 3,850 2,888
Exercised (4,379) (4,379) (5,053) (4,851) (5,868) (5,683)
-------------------------------------------------------------------------------------
Outstanding, end of year 28,959 19,580 29,188 19,809 30,116 20,535
-------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
</TABLE>
F-17
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Information with respect to the range of stock option exercise prices are
as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Granted during year $71.42 - $71.42 $63.20 - $63.20 $49.60 - $49.60
Exercised during year $17.20 - $24.62 $17.20 - $23.51 $16.18 - $21.43
Outstanding, end of year $18.25 - $71.42 $17.20 - $63.20 $17.20 - $49.60
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
</TABLE>
Stratification and additional detail regarding the options outstanding at
December 31, 1996 are as follows (all exercisable):
Exercise Number Weighted-average Weighted-average
price range outstanding remaining life exercise price
--------------------------------------------------------------------------
$18.25 - $30.45 12,734 2.97 years $ 24.53
$45.60 - $71.42 16,225 7.73 years 57.63
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The Company has elected to continue to measure compensation costs as
prescribed by APB Opinion No. 25 and, accordingly, does not recognize
compensation expense on the options granted where the exercise price is
equal to appraisal value at the date of grant. SFAS No. 123 requires the
Company to disclose pro forma information reflecting net income and
earnings per share had the Company elected to record compensation expense
based on the fair value method described in SFAS No. 123. The fair value
of the options was estimated at the grant date using a Black-Scholes option
pricing model. Option valuation models require the input of highly
subjective assumptions. Because the Company's common stock and stock
options have characteristics significantly different from listed securities
and traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its stock options.
The following weighted-average assumptions were used in the valuation
model: risk-free interest rates of 5.65% and 7.78% in 1996 and 1995;
dividend yield of 2.50% and 2.67% in 1996 and 1995; and expected life of
options of 10 years in both 1996 and 1995.
Pro forma disclosures, listed below, include options granted in 1996 and
1995 and are not likely to be representative of the pro forma disclosures
for future years. The estimated fair value of the options is expensed in
the year granted as all options are vested upon grant.
Year ended December 31, 1996 1995
--------------------------------------------------------------------------
Pro forma net income $ 21,102 17,211
Pro forma net income applicable to common stock 20,677 17,211
Pro forma earnings per common share 10.49 8.77
--------------------------------------------------------------------------
--------------------------------------------------------------------------
(13) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various claims
and litigation. In the opinion of management, following consultation with
legal counsel, the ultimate liability or disposition thereof will not have
a material adverse effect on the consolidated financial condition or
results of operations.
The Parent Company and the Billings office of First Interstate Bank of
Commerce in Montana ("FIB Montana") are the anchor tenants in a building
owned by a joint venture partnership in which FIB Montana is one of the two
partners, and has a 50% partnership interest. The investment in the
partnership is accounted for using the equity method. Indebtedness of the
partnership in the amount of $10,827 at December 31, 1996 is recourse to
the partners. Total rents paid to the partnership were $814 in 1996, $711
in 1995 and $690 in 1994.
The Company also leases certain premises and equipment from third parties
under operating leases. Total rental expense to third parties was $1,019
in 1996, $1,425 in 1995 and $1,267 in 1994.
F-18
<PAGE>
The total future minimum rental commitments required under operating leases
that have initial or remaining noncancellable lease terms in excess of one
year at December 31, 1996 are as follows:
Third
parties Partnership Total
---------------------------------------------------------------------------
For the year ending December 31:
1997 $ 328 814 1,142
1998 273 814 1,087
1999 268 814 1,082
2000 196 814 1,010
2001 171 814 985
Thereafter 1,476 3,053 4,529
---------------------------------------------------------------------------
$ 2,712 7,123 9,835
---------------------------------------------------------------------------
---------------------------------------------------------------------------
In September 1983, the Company entered into a franchise agreement
("Franchise Agreement") with First Interstate Bancorp ("First
Interstate"), a Los Angeles based bank holding company which was
acquired by Wells Fargo and Company April 1, 1996. Under the Franchise
Agreement, the Company was First Interstate's exclusive licensee in the
states of Montana and Wyoming. On May 24, 1996, the Company entered
into a trademark license agreement granting the Company and its
subsidiaries an exclusive, nontransferable license to use the "First
Interstate" name and logo in the states of Montana, Wyoming, North
Dakota, South Dakota and Nebraska. By mutual agreement of the parties,
the franchise agreement between the Company and Wells Fargo and Company
was terminated.
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of
amounts recorded in the consolidated balance sheet.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company 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
Company holds 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 Company evaluates 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 Company's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend
credit and standby letters of credit is represented by the contractual
amount of those instruments. At December 31, 1996, stand-by letters of
credit in the amount of $19,884, were outstanding. Commitments to
extend credit to existing and new borrowers approximated $284,259 at
December 31, 1996, which includes $32,760 on unused credit card lines.
F-19
<PAGE>
(15) CAPITAL STOCK
On September 26, 1996 ("Issuance Date"), the Company issued 20,000
shares of no par noncumulative perpetual preferred stock ("Preferred
Stock") at a price of $1,000. The holders of Preferred Stock are
entitled to receive in any fiscal year, when and if declared by the
Company's Board of Directors, dividends in cash at the rate of $85.30
per share, up to the seventh anniversary of the Issuance Date. From and
after the seventh anniversary of the Issuance Date, the holders of
Preferred Stock shall be entitled to receive in any fiscal year, when
and if declared by the Company's Board of Directors, dividends in cash
at a variable rate equal to 250 basis points over the high yield of the
30-day, 10-year or 30-year U.S. Treasury Bills. The Preferred Stock is
not redeemable prior to the seventh anniversary of the Issuance Date.
The Company may, at its option, redeem all or any part of the Preferred
Stock at any time on or after the seventh anniversary of the Issuance
Date, subject to the approval of the FRB, at a price of $1.00 per share,
plus accrued but unpaid dividends to the date fixed for redemption.
At December 31, 1996 nearly all shares of common stock held by
shareholders are subject to shareholder's agreements (Agreements).
Under the Agreements, the Company has a right of first refusal to
repurchase shares from the shareholder at minority interest appraised
value in the event of a proposed sale of shares to a third party, death,
disability or termination of employment. Additional shares purchased by
officers, directors and employees after 1993 are also subject to
repurchase at the Company's discretion.
(16) CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
Following is condensed financial information of First Interstate
BancSystem of Montana, Inc.:
<TABLE>
<CAPTION>
December 31, 1996 1995
---------------------------------------------------------------------------------------------------
<S> <C> <C>
CONDENSED BALANCE SHEETS:
Cash and cash equivalents $ 2,905 1,890
Investment in subsidiaries, at equity:
First Interstate Bank of Commerce of Montana 88,438 85,951
First Interstate Bank of Commerce of Wyoming 29,196 28,145
First Interstate Bank of Montana, N.A. 35,052 -
First Interstate Bank of Wyoming, N.A. 38,909 -
Mountain Bank (doing business as First Interstate Bank) 7,965 -
First Interstate Bank, fsb 1,988 -
Non-bank subsidiary - Commerce Financial, Inc. 408 381
---------------------------------------------------------------------------------------------------
Total investment in subsidiaries, at equity 201,956 114,477
Goodwill, net of accumulated amortization 2,633 2,927
Other assets 4,068 4,009
---------------------------------------------------------------------------------------------------
$ 211,562 123,303
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
Other liabilities $ 5,105 3,070
Long-term debt 60,396 10,867
---------------------------------------------------------------------------------------------------
65,501 13,937
Stockholders' equity 145,554 108,973
Unrealized gain on investment securities available-for-sale, net 507 393
---------------------------------------------------------------------------------------------------
$ 211,562 123,303
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
F-20
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONDENSED STATEMENTS OF INCOME:
Dividends from subsidiary banks $ 19,529 10,993 10,029
Interest on note receivable from non-bank subsidiary 15 32 41
Other interest income 143 30 159
Other income, primarily management fees
from subsidiaries 1,788 1,508 1,513
--------------------------------------------------------------------------------------------------------
Total income 21,475 12,563 11,742
--------------------------------------------------------------------------------------------------------
Salaries and benefits 2,627 2,370 2,378
Interest expense 1,919 1,010 514
Other operating expenses, net 2,612 1,835 1,506
--------------------------------------------------------------------------------------------------------
Total expenses 7,158 5,215 4,398
--------------------------------------------------------------------------------------------------------
Data Division income, net of operating expenses 1,990 1,667 1,307
--------------------------------------------------------------------------------------------------------
Earnings before income tax benefits 16,307 9,015 8,651
Income tax benefit 979 565 343
--------------------------------------------------------------------------------------------------------
Income before undistributed earnings of subsidiaries 17,286 9,580 8,994
--------------------------------------------------------------------------------------------------------
Undistributed earnings of subsidiaries 3,957 7,757 6,740
--------------------------------------------------------------------------------------------------------
Net income $ 21,243 17,337 15,734
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
CONDENSED STATEMENTS OF CASH FLOWS:
Cash flows from operating activities:
Net income $ 21,243 17,337 15,734
Adjustments to reconcile net income to cash
provided by operating activities:
Undistributed earnings of subsidiaries (3,957) (7,757) (6,740)
Depreciation and amortization 311 312 306
Provision for deferred income taxes 11 348 177
Deposit on bank acquisition - 250 (250)
Other, net 802 967 (1,432)
--------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 18,410 11,457 7,795
--------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in advances to non-bank subsidiary 133 154 1,040
Purchase of investments - - (8,959)
Maturities of investments - 7,500 2,512
Increase in premises and equipment (2) (1,095) (28)
Capitalization of de novo subsidiary (2,000) - -
Acquisitions of subsidiaries, net (80,393) (17,478) -
--------------------------------------------------------------------------------------------------------
Net cash used in investing activities (82,262) (10,919) (5,435)
--------------------------------------------------------------------------------------------------------
F-21
<PAGE>
<CAPTION>
Year ended December 31, 1996 1995 1994
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings of long-term debt $ 66,939 8,484 122
Repayments of long-term debt (17,410) (3,066) (1,526)
Dividends paid on common stock (6,028) (3,733) (3,101)
Redemptions of common stock (1,229) (1,197) (950)
Issuance of common stock 3,478 358 362
Proceeds from issuance of preferred stock,
net of issuance costs 19,542 - -
Dividends paid on preferred stock (425) - -
--------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 64,867 846 (5,093)
--------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,015 1,384 (2,733)
Cash and cash equivalents, beginning of year 1,890 506 3,239
--------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 2,905 1,890 506
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
NONCASH OPERATING, INVESTING AND FINANCING ACTIVITIES.
During 1996, the Parent Company transferred other assets of $1,014 to its
subsidiary, First Interstate Bank of Commerce of Montana.
(17) DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURES ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS (Statement 107), requires the
Company to disclose the estimated fair values of its financial
instruments. Most of the Company's assets and liabilities are
considered financial instruments. Many of the Company's financial
instruments lack an available trading market, and it is the practice and
intent of the Company to hold its financial instruments to maturity. As
a result, significant assumptions and present value calculations were
used in determining estimated fair values.
For financial instruments bearing a variable interest rate, it is
presumed that recorded book values are reasonable estimates of fair
value. The methods and significant assumptions used to estimate fair
values for the various financial instruments are set forth below.
CASH AND CASH EQUIVALENTS. Due to the liquid nature of the
instruments, the carrying value of due from banks and federal funds
sold approximates market value.
INTEREST-BEARING DEPOSITS IN BANK. Due to the short-term nature of
the instrument, the carrying value of the interest-bearing deposit
in bank approximates market value.
INVESTMENT SECURITIES. Fair values of investment securities are
based on quoted market prices or dealer quotes. If a quoted market
price is not available, fair value is estimated using quoted market
prices for similar securities.
LOANS. Fair values are estimated for portfolios of loans with
similar financial characteristics. Loans are segregated by type
such as commercial, real estate, and consumer. Each loan category
is further segmented into fixed and adjustable rate interest terms
and by performing and nonperforming categories.
F-22
<PAGE>
The fair value of performing fixed rate loans is calculated by
discounting scheduled cash flows through estimated maturity using
estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan category using the U.S.
Treasury yield curve adjusted to bond equivalent yields. The
estimate of maturity is based on the Company's historical
experience with repayments for each loan classification, modified,
as required, by an estimate of the effect of current economic and
lending conditions. For performing real estate loans, fair value
is estimated by discounting contractual cash flows adjusted for
prepayment estimates using discount rates based on secondary market
sources.
The fair value of adjustable rate loans was considered to be the
carrying value of these instruments due to the frequent repricing,
provided there had been no change in credit quality since
origination.
DEPOSITS, FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER
REPURCHASE AGREEMENTS. The fair value of demand deposits, savings
accounts, federal funds purchased and securities sold under
repurchase agreements is the amount payable on demand at the
reporting date, due to the liquid nature of the instruments and the
frequent repricing.
The fair value of fixed-maturity certificates of deposit is
estimated using external market rates currently offered for
deposits with similar remaining maturities.
OTHER BORROWED FUNDS AND LONG-TERM DEBT. The term note payable and
revolving term loan bear interest at a floating market rate and, as
such, the carrying amounts are deemed to reflect fair value. The
carrying value of the interest bearing demand notes to the United
States Treasury is deemed an approximation of fair value due to the
frequent repayment and repricing at market rates. Due to the
recent issuance date of the subordinated notes and relative
stability of interest rates in the intervening period, book value
is estimated to approximate fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT. The
fair value of commitments to extend credit can be estimated using
the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements and the present
creditworthiness of the counterparties. It is not practicable to
estimate fair value because information is not readily available to
support estimates of fees which can be expected to be realized on
these instruments.
Loan fees for the year ended December 31, 1996 and 1995, including
fees charged for commitments to extend credit and standby letters
of credit, were approximately $4,981 and $4,070, respectively, of
which a significant portion related to real estate refinancing.
LIMITATIONS. Fair value estimates are made at a specific point in
time, based on relevant market information and information about
the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one
time the entire holdings of a particular instrument. Because no
market exists for a significant portion of the financial
instruments, fair value estimates are based on judgments regarding
comparable market interest rates, future expected loss experience,
current economic conditions, risk characteristics of various
financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and
liabilities that are not considered financial instruments. For
example, the Company has a trust department and data processing
division that contribute net operating income annually. Neither
department is considered a financial instrument, and their value
has not been incorporated into the fair value estimates. Other
significant assets that are not considered financial instruments
include the mortgage subsidiary, deferred tax assets, and property
and equipment. In addition, the tax effect of the difference
between the fair value and carrying value of financial instruments
can have a significant effect on fair value estimates and have not
been considered in the estimates.
F-23
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- ----------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A summary of the estimated fair values of financial instruments follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated
As of December 31, Amount Fair Value Amount Fair Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 172,452 172,452 166,082 166,082
Securities available-for-sale 124,502 124,502 65,790 65,790
Securities held-to-maturity 279,069 278,876 192,947 193,037
Net loans 1,347,682 1,344,336 855,207 863,480
--------------------------------------------------------------------------------------------------------
Total financial assets $ 1,923,705 1,920,166 1,280,026 1,288,389
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
Financial liabilities:
Total deposits, excluding certificates $ 1,099,180 1,099,180 673,940 673,940
Certificates of deposit 580,244 587,718 425,129 434,190
Federal funds purchased 13,450 13,450 3,125 3,125
Securities sold under repurchase
agreements 129,137 129,137 104,898 104,898
Other borrowed funds 13,071 13,071 5,494 5,494
Long-term debt 64,667 64,667 15,867 15,867
--------------------------------------------------------------------------------------------------------
Total financial liabilities $ 1,899,749 1,907,223 1,228,453 1,237,514
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
(18) ACQUISITIONS AND EXPANSION
FIRST CITIZENS BANK OF BOZEMAN. On January 3, 1995, the Company
acquired all of the outstanding ownership of Citizens BancShares, Inc.
("CBI") and its bank subsidiary, First Citizens Bank of Bozeman ("FCB")
for $8,606. The historical carrying value of the net assets of CBI as
of the acquisition date were $3,724. The transaction was accounted for
as a purchase and, accordingly, the consolidated statement of income for
the year ended December 31, 1995 includes CBI's results of operations
since the date of the purchase. CBI was subsequently dissolved and FCB
became a branch of First Interstate Bank of Commerce in Montana.
FIRST NATIONAL PARK BANK. On May 19, 1995, the Company acquired all of
the outstanding ownership of First Park County Bancshares, Inc.
("FPCBI") and its bank subsidiary, First National Park Bank ("FNPB")
for $8,872. The historical carrying value of the net assets of FPCBI as
of the acquisition date were $5,269. The transaction was accounted for
as a purchase and, accordingly, the consolidated statement of income for
the year ended December 31, 1995 includes FPCBI's results of operations
since the date of the purchase. FPCBI was subsequently dissolved and
FNPB became a branch of First Interstate Bank of Commerce in Montana.
FIRST INTERSTATE BANK, FSB. In November 1995, the Company
filed an application with the Office of Thrift Supervision for
permission to form a de novo savings bank in Hamilton, Montana. Upon
approval, the Company capitalized the savings bank at $2,000 and opened
the bank on December 12, 1996.
FIRST INTERSTATE BANK OF MONTANA, N.A. AND FIRST INTERSTATE BANK OF
WYOMING, N.A. On October 1, 1996, the Company acquired all of the
outstanding ownership of First Interstate Bank of Montana, N.A.
(FIBNA-MT) and First Interstate Bank of Wyoming, N.A. (FIBNA-WY). The
transaction was accounted for as a purchase and, accordingly, the
consolidated statement of income for the year ended December 31, 1996
includes FIBNA-MT's and FIBNA-WY's results of operations since the date
of purchase.
MOUNTAIN BANK OF WHITEFISH. On December 18, 1996, the Company acquired
all of the outstanding ownership of Mountain Bank of Whitefish, now
doing business as First Interstate Bank of Whitefish (FIB-Whitefish).
The transaction was accounted for as a purchase and, accordingly, the
consolidated statement of income for the year ended December 31, 1996
includes FIB-Whitefish's results of operations since the date of
purchase. The premiums paid over the historical carrying value of net
assets at the respective dates of purchase were as follows:
F-24
<PAGE>
<TABLE>
<CAPTION>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
- ----------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The premiums paid over the historical carrying value of net assets at
the respective dates of purchase were as follows:
FIBNA-MT FIBNA-WY FIB-Whitefish Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash consideration paid $ 34,622 37,809 7,962 80,393
Historical net assets carrying value 19,557 16,416 3,994 39,967
--------------------------------------------------------------------------------------------------------
Premium paid over historical carrying value $ 15,065 21,393 3,968 40,426
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
The increase (decrease) in net asset values as a result of estimated fair
value adjustments are as follows:
<CAPTION>
FIBNA-MT FIBNA-WY FIB-Whitefish Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Intangible assets:
Core deposit intangible $ 3,920 4,309 - 8,229
Mortgage servicing rights - 1,122 - 1,122
Goodwill 7,392 9,850 3,573 20,815
--------------------------------------------------------------------------------------------------------
Total intangible assets 11,312 15,281 3,573 30,166
--------------------------------------------------------------------------------------------------------
Premises and equipment 3,780 6,327 837 10,944
Investment securities (27) - 13 (14)
Allowance for loan losses - - (455) (455)
Other liabilities - (215) - (215)
--------------------------------------------------------------------------------------------------------
$ 15,065 21,393 3,968 40,426
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
The premium paid and estimated fair value adjustments have been "pushed
down" to the acquired entities. The preliminary allocation of purchase
price is subject to change as fair value estimates are finalized.
The estimated fair value of net assets at the acquisition dates are
summarized as follows:
<CAPTION>
FIBNA-MT FIBNA-WY FIB-Whitefish Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 20,712 24,990 4,132 49,834
Federal funds sold 16,791 32,708 5,900 55,399
Investment securities available-for-sale 1,301 59,014 3,304 63,619
Investment securities held-to-maturity 25,325 10,749 - 36,074
Loans 191,010 172,576 47,799 411,385
Allowance for loan losses (2,983) (7,076) (494) (10,553)
Premises and equipment 8,534 11,934 3,181 23,649
Goodwill 7,392 9,850 3,573 20,815
Other intangibles 3,920 5,431 - 9,351
Other assets 4,394 4,004 3,542 11,940
--------------------------------------------------------------------------------------------------------
276,396 324,180 70,937 671,513
--------------------------------------------------------------------------------------------------------
Deposits 195,484 273,805 54,392 523,681
Federal funds purchased 41,653 8,849 - 50,502
Other liabilities 2,374 1,532 312 4,218
Borrowed funds 2,263 2,185 8,271 12,719
--------------------------------------------------------------------------------------------------------
241,774 286,371 62,975 591,120
--------------------------------------------------------------------------------------------------------
Cash consideration paid $ 34,622 37,809 7,962 80,393
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONCLUDED
- ----------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The information below presents on a pro forma basis, amounts as if
FIBNA-MT, FIBNA-WY, and FIB-Whitefish had been acquired as of January 1,
1996 and 1995 for each year presented.
Years ended December 31, (unaudited) 1996 1995
--------------------------------------------------------------------------
Interest income $ 151,721 142,827
Interest expense 65,404 61,260
--------------------------------------------------------------------------
Net interest income 86,317 81,567
Provision for loan losses 4,955 1,629
--------------------------------------------------------------------------
Net interest income after provision for loan losses 81,362 79,938
Investment security transactions 284 9
Noninterest income 29,988 26,982
Noninterest expense (71,027) (69,008)
--------------------------------------------------------------------------
Income before income taxes 40,607 37,921
Income taxes 15,836 14,387
--------------------------------------------------------------------------
Pro forma net income $ 24,771 23,534
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Pro forma net income per common share $ 11.71 11.13
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The unaudited pro forma information above has been prepared for comparative
purposes only and does not purport to be indicative of the actual results
that would have occurred if the operations had been combined during the
periods presented nor is it intended to be a projection of future results.
(19) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In 1996, the FASB issued SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities,"
which provides guidance on accounting for transfers and servicing of
financial assets, recognition and measurement of servicing assets and
liabilities, financial assets subject to prepayment, secured borrowings
and collateral, and extinguishment of liabilities.
SFAS No. 125 generally requires the Company to recognize as separate
assets the rights to service mortgage loans for others, whether
the servicing rights are acquired through purchases or loan
originations. Servicing rights are initially recorded at fair value
based upon the present value of estimated future cash flows.
Subsequently, the servicing rights are assessed for impairment, with
impairment losses recognized in the statement of income in the period
the impairment occurs. For purposes of performing the impairment
evaluation, the related portfolio must be stratified on the basis of
certain risk characteristics including loan type and note rate. SFAS
No. 125 also specifies that financial assets subject to prepayment,
including loans that can be contractually prepaid or 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. The provisions of SFAS No.
125 apply prospectively to transactions occurring after December 31,
1996. Management expects adoption will not have a material effect on
the consolidated financial position or results of operations of the
Company.
At December 31, 1996, the Company serviced loans for others with a
principal balance outstanding of approximately $140,000.
F-26
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
F-27
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
June 30,
Assets 1997 December 31,
------ (unaudited) 1996
----------- ------------
<S> <C> <C>
Cash and due from banks $ 130,362 160,962
Federal funds sold 19,275 4,945
Interest bearing deposits in banks 37 6,545
Investment securities:
Available-for-sale 83,479 124,502
Held-to-maturity 313,452 279,069
--------------- ------------
396,931 403,571
Loans, net 1,475,852 1,379,871
Less allowance for loan losses 28,757 27,797
--------------- ------------
Net loans 1,447,095 1,352,074
Premises and equipment, net 58,976 58,183
Accrued interest receivable 21,066 19,573
Excess of purchase price over equity in net assets of subsidiaries
less accumulated amortization of $7,284 at June 30, 1997
(unaudited) and $5,971 at December 31, 1996 34,160 39,010
Other real estate owned, net 1,098 1,546
Deferred tax asset 6,629 4,921
Other assets 15,722 16,899
--------------- ------------
$ 2,131,351 2,068,229
--------------- ------------
--------------- ------------
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Noninterest bearing $ 353,189 385,371
Interest bearing 1,319,846 1,294,053
--------------- ------------
Total deposits 1,673,035 1,679,424
Federal funds purchased 61,900 13,450
Securities sold under repurchase agreements 129,538 129,137
Accounts payable and accrued expenses 19,497 22,419
Other borrowed funds 37,272 13,071
Long-term debt 56,184 64,667
--------------- ------------
Total liabilities 1,977,426 1,922,168
Stockholders' equity:
Non-voting noncumulative 8.53% preferred stock without par value;
authorized 100,000 shares; issued and outstanding 20,000 shares 20,000 20,000
Common stock without par value; authorized 5,000,000 shares;
issued and outstanding 1,972,161 shares at June 30, 1997
(unaudited and 1,978,268 shares at December 31, 1996 8,350 8,941
Retained earnings 125,205 116,613
Unrealized holding gain on investment securities available-for-sale, net 370 507
--------------- ------------
Total stockholders' equity 153,925 146,061
--------------- ------------
$ 2,131,351 2,068,229
--------------- ------------
--------------- ------------
Book value per common share $ 67.91 63.72
--------------- ------------
--------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-28
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
------------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 34,903 22,703 68,233 44,600
Interest and dividends on investment securities:
Taxable 5,419 3,480 10,762 6,931
Exempt from Federal taxes 276 262 527 498
Interest on deposit with banks 12 21 97 225
Interest on Federal funds sold 559 117 71 600
--------- --------- --------- ---------
Total interest income 41,169 26,583 80,330 52,854
--------- --------- --------- ---------
Interest expense:
Interest on deposits 14,083 9,648 27,470 19,456
Interest on Federal funds purchased 767 228 1,085 259
Interest on securities sold under repurchase agreements 1,486 977 2,811 2,106
Interest on other borrowed funds 446 57 519 141
Interest on long-term debt 1,199 267 2,488 589
--------- --------- --------- ---------
Total interest expense 17,981 11,177 34,373 22,551
--------- --------- --------- ---------
Net interest income 23,188 15,406 45,957 30,303
Provision for loan losses 1,058 661 2,281 1,152
--------- --------- --------- ---------
Net interest income after provision for loan losses 22,130 14,745 43,676 29,151
Other operating income:
Income from fiduciary activities 989 661 2,022 1,523
Service charges on deposit accounts 2,531 1,803 4,910 3,518
Data processing 1,826 1,781 3,667 3,822
Other service charges, commissions, and fees 1,047 669 1,939 1,293
Net investment securities gains 15 -- 73 2
Other income 452 281 874 582
--------- --------- --------- ---------
Total other operating income 6,860 5,195 13,485 10,740
--------- --------- --------- ---------
Other operating expenses:
Salaries and wages 7,215 5,000 14,202 9,897
Employee benefits 1,836 1,293 3,832 2,663
Occupancy expense, net 1,481 1,001 3,081 2,040
Furniture and equipment expense 1,935 1,461 3,754 2,751
Other real estate expense (income), net 19 (70) (115) (159)
Other expenses 5,798 3,090 11,233 6,015
--------- --------- --------- ---------
Total other operating expenses 18,284 11,775 35,987 23,207
--------- --------- --------- ---------
Income before income taxes 10,706 8,165 21,174 16,684
Income tax expense 4,074 3,131 8,080 6,414
--------- --------- --------- ---------
Net income $ 6,632 5,034 13,094 10,270
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income per common share $ 3.13 2.58 6.17 5.26
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends per common share .98 .81 1.85 1.52
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding 1,984,562 1,948,672 1,984,177 1,950,723
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-29
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the six months
ended June 30,
-----------------------------------
1997 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 13,094 $ 10,270
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan and other real estate losses 2,277 1,152
Depreciation and amortization 4,153 2,239
Net premium amortization on investment securities 289 614
Gain on sales of investments (73) (2)
Gain on sales of other real estate owned (190) (218)
(Gain) loss on sales of property and equipment (14) 1
Provision for deferred income taxes (1,655) (1,476)
Increase in interest receivable (1,493) (1,344)
Decrease in other assets 1,177 250
Increase (decrease) in accounts payable and accrued expenses 615 (501)
--------------- ---------------
Net cash provided by operating activities 18,180 10,985
--------------- ---------------
Cash flows from investing activities:
Purchases of investment securities:
Held-to-maturity (333,219) (40,994)
Available-for-sale (237) (11,509)
--------------- ---------------
(333,456) (52,503)
Proceeds from maturities and paydowns of investment securities:
Held-to-maturity 298,953 53,773
Available-for-sale 9,579 8,754
--------------- ---------------
308,532 62,527
Proceeds from sales of available-for-sale investment securities 31,158 -
Decrease in interest bearing deposits in banks 6,508 22,007
Extensions of credit to customers, net of repayments (99,191) (71,642)
Recoveries of loans charged-off 1,652 649
Proceeds from sales of other real estate 879 482
Capital expenditures, net (3,619) (3,013)
--------------- ---------------
Net cash used in investing activities (87,537) (41,493)
--------------- ---------------
Cash flows from financing activities:
Net decrease in deposits (6,389) (16,582)
Net increase in Federal funds and repurchase agreements 48,851 11,984
Net increase in other borrowed funds 24,201 3,814
Proceeds from long-term borrowings 1,750 424
Repayment of long-term borrowings (10,233) (6,057)
Proceeds from issuance of common stock 139 277
Payments to retire common stock (730) (931)
Dividends paid on common stock (3,656) (2,957)
Dividends paid on preferred stock (846) -
--------------- ---------------
Net cash provided by (used in) by financing activities 53,087 (10,028)
--------------- ---------------
Net decrease in cash and cash equivalents (16,270) (40,536)
Cash and cash equivalents at beginning of period 165,907 143,042
--------------- ---------------
Cash and cash equivalents at end of period 149,637 102,506
--------------- ---------------
--------------- ---------------
</TABLE>
Noncash Investing and Financing Activities:
The Company transferred loans of $237 and $197 to other real estate owned
during the six months ended June 30, 1997 and 1996, respectively.
SEE ACCOMPANYING NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
F-30
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (all of which are of a normal
recurring nature) necessary to present fairly the consolidated financial
position at June 30, 1997 and December 31, 1996, and the results of
consolidated operations and cash flows for each of the six month periods
ended June 30, 1997 and 1996 in conformity with generally accepted
accounting principles. The balance sheet information at December 31, 1996
is derived from audited consolidated financial statements, however, certain
reclassifications have been made to conform to the June 30, 1997
presentation.
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities." SFAS No. 125 requires the Company to recognize as separate
assets the rights to service mortgage loans for others, whether the
servicing rights are acquired through purchases or loan originations.
Servicing rights are initially recorded at fair value based upon the
present value of estimated future cash flows. Subsequently, the servicing
rights are assessed for impairment, with impairment losses recognized in
the statement of income in the period the impairment occurs. For purposes
of performing the impairment evaluation, the related portfolio must be
stratified on the basis of certain risk characteristics including loan
type and note rate. SFAS No. 125 also specifies that financial assets
subject to prepayment, including loans that can be contractually prepaid or
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. The
Company adopted the provisions of SFAS No. 125 as of January 1, 1997. The
adoption did not have a material effect on the financial position or
results of operations of the Company.
(2) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, amounts due from banks and Federal funds sold for one-day-
periods.
(3) COMPUTATION OF EARNING PER SHARE
Earnings per common share are computed by dividing net income less
preferred stock dividends by the weighted average number of shares of
common stock outstanding during the period presented. Stock options
outstanding are considered common stock equivalents, and are included in
computations of weighted average shares outstanding.
F-31 (continued)
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(4) CASH DIVIDENDS
On July 21, 1997, the Company paid a cash dividend on second quarter
earnings of $1.00 per share to stockholders of record on that date. It has
been the Company's practice to pay quarterly dividends based upon earnings.
The July 1997 dividend represents 30% of the Company's net income for the
quarter ended June 30, 1997.
(5) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the three month and six
month periods ended June 30, 1997 and 1996 are summarized below:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
----------------------- ---------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $28,393 15,242 27,797 15,171
Provision charged to operating expense 1,058 661 2,281 1,152
Less loans charged-off (1,612) (903) (2,973) (1,566)
Add back recoveries of loans previously
charged-off 918 406 1,652 649
------- ------- ------ ------
Balance at end of period $28,757 15,406 28,757 15,406
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
(6) OTHER REAL ESTATE OWNED (OREO)
Other real estate owned consists of the following:
<TABLE>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
Other real estate $1,560 2,057
Less allowance for OREO losses 462 511
------ -----
$1,098 1,546
------ -----
------ -----
</TABLE>
F-32 (Continued)
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
A summary of transactions in the allowance for OREO losses follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $ 466 548 511 554
Provision (reversal)during the period (4) - (4) -
Loss on dispositions - - (45) (6)
------ ------ ------ ------
Balance at end of period 462 548 462 548
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
Changes in the balance of other real estate owned for the six months ended
June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------------------
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of period $2,057 1,903
Add transfers from loans 237 197
Less writedowns charged to reserves (45) -
Cash proceeds from sales 879 482
Less gains on sales 190 218
--- ---
Net basis of OREO sold (689) (264)
------ ------
Balances, end of period $1,560 $1,836
------ ------
------ ------
</TABLE>
(7) ACQUISITIONS
On February 5, 1997, First Interstate Bank of Montana, N.A. purchased the
assets of Mountain Financial, a loan production office located in Eureka,
Montana. The total cash purchase price of the assets acquired aggregated
$1,726, of which $166 was for premises and equipment and the remaining
$1,560 was for loans acquired.
During June 1997, the Company finalized its allocation of purchase price
related to the 1996 acquisitions of First Interstate Bank of Montana, N.A.,
First Interstate Bank of Wyoming, N.A. and Mountain Bank of Whitefish.
Changes in preliminary estimates of the fair value of loans, other assets
and other liabilities resulted in a $3.5 million decrease in goodwill.
F-33 (Continued)
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(8) COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is named or threatened to be
named as defendant in various lawsuits, some of which involve claims for
substantial amounts of actual and/or punitive damages. With respect to
each of these suits it is the opinion of management, following consultation
with legal counsel, the suits are without merit or in the event the
plaintiff prevails, the ultimate liability or disposition thereof will not
have a material adverse effect on the consolidated financial condition or
the results of operations.
During 1985, the Company entered into a partnership agreement with two
outside parties for the purpose of purchasing certain land and building
with an aggregate cost of approximately $20,000. The Company is a tenant
in the building and owns a 50% undivided interest in the property.
Indebtedness of the partnership in the amount of $10,617 at June 30, 1997
is guaranteed by each of the partners.
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. These instruments involve, in
varying degrees, elements of credit and interest rate risk in excess of
amounts recorded in the consolidated balance sheet.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the Company to guarantee the performance of a
customer to a third party. Most commitments extend for no more 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 Company holds 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 Company evaluates each customer's creditworthiness on a case-by-case
basis. The amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, 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.
F-34 (Continued)
<PAGE>
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(Dollars in thousands)
(9) ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share," which
simplifies the standards for computing earnings per share ("EPS") by
replacing the presentation of primary EPS with a presentation of basic EPS
on the face of the income statement for all entities with complex capital
structures. SFAS No. 128 also requires a reconciliation of the numerator
and the denominator of the basic EPS computation to the numerator and
denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or resulted in the issuance of common stock that then shared
in the earnings of the entity.
This statement is effective for financial statements issued for periods
ending after December 15, 1997. Earlier application is not permitted.
Once effective, this statement requires restatement of all prior period EPS
data. Pro forma basic and diluted net income per share as determined under
this statement will not differ from amounts currently reported by the
Company.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which lists required disclosures about capital
structure that had been included in a number of previously existing
separate statements and opinions. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. This
statement requires that all items required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. This statement does not require a specific format
for that financial statement but requires that an entity display an amount
representing comprehensive income for the period in that financial
statement.
This statement requires that an entity (a) classify items of other
comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in-capital in the equity section
of a statement of financial position.
This statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required.
F-35
<PAGE>
SHAREHOLDER'S AGREEMENT
THIS AGREEMENT is made this ____ day of _____, 19__, by and between
________________________________ herein referred to as "Shareholder", and FIRST
INTERSTATE BANCSYSTEM OF MONTANA, INC., a Montana corporation, 401 North 31st
Street, Billings, Montana 59101, herein referred to as the "Corporation".
W I T N E S S E T H :
A. Shareholder owns shares of capital stock of the Corporation, which
stock, together with any additional stock here-after acquired by Shareholder, is
herein referred to as the "Shares".
B. Except with respect to the Corporation stock addressed by a separate
agreement, the Corporation desires to restrict the issuance and holding of its
corporate stock to officers, directors and employees of the Corporation or any
of its subsidiaries, or to fiduciaries for the benefit of any such persons.
Such persons' status as director, officer or employee shall be herein referred
to as the "Shareholders' Relationship with the Corporation".
C. The Corporation and Shareholder desire to obligate each other to sell
and purchase shares under specified circumstances.
NOW, THEREFORE, in consideration of the above facts and the Shareholder's
and the Corporation's mutual promises herein, the Shareholder and the
Corporation agree as follows:
1. RESTRICTION ON TRANSFER OR PLEDGE OF SHARES. Except as otherwise
provided in this Agreement or as agreed upon in writing by the Shareholder and
the Corporation, Shareholder shall not transfer or permit to be transferred,
whether voluntarily, involuntarily or by operation of law, resulting from death
or otherwise, any or all of the Shares now owned or hereafter acquired by
Shareholder, and any attempted transfer in violation of this Agreement shall be
void. Shareholder shall not encumber or use any Shares as security for a loan,
except upon the written consent of the Corporation.
2. PURCHASE OPTION UPON BONA FIDE SALE. If a Shareholder intends to sell
any Shares to any person other than the Corporation, Shareholder shall give
ninety (90) days' written notice to the Corporation of the intention to sell
Shares. The notice, in addition to stating the fact of the intention to sell
Shares, shall state (i) the number of Shares to be sold, (ii) the name and
address of the proposed purchaser, (iii) the amount of the consideration and the
other terms of the sale. At the request of the Corporation, Shareholder shall
demonstrate to the reasonable satisfaction of the Corporation that the intended
sale is bona fide. Within ninety (90) days of the Corporation's receipt of the
notice of intention to sell Shares, the Corporation may exercise an option to
purchase all but not less than all of the Shares proposed to be sold.
3. PURCHASE OPTION UPON DEATH. Upon Shareholder's death, the Corporation,
within ninety (90) days of the appointment of a personal representative for the
deceased Shareholder's estate, for which written notice must be given by said
personal representative within ten (10) days of appointment, may exercise an
1
EXHIBIT A
---------
<PAGE>
option to purchase all but not less than all of the deceased Shareholder's
Shares from the personal representative of his or her estate.
4. PURCHASE OPTION UPON INVOLUNTARY TRANSFER. If other than by reason of
Shareholder's death, Shares are transferred by operation of law to any person
other than the Corporation (such as but not limited to a shareholder's trustee
in bankruptcy, a purchaser at any creditor's or court sale or the guardian or
conservator of an incompetent shareholder), Shareholder shall immediately give
written notice to the Corporation of such transfer. The Corporation, within
ninety (90) days of the Corporation's receipt of actual notice of the transfer,
may exercise an option to purchase all but not less than all of the Shares so
transferred.
5. PURCHASE OPTION UPON TERMINATION OF RELATIONSHIP WITH THE CORPORATION.
Upon the termination of Shareholder's Relationship with the Corporation, such
termination being for any reason whatsoever, including but not limited to the
voluntary resignation of Shareholder, the Corporation, within ninety (90) days
of the date of such termination, may exercise an option to purchase all but not
less than all of the Shares owned by the terminated Shareholder at the time of
such termination.
6. PURCHASE OPTION UPON DISABILITY. If Shareholder shall become totally
disabled, the Corporation, within ninety (90) days of the date of such total
disability, may exercise an option to purchase all but not less than all of the
Shares owned by the disabled Shareholder at the time of the commencement of his
or her total disability. A shareholder shall be deemed totally disabled within
the meaning of this paragraph 6 if as a result of sickness, accident or injury,
he or she become wholly and continuously unable to perform his or her duties for
a period of six consecutive months, and his or her disability shall be deemed to
have commenced at the end of said six-month period.
7. GENERAL CORPORATE PURCHASE OPTION. Upon determination by the
Corporation's Compensation Committee of the Board of Directors that the number
of Shares held by Shareholder is excessive in view of the Corporation's policy
that the level of a shareholder's stock ownership should reflect certain
factors, including but not limited to (a) the relative contribution of
Shareholder to the economic performance of the Corporation, (b) the effort being
put forth by Shareholder, and (c) the level of responsibility of Shareholder,
the Corporation may exercise an option to purchase a portion of Shareholder's
Shares sufficient to decrease the number of Shares owned by the Shareholder to
an amount that the Compensation Committee, in its sole discretion, believes is
appropriate. The Corporation shall not exercise said option in anticipation of
a sale of the Corporation or a majority of the Corporation's stock and the
Corporation agrees to exercise said option in a nondiscriminatory fashion. The
number of Shares that the Corporation can purchase from Shareholder is limited
to the stock obtained by the Shareholder after January 1, 1994.
8. EXERCISE OF OPTION. The Corporation shall exercise the Option granted
in paragraphs 2, 3, 4, 5, or 6 by delivering written notice of its exercise of
the option, within the times provided in said paragraphs, to the Shareholder in
the case of a paragraph 2 option, to the personal representative of
Shareholder's estate in the case of a paragraph 3 option, to the transferee in
the case of a paragraph 4 option, to the terminated Shareholder in the case of a
paragraph 5
2
<PAGE>
option, and to the disabled shareholder in the case of a paragraph 6 option.
The Corporation shall exercise the option granted in paragraph 7 by delivering
written notice of its exercise of the option, specifying the number of Shares to
be purchased, to the Shareholder.
9. EFFECT OF NON-EXERCISE OF OPTIONS. If the purchase options are
forfeited or not exercised in compliance with the terms of this Agreement then
the Shares to which the option applied shall be unrestricted and no longer
subject to the terms of this Agreement.
10. THE PURCHASE PRICE. The purchase price of Shares shall be their
Appraised Value on the Closing Date determined using the most recent quarterly
appraisal available to the Corporation, less any dividends paid to Shareholder
since said appraisal. The Corporation's Shares shall be appraised as of the
last day of each calendar quarter by an unaffiliated firm qualified to make such
an appraisal. The expense of determining the Appraised Value shall be borne by
the Corporation.
The Corporation may, at its option, withhold any amount that the
Shareholder owes the Corporation or its subsidiaries from the amount of the
Purchase Price payable to Shareholder and apply said amount to such
indebtedness.
11. PAYMENT OF THE PURCHASE PRICE.
11.1 PAYMENT TERMS. The purchase price for Shares shall be paid either in
cash at closing or, at Shareholder's election, in installments as follows:
(a) 25% of the purchase price at the closing.
(b) The balance of the purchase price in three (3) equal
consecutive annual amortized installments, including interest
at an annual rate equal to the four-year Certificate of
Deposit rate being paid by First Interstate Bank of Commerce
on the date of closing, the first installment to be paid one
year after the closing, and the remaining installments each
year thereafter.
11.2 PROMISSORY NOTE ON DEFERRED PORTION. The deferred portion of the
purchase price, if any, shall be evidenced by the promissory note of the
Corporation made payable to the order of the Shareholder. The Corporation note
shall be in substantially the form of that set forth in Exhibit A.
12. THE CLOSING.
12.1 TIME AND PLACE. Unless otherwise agreed by the parties, the closing
of the sale and purchase of Shares, as provided in this Agreement, shall take
place at the general offices of the Corporation. In the case of a purchase of
Shares from a deceased Shareholder's estate under paragraph 3, the closing shall
take place within one hundred twenty (120) days after the appointment of a
3
<PAGE>
personal representative for the deceased Shareholder's estate. In the case of a
purchase of Shares under paragraphs 2, 4, 5, 6 or 7, the closing shall take
place ten (10) days after the delivery to the Shareholder of written notice by
the Corporation of its exercise of the option to purchase the Shareholder's
Shares.
12.2 DOCUMENTS. At the closing of the sale and purchase, the Shareholder
and the Corporation shall execute and immediately deliver to each other the
various documents which shall be required to carry out their undertakings
hereunder, including but not limited to the payment of cash, the execution and
delivery of notes and the assignment and delivery of stock certificates free and
clear of all taxes, debts, claims, judgments, liens or encumbrances whatsoever.
13. LEGEND ON CERTIFICATES. All Shares now or hereafter owned by
Shareholder shall be subject to the provisions of this Agreement and
Shareholder, and his or her transferee or successor agrees that the certificates
representing same shall bear the following legend reciting the existence of the
Agreement:
The sale, transfer or encumbrance of this certificate is subject to an
agreement to restrict transfer or acquisition of the shares. A copy of the
agreement is on file in the office of the secretary of the Corporation.
Any transfer or acquisition in violation of the agreement is null and void.
Upon the execution of this Agreement, Shareholders shall immediately temporarily
surrender his or her stock certificates to the Corporation and the Corporation
shall cause the above legend to be placed thereupon before returning the
certificates.
14. REISSUED SHARES. The Corporation shall have the right to substitute
or reissue stock in exchange for the Shares in the event of merger,
consolidation, name change, sale, spin off or other corporate reorganization as
long as said corporate action does not result in the corporation's stock being
publicly traded, in which event this Agreement shall automatically terminate.
Substituted or reissued stock shall be subject to the terms of this Agreement.
15. TERMINATION.
15.1 EVENTS CAUSING TERMINATION. This Agreement and all restrictions on
stock transfer created hereby shall be effective as of the date hereof and shall
terminate on the occurrence of the bankruptcy, receivership or dissolution of
the Corporation, or the execution of a written instrument by the Corporation and
the party or parties who then own Shares subject to this Agreement which
terminates the same.
15.2 SURVIVAL OF RIGHTS AND REMEDIES. The termination of this Agreement
for any reason shall not affect any right or remedy existing hereunder prior to
the effective date of termination hereof.
16. GENERAL PROVISIONS.
16.1 REMEDIES. The parties agree that they will not have an adequate
remedy at law for the breach of this Agreement because, among other reasons, the
Shares cannot readily be purchased or sold on the open market. The parties
shall have available for any breach of this Agreement the remedies of specific
4
<PAGE>
performance and injunctive relief, together with all other remedies at law or in
equity. No waiver of or forbearance to enforce any right or provision hereof
shall be binding unless in writing and signed by the party to be bound, and no
such waiver or forbearance in any instance shall apply to any other instance or
any other right or provision.
16.2 MODIFICATION OR TERMINATION. This Agreement may not be modified or
terminated orally, and no modification, termination, amendment, or attempted
waiver shall be valid unless in writing signed by the party against whom the
agreement is sought to be enforced.
16.3 GOVERNING LAW. This Agreement shall be governed for all purposes by
the laws of the State of Montana.
16.4 SEVERABILITY. Each term and provision of this Agreement is intended
to be enforced to the maximum extent permitted by applicable law. If any term
or provision of this Agreement or the applicability thereof to any person or
circumstances, shall to any extent be invalid or unenforceable, the remainder of
this Agreement, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and shall continue in full force and effect.
16.5 NOTICES. All notices provided for by this Agreement shall be made in
writing, (1) either by actual delivery of the notice into the hands of the
parties thereunto entitled; (2) or by the mailing of the notice in the U.S.
mails to the last known address of the party entitled thereto, certified mail,
return receipt requested. The notice shall be deemed to be received in case
(1), on the date of its actual receipt by a party and in case (2), on the date
of its mailing. Any notice to be given by Shareholder shall be given on the
form of notice attached hereto as Exhibit B.
16.6 BINDING EFFECT. This Agreement is binding upon and inures to the
benefit of the Corporation and the Shareholder and his or her respective heirs,
personal representatives, successors and assigns, and the shareholder by the
signing hereof directs his or her personal representatives to open their estates
promptly in the court of proper jurisdiction and execute, procure and deliver
all documents, including, but not limited to appropriate order of such court and
estate and inheritance tax waivers, as shall be required to effectuate the
purposes of this Agreement.
16.7 TIME. Time shall be of the essence of this Agreement.
16.8 HEADINGS. The headings used herein are for convenience only, and
shall not be construed as a part of this Agreement or as a limitation on the
scope of the particular paragraphs to which they refer.
16.9 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding of the parties, and supersedes any and all prior negotiations and
understandings. This Agreement shall not be modified, amended or changed in any
respect except by written documents signed by all parties hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
set forth on page 1.
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
By
------------------------------------------
Terrill R. Moore, Secretary
"Corporation"
- -------------------------
"Shareholder"
6
<PAGE>
EXHIBIT A
$_____________ ______________
Billings, Montana
PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of _____
______, at _________________, or such other place as is designated from time to
time by the holder of this note, in lawful money of the United States, the sum
of __________________________________________________________________
($_________) in the following manner:
$_________ principal plus accrued interest on ________, ____, and a like
sum on the same day of each succeeding year thereafter until the full
amount due hereunder has been paid.
Each payment shall be applied first to accrued interest on the entire
outstanding principal balance from time to time at the rate of ____% per
annum from the date hereof and then to principal. The undersigned may not
make advance payments on principal.
Any installment of principal or interest payable hereunder, or any part
thereof, which is not paid when due, shall thereafter bear interest at the rate
equal to six percent (6%) over the First Interstate Bank of Denver, N.A. prime
rate.
If any payment due hereunder remains unpaid for more than thirty (30) days
after it is due, the holder hereof may, at its option, declare the entire unpaid
balance of principal and interest hereunder to be immediately due and payable.
Waiver by the holder hereof of any default by the undersigned shall not
constitute a waiver by the holder of a subsequent default. Failure by the
holder to exercise any right, power or privileges which it may have by reason of
a default by the undersigned shall not preclude the exercise of such right,
power or privilege so long as such default remains uncured or if a subsequent
default occurs.
The undersigned agrees to pay all costs of collection, including a
reasonable attorney's fee, if this note is placed in the hands of an attorney
for collection after default, and hereby waives demand, presentment for payment,
protest, notice of protest, and notice of dishonor.
Words used in the singular herein shall include the plural.
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
By:
------------------------------------------
Its:
----------------------------------------
<PAGE>
EXHIBIT B
NOTICE
To: First Interstate BancSystem of Montana, Inc.
401 North 31st Street
Billings, MT 59101
Pursuant to the Shareholder's Agreement between
________________________________ ("Shareholder") and First Interstate BancSystem
of Montana, Inc. ("Corporation") dated ______________, the undersigned hereby
gives notice of:
(Check One)
_____ The undersigned shareholder's intention to sell Shares as follows:
- Number of Shares: ____________
- Proposed Purchaser
and Address: __________________________
__________________________
__________________________
- Consideration: __________________________
- Terms of Sale: __________________________
_____ The appointment of the undersigned as personal representative of
Shareholder's Estate on __________________________.
_____ The involuntary transfer of Shareholder's Shares
Dated: ______________________________________
__________________________________
<PAGE>
ADDENDUM TO SHAREHOLDER'S AGREEMENT DATED , BETWEEN
, SHAREHOLDER, AND FIRST INTERSTATE
BANCSYSTEM OF MONTANA, INC., CORPORATION
THIS AGREEMENT is made this ____ day of _________________, 19__, by and
between _______________________________, herein referred to as "Shareholder",
___________________________, herein referred to as "Fiduciary", and FIRST
INTERSTATE BANCSYSTEM OF MONTANA, INC., a Montana corporation, herein referred
to as the "Corporation", as an addendum to the Shareholder's Agreement dated
_______________, by and between Shareholder and the Corporation, herein referred
to as the "Shareholder's Agreement."
W I T N E S S E T H:
A. Shareholder's Shares are held by Fiduciary for the benefit of
Shareholder.
B. Shareholder and the Corporation desire to bind Fiduciary to the terms
and conditions of the Shareholder's Agreement.
NOW, THEREFORE, the parties agree as follows:
1. FIDUCIARY TO BE BOUND BY SHAREHOLDER'S AGREEMENT. The parties agree
that Fiduciary, as custodian of or trustee over Shareholder's Shares, is bound
by the terms and conditions of the Shareholder's Agreement and is obligated to
manage and control said Shares in accordance with the restrictions and
obligations of the Shareholder's Agreement.
2. RATIFICATION OF SHAREHOLDER'S AGREEMENT. The parties agree that
except as modified herein, the terms and conditions of the Shareholder's
Agreement are hereby confirmed and ratified.
IN WITNESS WHEREOF, the parties have executed this agreement on the date
set forth above.
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
By:
-----------------------------------------
Terrill R. Moore, Secretary
"CORPORATION"
________________________________
"SHAREHOLDER"
By:
----------------------------
Its:
----------------------------
"FIDUCIARY"
<PAGE>
[LETTERHEAD]
July 22, 1997
For the Trustees of the
First Interstate BancSystem of Montana, Inc.
401(k) and Profit Sharing Plan
c/o Mr. Richard C. Fellows
Senior Vice President, Trust Financial Services
First Interstate Bank of Commerce
P.O. Box 30918
Billings, Montana 59116-0918
Re: Fair market valuation of a minority block of the outstanding common stock
of First Interstate BancSystem of Montana, Inc., Billings, Montana as of
June 30, 1997
Dear Trustees:
Pursuant to your request, we are presenting to you our fair market valuation
of a minority block of the common stock of First Interstate BancSystem of
Montana, Inc., Billings, Montana (the "Company"). We previously valued the
shares as of March 31, 1997. We are a qualified appraiser within the meaning of
Internal Revenue Code Regulation 1.170A-13(c)(5).
Alex Sheshunoff & Co. Investment Banking renders valuation opinions of banks,
bank holding companies, thrifts and other financial institutions nationwide. As
part of our valuation business, we render opinions for tax purposes, estate
planning, employee stock ownership plans, private placements, buy/sell
agreements, initial public offerings, secondary offerings, dissenters' rights
proceedings, mergers and acquisitions including fairness opinions, and other
purposes. We are experts in the valuation of common stock of entities engaged
in the lines of business of the Company. The staff of Alex Sheshunoff & Co.
Investment Banking are qualified appraisers and exhibit such through our
extensive experience performing over 1,500 appraisals of banks and bank holding
companies over the past 5 years.
In preparing the valuation report, we reviewed information regarding the
Company's financial performance and condition for the three years ending
December 31, 1996 and the six months ending June 30, 1997. We received
from the Company projected income, asset growth, book value, and dividends
for the five fiscal years ending December 31, 2001. We did not verify the
accuracy of such information and assumed it to be accurate in all
EXHIBIT B
---------
<PAGE>
Trustees of the First Interstate BancSystem of Montana, Inc.
401(k) and Profit Sharing Plan
July 22, 1997
Page 2
material respects. We did not independently value the assets and liabilities
of the Company and have not been furnished with appraisals. We also reviewed
other publicly available information regarding the market for bank and bank
holding company common stock and economic conditions in the Company's market
area. We believe such publicly available information to be accurate;
however, we cannot guarantee the accuracy of such information.
We valued the shares at their "fair market value" as of the valuation date.
Fair market value is defined as the price at which the shares would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell. Both
parties are assumed to be able and willing to trade and are well informed about
all relevant factors impacting the value of the shares and their market.
We considered the Company as a going-concern under its current business
strategy and did not value the shares based upon a liquidation or other
restructuring of the Company. We believe that the most useful valuation
approach under the fair market valuation method is to derive the value of
shares based upon the price of comparable transactions of institutions in the
same lines of business as the Company. However, because the market for the
Company's common stock is relatively illiquid, we have presented the value of
such shares utilizing the net present valuation method as well. We also
considered the appropriate adjustments to the shares as a result of the lack
of marketability of such shares and the terms of the Company's 401(k) and
Profit Sharing Plan (the "Plan").
In arriving at our opinion of the fair market value of the shares, we considered
the financial performance and condition of the Company and its subsidiary
including future earnings and dividend paying capacity, the economic outlook of
the trade area and the banking industry in general, previous sales of the
Company's stock, the size of the shares being valued, and the market price of
selected comparable banking institutions.
It is our opinion that as of June 30, 1997, the fair market value of the
minority block of the outstanding common stock was $95.00 per share. Our
valuation of the shares shall not be construed and is not intended to be a
recommendation with respect to the purchase or sale of the common stock of
the Company. Our valuation is solely our opinion of the fair market value of
the shares and may be materially different at any date other than the
valuation date indicated herein. The application of the valuation
methodologies utilized in arriving at our opinion is discussed in the
accompanying valuation report, which should be read in its entirety to fully
understand our conclusion.
EXHIBIT B
---------
<PAGE>
Trustees of the First Interstate BancSystem of Montana, Inc.
401(k) and Profit Sharing Plan
July 22, 1997
Page 3
Our valuation of the shares is provided for the use of the Trustees
pursuant to the Plan and for use by the Company in connection with its
proposed 1997 offering of common stock to certain officers, directors and
employees of the Company and to participants in the Plan. Without the
consent of Alex Sheshunoff & Co. Investment Banking, it may not be used for
any other purpose than that stated above and may not be quoted in whole or in
part, or otherwise referred to in any report or document, or furnished or
otherwise communicated to any other person without the consent of Alex
Sheshunoff & Co. Investment Banking. However, we do not object to one or
more participants being afforded the opportunity to review our valuation
letter and report upon their specific request to do so, provided they are
supplied with this letter and the entire report herein. We do not object to
the disclosure of this letter and report herein to any advisor, lender or
consultant or other individual or entity for use in connection with the
valuation requirements of the Plan. This letter and report herein shall not
be provided to the Internal Revenue Service unless the IRS specifically
requests the information. Please advise us in writing if such a request is
made.
Respectfully Submitted,
/s/ Gerard A. Feil
ALEX SHESHUNOFF & CO.
INVESTMENT BANKING
EXHIBIT B
---------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Capitalized terms used but not defined in Part II have the meanings
ascribed to them in the Prospectus contained in this Registration Statement.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses expected to be incurred in
connection with the registration of the securities to be offered hereunder,
all of which expenses, except the Commission registration fee, are estimated:
Securities and Exchange Commission registration fee $ 1,818
Printing and Miscellaneous 22,000
Legal Fees and Expenses 25,000
Accounting Fees and Expenses 10,000
Blue Sky Fees 1,900
Registrar and Transfer Agent Fees -
-------
Total $60,718
-------
-------
The Company will pay all expenses of issuance and distribution of the
securities to be offered hereunder.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Officers and directors of FIBM are entitled to indemnification under the
Montana Business Corporation Act and pursuant to a Resolution of the Board of
Directors dated January 12, 1987. A summary of the indemnification
provisions follows:
Pursuant to a Resolution of the Board of Directors dated January 12, 1987 and
under the authority of Section 35-1-414 of the Montana Business Corporation
Act, FIBM shall indemnify each director and officer of FIBM (including former
officers and directors) and each agent of FIBM serving as a director or
officer of a subsidiary bank of FIBM, serving at the specific direction or
request of FIBM (but only to the extent that such director, officer or agent
is not indemnified by the subsidiary bank or by insurance provided by FIBM)
against judgments, penalties, fines, settlements and reasonable expenses
actually and reasonably paid by such director, officer or agent by reason of
the fact that he or she is or was a director or officer of FIBM or such
subsidiary bank, to the extent provided by and subject to the limitations of
the Montana Business Corporation Act (which indemnification and limitations
as of the date of the adoption of this bylaw and set forth in Section 35-1-414
of the Montana Code Annotated).
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
FIBM pursuant to the foregoing provisions, or otherwise, FIBM has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by FIBM of expenses incurred
or paid by a director, officer or controlling person of FIBM in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, or controlling person in connection with the securities
being registered, FIBM will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court or appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
1. FIBM has issued bonuses of common stock to certain key officers of the
Company in January, 1997, and in January of each of the past three years.
The dates of issuance, total number of shares issued, per share value of the
stock, and total dollar amount of stock issued as officer bonuses are as
follows:
Number Per Share Total Dollar
Date of Shares Value Amount
---- --------- ---------- ------------
January, 1997 1,009 $80.21 $80,932
January, 1996 849 $70.71 $60,033
January, 1995 864 $63.20 $54,605
January, 1994 1,146 $47.25 $54,149
Exemption from registration of the stock was claimed because no offer or sale
of the stock was made, as defined in Section 2(3) of the Securities Act
of 1933. The stock was issued by FIBM without any election or decision of the
officers to participate, and the officers had no option to receive cash or
other consideration in lieu of stock.
2. FIBM has issued stock options and stock appreciation rights to key
officers of the Company in January, 1997, and in January of each of the past
three years, pursuant to its Stock Option and Stock Appreciation Rights Plan.
See "MANAGEMENT - EXECUTIVE AND DIRECTOR COMPENSATION - Stock Option and
Stock Appreciation Rights Plan." Exemption from registration of the stock
options and stock appreciation rights was claimed because no offer or sale of
the stock options or appreciation rights was made, as defined in Section 2(3)
of the Securities Act of 1933. The stock options and appreciation rights
were issued by FIBM without any election or decision of the officers to
participate, and the officers had no option to receive cash or other
consideration in lieu of stock options and appreciation rights. These
transactions are also exempt under Section 4(2) of the Securities Act of
1933. The stock options and stock appreciation rights were issued privately
by FIBM only to key officers of the Company. The grantees in each case were
people generally familiar with the business, management and financial
information of the Company. Stock options and stock appreciation rights were
issued to 35 key officers in 1997, 35 key officers in 1996, 34 key officers
in 1995 and 30 key officers in 1994.
3. On January 28, 1994, outstanding stock options were exercised for the
purchase of 2,271 shares of FIBM common stock at an exercise price of $21.43,
paid in cash in each instance, for a total of $48,668. The options were
exercised by Company key officers who had received the options pursuant to
the Company's Stock Option and Stock Appreciation Rights Plan.
On October 1, 1994, outstanding stock options were exercised for the purchase
of 1,292 shares of FIBM common stock at exercise prices ranging from $16.18
to $18.97, paid in cash, for a total of $22,241. The options were exercised
by a retiring key officer of the Company who had received the options
pursuant to the Company's Stock Option and Stock Appreciation Rights Plan.
On November 4, 1994, outstanding stock options were exercised for the
purchase of 2,305 shares of FIBM common stock at an exercise price of $16.18,
paid in cash in each instance, for a total of $37,295. The options were
exercised by Company key officers who had received the options pursuant to
the Company's Stock Option and Stock Appreciation Rights Plan. The number of
key officers who exercised stock options in 1994 was twelve.
On January 20 and 27, 1995, outstanding stock options were exercised for the
purchase of 5,053 shares of FIBM common stock at an exercise price of
$49.48 per share, paid in cash in each instance, for a total of $250,022.
The options were exercised by Company key officers who received the options
pursuant to the Company's Stock Option and Stock Appreciation Rights Plan.
The number of key officers who exercised stock options in 1995 was eight.
On January 19, 1996, outstanding stock options were exercised for the
purchase of 2,845 shares of FIBM common stock at an exercise price of
$17.20 per share and 1,534 shares of FIBM common stock at an exercise price
of $24.62 per share, paid in cash in each instance, for a total of $86,701.
The options were exercised by Company key officers who received the options
pursuant to the Company's Stock Option and Stock Appreciation Rights Plan.
The number of key officers who exercised stock options in 1996 was fifteen.
II-2
<PAGE>
On January 13, 1997, outstanding stock options were exercised for the
purchase of 2,192 shares of FIBM common stock at an exercise price of
$18.25 per share paid in cash in each instance, for a total of $40,004. The
options were exercised by Company key officers who received the options
pursuant to the Company's Stock Option and Stock Appreciation Rights Plan.
The number of key officers who exercised stock options in 1997 was seven.
Exemption from registration was claimed under Section 4(2) of the Securities
Act of 1933. The stock options exercised were privately offered and sold
only to key officers of the Company, who were familiar with the business,
management and financial information of the Company.
ITEM 16. EXHIBITS
(a) EXHIBITS
3.1 Articles of Incorporation and the amendments thereto of FIBM
3.1.1 Articles of Amendment to Restated Articles of Incorporation
dated September 1, 1996 (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
3.1.2 Articles of Amendment to Restated Articles of Incorporation
dated September 1, 1996 (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
3.2 Bylaws of FIBM
4.1 Specimen of common stock certificate of FIBM (incorporated
by reference to Registrant's Form S-1 Registration Statement
No. 333-3250)
4.2 Form of Shareholder's Agreement for non-Scott Family
members (attached as Exhibit A to the Prospectus)
4.3 Appraisal of minority block of FIBM common stock prepared
Alex Sheshunoff & Co. Investment Banking dated July 22, 1997
(attached as EXHIBIT B to the Prospectus)
4.4 Preferred Stock Purchase Agreement dated September 26, 1996
between First Interstate BancSystem of Montana, Inc. and First
Security Corporation (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
5. Opinion of Crowley, Haughey, Hanson, Toole & Dietrich P.L.L.P.
as to the legality of the securities being registered.
10.1 Loan Agreement dated October 1, 1996 between First
Interstate BancSystem of Montana, Inc., as borrower, and First
Security Bank, NA, Colorado National Bank, NA and Wells Fargo
Bank, NA (incorporated by reference to the Company's Form 8-K
dated October 1, 1996)
10.2 Note Purchase Agreement dated August 30, 1996 between First
Interstate BancSystem of Montana, Inc. and the Montana Board
of Investments (incorporated by reference to the Company's
Form 8-K dated October 1, 1996)
10.3 Lease Agreement Between Billings 401 Joint Venture and
First Interstate Bank of Commerce, Billings Office (formerly
known as First Interstate Bank of Billings, National
Association), and addendum thereto (incorporated by reference
to the Registrant's Form S-1 Registration Statement
No. 33-84540)
10.4 FIBM (formerly known as Security Banks of Montana)
Sublease to First Interstate Bank of Commerce, West Billings
Office (formerly known as Rimrock Bank) (incorporated by
reference to the Registrant's Form S-1 Registration Statement
No. 33-84540)
II-3
<PAGE>
(a) EXHIBITS. CONTINUED
10.5 Savings and Profit Sharing Plan for Employees of FIBM, as
amended December 31, 1994 (incorporated by reference to the
Post-Effective Amendment No. 2 to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.5.1 Amendment to the Saving and Profit Sharing Plan for
Employees of FIBM adopted September 21, 1995
10.5.2 First Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.5.3 Second Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.5.4 Third Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.5.5 Fourth Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.6 Stock Option and Stock Appreciation Rights Plan of FIBM, as
amended (incorporated by reference to the Registrant's
Form S-1 Registration Statement No. 33-84540)
10.7 Stock Purchase Agreement dated May 24, 1996 between First
Interstate BancSystem of Montana, Inc. and Wells
Fargo & Company (incorporated by reference to Company's
Form 8-K dated October 1, 1996)
10.8 FIBM Shareholders' Agreements with Scott Family
(incorporated by reference to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.8.1 Amendment to FIBM Shareholder's Agreement with Scott Family
dated September 7, 1995 (incorporated by reference to the
Post-Effective Amendment No. 2 to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.9 Credit Agreement between Billings 401 Joint Venture and
Colorado National Bank dated as of September 26, 1995
(incorporated by reference to the Post-Effective
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement No. 33-84540)
10.10 Stock Purchase Agreement among FIBM and all stockholders of
First Park County Bancshares, Inc. (incorporated by reference
to the Post-Effective Amendment No. 2 to the Registrant's
Form S-1 Registration Statement No. 33-84540)
10.11 Trademark License Agreement between Wells Fargo & Company
and First Interstate BancSystem of Montana, Inc.
21. Subsidiaries of FIBM
23.1 Consent of Crowley, Haughey, Hanson, Toole & Dietrich P.L.L.P.
23.2 Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants
23.3 Consent of Alex Sheshunoff & Co. Investment Banking
99.1 Form of letters to offerees of the stock.
(b) The financial statement schedules required by Regulation S-X have
been included in the Registration Statement - Prospectus.
ITEM 17. UNDERTAKINGS
Not applicable.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Billings, Montana
on August 14, 1997.
First Interstate BancSystem of Montana, Inc.
(Registrant)
/s/ Terrill R. Moore
-------------------------------------------------
Terrill R. Moore, Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
Signature: Date:
/s/ Homer A. Scott, Jr. August 14, 1997
- ---------------------------------------- -----------------------------
Homer A. Scott, Jr.
Chairman
/s/ Thomas W. Scott August 14, 1997
- ---------------------------------------- -----------------------------
Thomas W. Scott
Director and Chief Executive Officer
/s/ William H. Ruegamer August 14, 1997
- ---------------------------------------- -----------------------------
William H. Ruegamer
Director and Chief Operating Officer
/s/ James R. Scott August 14, 1997
- ---------------------------------------- -----------------------------
James R. Scott
Director
/s/ Dan S. Scott August 14, 1997
- ---------------------------------------- -----------------------------
Dan S. Scott
Director
/s/ Randy Scott August 14, 1997
- ---------------------------------------- -----------------------------
Randy Scott
Director
- ---------------------------------------- -----------------------------
Susan S. Heyneman
Director
/s/ Joel T. Long August 14, 1997
- ---------------------------------------- -----------------------------
Joel Long
Director
* * * * * * * * * *
<PAGE>
As filed with the Securities and Exchange Commission on August , 1997.
Registration No. 333-25633
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
P0ST-EFFECTIVE AMENDMENT
NO. 2 TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST INTERSTATE BANCSYSTEM OF MONTANA, INC.
(Exact name of registrant as specified in charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Montana 6060 81-0331430
(0State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
401 North 31st Street
Billings, Montana 59101
(406) 255-5300
(Address including ZIP code, and telephone number,
including area code, of registrant's principal
executive offices)
---------------------------------------
Terrill R. Moore, Chief Financial Officer
First Interstate BancSystem of Montana, Inc.
401 North 31st Street
Billings, Montana 59101
(406) 255-5300
----------------------------------------
Copy to:
Allan Karell, Esq.
Crowley, Haughey, Hanson, Toole & Dietrich
490 North 31st Street, Fifth Floor
Billings, Montana 59101
(406) 252-3441
Fax (406) 259-4159
--------------------------------------
EXHIBITS
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation and the amendments thereto of FIBM
3.1.1 Articles of Amendment to Restated Articles of Incorporation
dated September 1, 1996 (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
3.1.2 Articles of Amendment to Restated Articles of Incorporation
dated September 1, 1996 (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
3.2 Bylaws of FIBM
4.1 Specimen of common stock certificate of FIBM (incorporated
by reference to Registrant's Form S-1 Registration Statement
No. 333-3250)
4.2 Form of Shareholder's Agreement for non-Scott Family
members (attached as Exhibit A to the Prospectus)
4.3 Appraisal of minority block of FIBM common stock prepared
Alex Sheshunoff & Co. Investment Banking dated July 22, 1997
(attached as EXHIBIT B to the Prospectus)
4.4 Preferred Stock Purchase Agreement dated September 26, 1996
between First Interstate BancSystem of Montana, Inc. and First
Security Corporation (incorporated by reference to the
Company's Form 8-K dated October 1, 1996)
5. Opinion of Crowley, Haughey, Hanson, Toole & Dietrich P.L.L.P.
as to the legality of the securities being registered.
10.1 Loan Agreement dated October 1, 1996 between First
Interstate BancSystem of Montana, Inc., as borrower, and First
Security Bank, NA, Colorado National Bank, NA and Wells Fargo
Bank, NA (incorporated by reference to the Company's Form 8-K
dated October 1, 1996)
10.2 Note Purchase Agreement dated August 30, 1996 between First
Interstate BancSystem of Montana, Inc. and the Montana Board
of Investments (incorporated by reference to the Company's
Form 8-K dated October 1, 1996)
10.3 Lease Agreement Between Billings 401 Joint Venture and
First Interstate Bank of Commerce, Billings Office (formerly
known as First Interstate Bank of Billings, National
Association), and addendum thereto (incorporated by reference
to the Registrant's Form S-1 Registration Statement
No. 33-84540)
10.4 FIBM (formerly known as Security Banks of Montana)
Sublease to First Interstate Bank of Commerce, West Billings
Office (formerly known as Rimrock Bank) (incorporated by
reference to the Registrant's Form S-1 Registration Statement
No. 33-84540)
10.5 Savings and Profit Sharing Plan for Employees of FIBM, as
amended December 31, 1994 (incorporated by reference to the
Post-Effective Amendment No. 2 to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.5.1 Amendment to the Saving and Profit Sharing Plan for
Employees of FIBM adopted September 21, 1995
10.5.2 First Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
<PAGE>
EXHIBIT INDEX
(Continued)
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.5.3 Second Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.5.4 Third Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.5.5 Fourth Amendment to Savings and Profit Sharing Plan for
Employees of FIBM
10.6 Stock Option and Stock Appreciation Rights Plan of FIBM, as
amended (incorporated by reference to the Registrant's
Form S-1 Registration Statement No. 33-84540)
10.7 Stock Purchase Agreement dated May 24, 1996 between First
Interstate BancSystem of Montana, Inc. and Wells
Fargo & Company (incorporated by reference to Company's
Form 8-K dated October 1, 1996)
10.8 FIBM Shareholders' Agreements with Scott Family
(incorporated by reference to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.8.1 Amendment to FIBM Shareholder's Agreement with Scott Family
dated September 7, 1995 (incorporated by reference to the
Post-Effective Amendment No. 2 to the Registrant's Form S-1
Registration Statement No. 33-84540)
10.9 Credit Agreement between Billings 401 Joint Venture and
Colorado National Bank dated as of September 26, 1995
(incorporated by reference to the Post-Effective
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement No. 33-84540)
10.10 Stock Purchase Agreement among FIBM and all stockholders of
First Park County Bancshares, Inc. (incorporated by reference
to the Post-Effective Amendment No. 2 to the Registrant's
Form S-1 Registration Statement No. 33-84540)
10.11 Trademark License Agreement between Wells Fargo & Company
and First Interstate BancSystem of Montana, Inc.
21. Subsidiaries of FIBM
23.1 Consent of Crowley, Haughey, Hanson, Toole & Dietrich P.L.L.P.
23.2 Consent of KPMG Peat Marwick LLP, Independent Certified
Public Accountants
23.3 Consent of Alex Sheshunoff & Co. Investment Banking
99.1 Form of letters to offerees of the stock.
(b) The financial statement schedules required by Regulation S-X have
been included in the Registration Statement - Prospectus.
