SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) March 27, 1997
ASPEN BANCSHARES, INC.
----------------------
(Exact name of registrant as specified in charter)
Colorado 0-19376 84-1068527
-------- ------- ----------
(State or Other (Commission (IRS
Jurisdiction of File Number) Employer
Incorporation or Identific-
Organization) ation
No.)
534 East Hyman Avenue, PO Box 3677, Aspen, Colorado 81612
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (970) 925-6700
N/A
---
(Former name or former address, if changed since last report.)
Item 5. Other Events
The Registrant files hereby its Financial Statements,
including its Management's Discussion and Analysis of
Financial Condition and Results of Operations and Guide 3
information (Statistical Disclosure by Bank Holding
Companies) for the year ended December 31, 1996.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
The Registrant includes herewith its Financial
Statements, including Management's Discussion and Analysis
of Financial Condition and Results of Operations and Guide 3
information (Statistical Disclosure by Bank Holding
Companies) for the year ended December 31, 1996.
(c) Exhibits
27.0 Financial Data Schedule
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company
-----------
Aspen Bancshares, Inc., (the Company) is a bank holding company whose
principal assets are the common stock of Pitkin County Bank and Trust
Company (Pitkin), a commercial bank organized in 1979, the common stock of
Centennial Savings Bank, F.S.B. (Centennial), a thrift originally created
in 1905, and the common stock of Val Cor Bancorporation, Inc., (Val Cor) a
bank holding company formed in December, 1982. Val Cor owns 99.1% of the
outstanding common stock of Valley National Bank (Valley), a national bank
headquartered in Cortez, Colorado. At December 31, 1996, the Company had
total assets of $450.6 million, total deposits of $398.9 million and total
shareholders' equity of $31.1 million. This represents significant growth
over the year ended December 31, 1990, when the Company's total assets were
$80.8 million, total deposits were $72.9 million, and total shareholders'
equity was $6.6 million. This growth has resulted from growth in western
Colorado generally, through the acquisition of Centennial on October 5,
1993, which more than doubled the Company's size, and the acquisition of
Val Cor on June 18, 1996. The Company was incorporated under Colorado law
on July 24, 1987 and became a registered bank holding company through the
ownership of Pitkin on June 30, 1988. The Company's principal office is
located at 534 East Hyman Avenue, Post Office Box 3677, Aspen, Colorado
81612, and its phone number is (970) 925-6700.
The following analysis of the Company's financial condition and
results of operations as of and for the years ended December 31, 1996, 1995
and 1994 should be read in conjunction with the consolidated financial
statements of the Company and detailed information presented elsewhere
herein.
Overview
--------
At December 31, 1996, the Company operated banking facilities in nine
Colorado communities and one New Mexico community. On June 18, 1996, the
Company acquired all of the stock of Val Cor. Valley has three branches in
Colorado: two located in Cortez and one located in Dolores. Valley
continues to operate under its present name and charter as a separate
subsidiary of Val Cor. The total purchase price was approximately $10.4
million including acquisition expenses. Pursuant to the Second Amended
Acquisition Agreement and Plan of Merger dated January 12, 1996, Val Cor's
stockholders received from the Company $32.653 in cash for each share of
Val Cor common stock owned by them or $10.0 million in the aggregate. The
Company funded the acquisition through a combination of bank debt of $6.5
million and cash on hand.
The Company's net income for 1996 was $4.086 million compared with
$4.683 million for 1995 and $4.048 million for 1994. This was a 12.7%
decrease in 1996 over 1995 compared to a 15.7% increase in 1995 over 1994.
Net income per share was $1.07, fully diluted, in 1996, versus $1.25, fully
diluted, in 1995. The Company's earnings for the year ended December 31,
1996 were negatively affected by a one-time SAIF assessment for Centennial
of $1.008 million. Also affecting earnings during 1996 were changes in the
accounting for bad debt for tax purposes which resulted in additional
income tax expense of approximately $130,000 for Centennial.
The Company's assets at December 31, 1996 totaled $450.6 million,
representing an increase of 29.1% when compared to assets of $349.1 million
at December 31, 1995. This increase is primarily due to the acquisition of
Val Cor in June, 1996 as well as overall growth in western Colorado. Loans
increased 26.1% or $65.9 million from $252.8 million in 1995 to $318.7
million in 1996 and decreased 2.8% or $7.2 million from $260.0 million in
1994 to 1995. Investment securities increased 85.3% from $42.2 million in
1995 to $78.2 million in 1996 due to the acquisition of Val Cor and
investment of excess funds.
The Company's fixed assets increased 22.1% to $9.5 million at December
31, 1996 from $7.8 million at December 31, 1995 The increase is primarily
due to the acquisition of Val Cor.
During the year ended December 31, 1996, the Company's accrued
interest receivable increased 42.3% to $3.1 million at December 31, 1996
from $2.1 million at December 31, 1995. The increase relates to the
increases in investment securities and loans.
Deposits increased 33.0% to $398.9 million at year-end 1996 compared
to $300.0 million at year-end 1995. Borrowings declined 1.9% to $16.0
million at year-end 1996, from $16.3 million at December 31, 1995. These
borrowings consisted primarily of Federal Home Loan Bank advances totaling
$10.1 million at December 31, 1996 and are collateralized by loans and
securities. A $6.5 million bank loan was taken out in 1996 to help
finance the Val Cor acquisition and was reduced to $5.9 million by year-end
1996.
Line of Business
----------------
Historically, substantially all of the net income of the Company and
its subsidiaries, Pitkin, Centennial, and Valley, has been derived from the
banking and thrift line of business. The income of Valley has only been
included since the acquisition date of June 18, 1996. Information as to
the consolidated revenues of the Company during the last three fiscal years
is summarized below:
December 31,
1996 1995 1994
---- ---- ----
(in thousands)
% of % of % of
Amount Total Amount Total Amount Total
------- ------- ------- ------- ------- -------
Interest Income:
Loans Receivable
Real Estate $ 17,538 49.91% $18,441 60.75% $16,577 65.26%
Commercial 6,268 17.84% 2,601 8.57% 1,084 4.27%
Installment/Other 4,712 13.41% 3,247 10.70% 2,157 8.49%
------- ------ ------- ------ ------- ------
Sub-Total 28,518 81.15% 24,289 80.02% 19,818 78.01%
Investment Securities
Taxable 3,322 9.45% 3,296 10.86% 3,368 13.26%
Obligations of
States and Political
Subdivisions 187 0.53% 152 0.50% 180 0.71%
------- ------ ------- ------ ------- ------
Sub-Total 3,509 9.99% 3,448 11.36% 3,548 13.97%
Deposits in Banks 58 0.17% 65 0.21% 53 0.21%
Federal funds Sold 782 2.23% 63 0.21% 194 0.76%
------- ------ ------- ------ ------- ------
Total Interest
Revenue 32,867 93.53% 27,865 91.80% 23,613 92.95%
Non-interest Income:
Service Charges and
Other 2,053 5.84% 1,612 5.31% 1,634 6.43%
Gain (Loss) on Sale
of Assets 221 0.63% 877 2.89% 156 0.61%
------- ------ ------- ------ ------- ------
Sub-Total 2,274 6.47% 2,489 8.20% 1,790 7.05%
------- ------ ------- ------ ------- ------
Total Operating
Revenue $35,141 100.00% $30,354 100.00% $25,403 100.00%
======= ======= ======= ======= ======= =======
Results of Operations
---------------------
Net Interest Income
Net interest income, the primary source of the Company's earnings, is
the amount generated by interest income from interest-earning assets,
primarily loans and investment securities, less interest expense for the
funds required to support these assets. The following table shows the
average balances on a daily basis on assets, liabilities and shareholders'
equity for the years indicated (in thousands).
<TABLE>
Twelve Months Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
Average Income Yield/ Average Income Yield/ Average Income Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
ASSETS
Interest-earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Bearing Deposits
in Financial Institutions $1,359 $58 4.27% $1,521 $65 4.27% $1,767 $53 3.00%
U.S. Treasury and
Agency Securities 26,315 1,522 5.78% 26,649 1,456 5.46% 32,197 1,768 5.49%
Tax Exempt Securities 4,254 187 4.40% 3,448 152 4.41% 3,726 204 5.48%
Other Securities 29,165 1,800 6.17% 28,479 1,840 6.46% 30,927 1,576 5.10%
Federal Funds Sold 14,548 782 5.38% 1,253 63 5.03% 5,671 194 3.42%
Loans (1) 305,091 28,518 9.35% 261,408 24,289 9.29% 243,264 19,818 8.15%
Other real estate owned - - - - 74 -
------- ------ ----- ------- ------ ----- ------- ------ -----
TotalInterest-
Earning Assets 380,732 32,867 8.63% 322,758 27,865 8.63% 317,626 23,613 7.43%
------- ------ ----- ------- ------ ----- ------- ------ -----
Cash and Due from Banks 11,378 8,971 8,597
Premises and Equipment 8,651 8,594 8,567
Accrued Interest Receivable 2,824 2,188 1,865
Allowance for Loan Losses (2,755) (2,191) (2,149)
Net Unrealized Gain (Loss)
on Securities Available
for Sale (1,311) (1,802) (1,363)
Other Assets 6,704 4,104 1,617
-------- -------- --------
Total Assets $406,223 $342,622 $334,760
======== ======== ========
LIABILITIES AND SHAREHOLDERS'EQUITY
Interest-Bearing Liabilities:
Demand Deposits $130,093 $4,223 3.25% $118,477 $3,704 3.13% $146,045 4,339 2.97%
Savings Deposits 23,137 672 2.90% 20,057 609 3.04% 22,102 664 3.00%
Time Deposits
Over $100,000 52,945 3,142 5.93% 35,783 1,969 5.50% 21,949 713 3.25%
Other Time Deposits 105,080 6,015 5.72% 78,071 4,050 5.19% 66,440 2,582 3.89%
Other Borrowings 23,949 1,485 6.20% 30,962 1,939 6.26% 23,060 1,288 5.59%
------- ------ ----- ------- ----- ----- ------ ------ -----
TotalInterest-Bearing
Liabilities 335,204 15,537 4.64% 283,350 12,271 4.33% 279,596 9,586 3.43%
------- ------ ----- ------- ------ ----- ------- ----- -----
Noninterest-Bearing
Deposits 38,203 29,489 28,799
Other Liabilities 3,033 3,826 4,266
Shareholders' Equity 29,783 25,957 22,099
------- ------- -------
Total Liabilities and
Shareholders' Equity $406,223 $342,622 $334,760
======== ======== ========
Net Interest Income $17,330 $15,594 $14,027
======= ======= =======
Net Interest Spread 3.99% 4.30% 4.01%
Net Interest Margin 4.55% 4.83% 4.42%
(1)Includes Loans Held for Sale
</TABLE>
Net interest income increased by 11.1% to $17.330 million from $15.594
million in 1996 compared to 1995. This was the result of an increase in
average interest-earning assets to $380.7 million in 1996 from $322.8
million in 1995. The net interest margin decreased to 4.55% in 1996 from
4.83% in 1995. The net interest spread, which is the difference between
the rate earned on interest-earning assets minus the rate paid on interest-
bearing liabilities, also decreased in 1996 compared to 1995 from 4.30% to
3.99%. The decrease in the net interest margin and the net interest spread
is primarily due to an increase in the rates paid on interest-bearing
liabilities.
The following table sets forth a summary of the changes in net
interest income resulting from changes in volume and changes in rates for
the dates indicated.
Year 1996 over Year 1995 Year 1995 over Year 1994
Volume Rate Yield/ Volume Rate Yield/
(1) (2) Total (1) (2) Total
----- ---- ----- ------ ---- -----
Increase (Decrease) in Interest Income:
Interest-Bearing Deposits
in Financial Institutions $(7) $(0) $(7) $(11) $23 $12
U.S. Treasury and
Agency Securities (19) 85 66 (303) (9) (312)
Tax Exempt Securities 35 (0) 35 (12) (40) (52)
Other Securities 42 (82) (40) (158) 422 264
Federal Funds Sold 715 4 719 (222) 91 (131)
Loans (3) 4,083 146 4,229 1,686 2,785 4,471
----- ----- ----- ----- ----- -----
Total Interest-Earning
Assets $4,849 $153 $5,002 $980 $3,272 $4,252
====== ==== ====== ===== ====== ======
Increase (Decrease) in Interest Expense:
Demand Deposits 377 142 519 (862) 227 (635)
Savings Deposits 89 (26) 63 (62) 7 (55)
Time Deposits Over
$100,000 1,018 155 1,173 761 495 1,256
Other Time Deposits 1,546 419 1,965 603 865 1,468
Other Borrowed Money (435) (19) (454) 495 156 651
------ ----- ----- ----- ----- -----
Total Interest-Bearing
Liabilities $2,596 $670 $3,266 $935 $1,750 $2,685
====== ===== ====== ==== ====== ======
Increase (Decrease) in Net
Interest Income $2,253 $(517) $1,736 $45 $1,522 $1,567
====== ====== ====== ===== ====== ======
(1)Represents the difference between the average balance times the current
year average rate.
(2)Represents the difference between the average rate times the prior year
average balance.
(3)Loans held for sale are included.
Total average interest-earning assets increased 18.0% or $58.0 million
during 1996 to $380.7 million compared to $322.8 million during 1995.
Average interest-bearing liabilities increased $51.9 million or 18.3%
during 1996 to $335.2 million from $283.4 million during 1995. As a result
of an increase in interest-earning assets, interest income increased $5.002
million or 18.0% to $32.867 million in 1996 from $27.865 million in 1995.
The average rate paid on interest-bearing liabilities increased to 4.64% in
1996 compared to 4.33% in 1995, resulting in an increase in interest
expense of $3.266 million or 26.6% to $15.537 million in 1996 from $12.271
million in 1995.
Total average interest-earning assets increased 1.6% or $5.1 million
during 1995 to $322.8 million compared to $317.6 million during 1994.
Average interest-bearing liabilities increased $3.8 million or 1.3% during
1995 to $283.4 million from $279.6 million during 1994. As a result of an
increase in the average yield on interest-earning assets to 8.63% in 1995
compared to 7.43% in 1994, interest income increased $4.252 million or
18.0% to $27.865 million in 1995 from $23.613 million in 1994. The average
rate paid on interest-bearing liabilities increased to 4.33% in 1995
compared to 3.43% in 1994, resulting in an increase in interest expense of
$2.685 million or 28% from $9.586 million in 1994.
Provision for Loan Losses
The reserve for loan losses in 1996 was $3.217 million which is an
increase of 46.4% over $2.197 million in 1995, due primarily to the
acquisition of Val Cor. The percentage of the reserve for loan losses to
total loans was 1.00% on both December 31, 1996 and December 31, 1995. The
ratio of reserve for loan loss to non-performing loans was 165.0% on
December 31, 1996 and 174.4% on December 31, 1995. Net charge-offs were
$30,000 in 1996 compared to $17,000 in 1995. Additions to the reserve for
loan losses increased in 1996 to $145,000 from $36,000 in 1995.
Non-interest Income
Non-interest income decreased $215,000 or 8.6% from $2.489 million in
1995 to $2.274 million in 1996 and increased $699,000 or 39.1% from $1.790
million in 1994 to 1995. Service charges on deposit accounts increased
$279,000 or 36.3% in 1996 to $1.047 million compared to $768,000 in 1995
and other fees and charges increased $162,000 or 19.2% to $1.006 million
from $844,000 for the same period. Gain on sale of loans increased $41,000
or 11.3% in 1996 compared to 1995. The increase in non-interest income in
1995 over 1994 was primarily due to a gain of $501,000 on the sale of a
building by Centennial. Gain on sale of loans increased 183.6% to
$363,000 in 1995 compared to $128,000 in 1994. Service charges on deposit
accounts increased 12.6% or $86,000 to $768,000 in 1995 over $682,000 in
1994.
Non-interest Expense
Non-interest expense increased $2.568 million or 23.7% to $13.408
million in 1996 compared to $10.840 million in 1995. Salaries and benefits
expense increased $771,000 or 13.8% to $6.371 million in 1996 compared to
$5.600 million in 1995. With the acquisition of Val Cor, the number of
full time employees increased to 208 at December 31, 1996 compared to 165
at December 31, 1995. Insurance and supervisory fees increased $970,000 or
144.6% in 1996 compared to 1995. Effective September 30, 1996, omnibus
banking legislation was passed which included extensive regulatory relief
for banks and thrifts and provisions to help resolve problems of the
Savings Association Insurance Fund (SAIF). The deposits of Centennial are
insured by the SAIF. The legislation required a one-time special
assessment based on assessable deposits at March 31, 1995. This assessment
for Centennial ($1.008 million) is included in insurance and supervisory
fees expenses as of December 31, 1996. Insurance and supervisory fees
decreased by $149,000 or 18.2% in 1995 compared to 1994 primarily due to a
decrease in FDIC premiums for Pitkin.
Income Taxes
The Company's provision for income taxes in 1996 was $1.965 million
reflecting a 32.5% tax rate, as compared to $2.524 million in 1995 which
reflected a 35.0% tax rate. The decrease in the effective tax rate from
1995 to 1996 was due mainly to an increase in tax-exempt interest income.
The Company's provision for income taxes in 1994 was $2.085 million which
reflected a 34.0% tax rate. The increase in the effective tax rate from
1994 to 1995 was due mainly to a decrease in tax exempt interest income.
Certain Trends
The Company's primary service area, particularly Aspen, and to a lesser
extent Durango, has a winter economy based on skiing which is greatly
affected by weather conditions. If weather conditions are good, the skier
visits are usually up which results in improvement in the local economy.
If weather conditions are poor and skier visits are down, the local economy
can suffer. The snowfall in November and December 1996 was above normal
and in fact, by the end of January 1997, Aspen's snowfall equaled what it
had received during all of the 1995-1996 ski season. December 1996 retail
sales were up 7.3% in Aspen and up 9.87% in Snowmass compared to the same
month in 1995. The 1993-1994 and 1994-1995 ski seasons were normal in
terms of snowfall, and during both December 1993 and 1994, Pitkin County
sales tax revenues were up each year from December 1992. In 1996, deposit
insurance premiums were increased due to the one-time special assessment on
Centennial's SAIF insured deposits, discussed in more detail at Non-
interest Expense above. In 1995, FDIC insurance premiums decreased $91,000
or 29.0% compared to 1994. Other regulatory changes have been proposed
which, if adopted, could likewise adversely impact the Company's
operations.
Liquidity and Capital Resources
Shareholders' equity was $31.101 million, $27.298 million and $22.335
million at December 31, 1996, 1995 and 1994, respectively. The growth in
equity has been the result of the retention of earnings and the acquisition
of Val Cor in 1996. The Company's investment securities portfolio and its
cash and due from banks serve as the primary sources of liquidity. Funds
resulting from the maturing of investment securities provide funding for
loans during periods of high loan demand. During periods of decreased
lending, funds obtained from the maturing of investment securities, loan
repayments and new deposits are invested in short-term earning assets such
as federal funds sold, to serve as a future source of funding for loan
growth. On December 31, 1996, 15.1% of the Company's deposits were in the
form of time deposits of $100,000 and over, an increase of $7.9 million
from $52.4 million in 1995 to $60.4 million in 1996. These deposits
increased 78.0% or $23.0 million in 1995 compared to $29.5 million in 1994.
If a large number of these time deposits matured at approximately the same
time and were not renewed, the Company's liquidity could be adversely
affected. Currently the maturities of the Company's large time deposits
are spread fairly evenly throughout the year and the Company monitors
maturities in an effort to minimize the potential adverse effect on
liquidity. In the longer term, the ability of the Company to meet its cash
obligations will depend substantially on its receipt of dividends from
Pitkin, Centennial, and Val Cor which are limited by federal and state
banking statutes, Office of Thrift Supervision (OTS) and Office of the
Comptroller of the Currency (OCC) regulations. In addition, under federal
and state law, the Company, as the shareholder of Pitkin, Centennial, and
Val Cor, may be subject to assessment to restore capital to these entities
should any become impaired.
The liquidity ratio is one measure of a bank's ability to meet its
current obligations and is defined as the percentage of liquid assets to
deposits. At year end 1996 and 1995, the liquidity ratio was 25.81% and
21.86%, respectively. As of December 31, 1996, the Company had cash
obligations for bank debt of $5.875 million, which bears interest at 1.25%
above prime rate (9.50% at December 31, 1996) and also has payable
quarterly principal payments of $125,000 due March and June, 1997 with
quarterly principal payments of $375,000 due thereafter until maturity.
In February, 1997, the terms of this bank debt were renegotiated to bear
interest at a fixed rate of 7%. Additionally, prepayments of principal by
the Company shall be applied to the installments next due.
Pitkin. Pitkin is a state chartered bank and a member of the Federal
Reserve System. Its deposits are insured by the FDIC. Pitkin is subject
to regulation, supervision and regular examination by the Colorado Division
of Banking (CDB) and the Federal Reserve Bank (FRB). The ability of Pitkin
to pay dividends is subject to the banking laws of the State of Colorado
and to the powers of the CDB and the FRB. Under Colorado law and
regulations of the FRB such dividends can only be paid from the retained
earnings of the current year to date and the two previous years unless
specifically approved by the CDB and the FRB.
Centennial. As a federally chartered, SAIF-insured savings bank,
Centennial is subject to extensive regulation by the OTS and the FDIC. The
OTS, in conjunction with the FDIC, regularly examines Centennial. Lending
activities and other investments must comply with various federal statutory
and regulatory requirements. Centennial is also subject to certain reserve
requirements promulgated by the FRB. The ability of Centennial to pay
dividends is subject to approval from the OTS.
Valley. Valley is a national bank and is subject to regulation by the
OCC. The ability of Valley to pay dividends to Val Cor is subject to the
banking laws of the OCC. The deposits of Valley are insured by the FDIC.
Capital requirements. The Company and its subsidiaries are subject to
the minimum capital requirements of the FRB, OTS, FDIC, CDB and OCC. As a
result of these requirements, the growth in assets of the Company and its
subsidiaries are limited by the amount of their respective capital accounts
as defined by the regulatory agencies. Capital requirements may have no
effect on profitability and the payment of dividends on the common stock of
the Company and its subsidiaries. If the Company or its subsidiaries are
unable to increase their assets without violating the minimum capital
requirements or are forced to reduce assets, their ability to generate
earnings would be reduced. Further, earnings may need to be retained
rather than paid as dividends to shareholders.
Since December 31, 1990, the Company has been subject to the FRB's new
risk-based guidelines which require the Company to maintain a level of
capital based on the risk of assets and off-balance sheet items. Assets
and off-balance sheet items are placed into one of four risk categories.
Assets in the first category, such as cash, have no risk and carry a zero
percent risk-weight and require no capital support. Capital support is
required for assets in the remaining three risk categories. These
categories have a risk-weight of 20%, 50% and 100%, respectively.
The Company's risk-based capital ratio is calculated by dividing its
qualifying total capital base by its risk-weighted assets. Qualifying
capital is divided into two tiers. Core capital (tier one) consists of
common shareholders' equity capital, perpetual preferred stock (if
cumulative, limited to one-third of the sum of core capital elements,
excluding the perpetual preferred stock) and minority interests in equity
capital accounts of consolidated subsidiaries. Supplementary capital (tier
two) consists of, among other items, allowance for possible loan and lease
losses, cumulative and limited-life preferred stock (unlimited), mandatory
convertible securities and subordinated debt. Tier two capital qualifies
as a part of the Company's total capital up to a maximum of 100% of the
Company's tier one capital. Amounts in excess of these limits may be
issued but are not included in the calculation of the risk-based capital
ratio.
Since December 31, 1992, the Company was expected to meet a minimum
risk-based capital to risk-weighted assets ratio of 8%, of which at least
4% must be in the form of core capital. In addition, new leverage based
guidelines require the Company to maintain core capital, as described
above, equal to 4% of total assets. The Company's risk based and leveraged
based capital ratios have been well in excess of those required by
regulatory authorities. Should these ratios fall below the required levels
in the future, the Company may have to cease paying dividends or raise
additional capital or have its activities restricted by regulatory
authorities.
The following table shows the Company's capital ratios at the dates
indicated and minimum regulatory requirements. The risk-based ratios
reflect the year-end 1996 regulatory guidelines.
Unaudited 1996
December 31, Regulatory
1996 1995 1994 Minimum
---- ---- ---- ----------
(in thousands)
Risk Based Capital 10.39% 13.39% 12.38% 8.00%
Tier One Risk Based Capital Ratio 9.30% 12.42% 11.16% 4.00%
Tier One Leverage Ratio 6.12% 8.10% 7.08% 4.00%
Total Assets $450,606 $349,123 $349,563 N/A
Risk Adjusted Assets $295,897 $225,924 $215,480 N/A
Monetary Policy
Pitkin and Valley are affected by the fiscal and monetary policies
adopted by the FRB. Changes in the discount rate on member bank
borrowings, availability of borrowings at the discount window, open market
operations, the imposition of, and changes in, reserve requirements against
member banks' deposits and the imposition of, and changes in, reserve
requirements against certain borrowings by member banks and their
affiliates are some of the instruments of monetary policy available to the
FRB. These monetary policies influence to a significant extent the overall
growth of bank loans, investments and deposits and the interest rates
charged on loans or paid on time and savings deposits. The nature of
future monetary policies of the FRB and the effect of such policies on the
future earnings and business of Pitkin and Valley cannot be predicted.
Savings associations such as Centennial have authority to borrow from
the FRB discount window, but FRB policy generally requires savings
associations to exhaust all OTS sources before borrowing from the FRB.
Centennial had no discount window borrowings at December 31, 1996.
Effects of Inflation
A financial institution's asset and liability structure is substantially
different from that of an industrial company, in that virtually all assets
and liabilities are monetary in nature, and, therefore, the Company's
operations are not affected by inflation in a material way. Other factors,
such as interest rates and liquidity, exert greater influence on a bank's
performance than does inflation. The effects of inflation, however, can
magnify the growth of assets in the banking industry. If significant, this
would require that equity capital increase at a faster rate than would
otherwise be necessary. The Company has met the increased capital
requirements in the past through the retention of earnings.
Asset/Liability Management
The objective of the Company's asset liability management is to manage
interest sensitive assets and liabilities to maintain positive net interest
margins, regardless of changes in market interest rates. Interest
sensitive assets and liabilities, including both variable or adjustable
rate instruments approaching maturity, are subject to repricing immediately
or in the near term. An interest rate sensitivity gap arises when interest
rates on assets change in a different time period from that of interest
rates on liabilities. The interest rate sensitivity gap is the difference
between total interest sensitive assets and total interest sensitive
liabilities. If the interest rate sensitivity gap is positive during a
period of rising interest rates or negative during a period of declining
interest rates, net interest income will tend to increase. Conversely, if
the interest rate sensitivity gap is negative during a period of rising
interest rates or positive during a period of declining interest rates, net
interest income will tend to decrease. The greater the gap, the greater
the effect declining or rising interest rates will have on net interest
income. If the gap is closed or matched, the effect on net interest income
due to interest rate movements is reduced.
The following table sets forth the Company's assets and liabilities
outstanding at December 31, 1996, which are anticipated, based upon certain
assumptions, to reprice or mature as shown.
<TABLE>
Three Three Six One Year Over
Months to Six Months to to Five Five Total
or Less Months One Year Years Years
------- ------ -------- ----- ----- -----
Interest Earning Assets
-----------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Bearing Deposits
in Financial Institutions $322 $ - $ - $300 $ - $622
Investment Securities 34,715 1,929 6,020 24,822 11,915 79,401
Federal Funds Sold 17,540 - - - - 17,540
Loans (1) 109,947 24,909 61,808 86,879 39,075 322,618
------- ------ ------ ------ ------ -------
Total $162,524 $26,838 $67,828 $112,001 $50,990 $420,181
Interest Bearing Liabilities
----------------------------
Interest Bearing DDA $150,269 $ - $ - $ - $ - $150,269
Savings Deposits 27,147 - - - - 27,147
Time Deposits $100,000
and Over 19,228 11,401 6,512 23,262 - 60,403
Other Time 7,724 17,432 30,048 58,790 - 113,994
Federal Funds Purchased - - - - - -
Other Borrowed Money - 5,875 - 10,000 100 15,975
-------- ------- ------- ------- ----- --------
Total $204,368 $34,708 $36,560 $92,052 $100 $367,788
======== ======= ======= ======= ===== ========
Interest Sensitivity
Gap per Period $(41,844) $(7,870) $31,268 $19,949 $50,890 $52,393
Cumulative Interest
Sensitive Gap $(41,844)$(49,714) $(18,446) $1,503 $52,393
Cumulative Gap as a
% of Total Assets (9.29%) (11.03%) (4.09%) 0.33% 11.63%
Cumulative Interest Sensitive
Assets as a % of Interest
Sensitive Liabilities 79.53% 79.21% 93.31% 100.41% 114.25%
(1) Includes Loans Held for Resale
</TABLE>
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
FORM 8-K
GUIDE 3 INFORMATION
DECEMBER 31, 1996
The following information which is required under Guide 3 (Statistical
Disclosure by Bank Holding Companies) should be read in conjunction with
the Company's consolidated financial statements and notes thereto beginning
on page 21.
Statistical Information
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
This information is discussed in the management's discussion and
analysis of financial condition and results of operations starting on
page 4 through page 6 of this Form 8-K.
II. Investment Portfolio
The Company's investment portfolio supplements income earned on
loans. The investment portfolio is also used to structure maturities
and repricing timetables in a flexible manner and to meet applicable
requirements for pledging securities in connection with deposits of
state and political subdivisions. The investment portfolio consists
of U.S. Treasury securities, U.S. Government agency instruments,
obligations of state and political subdivisions, and Federal Reserve
Bank (FRB) and Federal Home Loan Bank (FHLB) stock. The
following table summarized the amounts and the distribution of the
Company's investment securities held as of the dates indicated.
December 31,
1996 1995 1994
----- ----- -----
% of % of % of
Amount Total Amount Total Amount Total
------ ------ ------ ------ ------ -----
(in thousands)
U.S. Treasury and Agency
Securities $38,986 49.1% $16,742 38.7% $34,166 50.9%
Obligations of State
and Political Subdivisions 6,293 7.9% 2,710 6.3% 3,663 5.4%
Mortgage Backed Securities 28,571 36.0% 20,215 46.7% 25,803 38.4%
Other Securities 5,551 7.0% 3,595 8.3% 3,592 5.3%
------- ------- -------
Total Book Value $79,401 $43,262 $67,224
======= ======= =======
Total Market Value $78,170 $42,183 $63,005
======= ======= =======
The following table sets forth the maturities by category of the
Company's investment securities as of December 31, 1996.
After After
One Five
Year Years
Through Through After
One Year Five Ten Ten Total
or Less Years Years Years
-------- ------- ---------------- -------
(in thousands)
Available for Sale Securities:(1)
---------------------------------
U.S. Treasury and Agency
Securities $10,506 $18,793 $8,416 $1,271 $38,986
Obligations of State
and Political Subdivisions 1,516 2,476 1,699 602 6,293
Corporate and Other Securities - - - 101 101
------- ------- ------- ------- -------
Total Debt Securities 12,022 21,269 10,115 1,974 45,380
Marketable Equity Securities - - - - -
Other Equity Securities 46 1,016 124 4,264 5,450
------- ------- ------- ------- -------
Total Equity Securities 46 1,016 124 4,264 5,450
Mortgage Backed Securities 1,458 4,076 5,112 17,925 28,571
------- ------- ------- ------- -------
Total $13,526 $26,361 $15,351 $24,163 $79,401
======= ======= ======= ======= =======
Percentage Maturing this
Period 17.04% 33.20% 19.33% 30.43% 100.00%
Weighted Average Yield,Computed
on a Tax equivalent Basis 6.12% 6.03% 6.60% 6.44% 6.31%
(1) On amortized cost basis
III. Loan Portfolio
A. Types of Loans
At December 31, 1996, the Company had total loans outstanding of
$322.6 million representing 80.9% of the Company's total deposits and
71.6% of total assets. This amount included loans held for resale of
$684,000. The Company's loan portfolio consists primarily of real
estate mortgage loans, real estate construction loans, commercial
loans and installment loans. The following table shows a breakdown of
the Company's loan balances at the dates indicated.
December 31,
1996 1995 1994
----- ----- -----
% of % of % of
Amount Total Amount Total Amount Total
------ ----- ------ ----- ------ -----
(in thousands)
Loans:
Real Estate Mortgage $199,058 61.83% $180,085 70.62% $212,172 80.94%
Real Estate Construction 20,011 6.21% 11,870 4.66% 5,400 2.06%
Commercial 46,763 14.53% 26,488 10.39% 20,141 7.68%
Installment 56,102 17.43% 36,549 14.33% 24,441 9.32%
-------- ------ -------- ------ -------- ------
Total Loans 321,934 254,992 262,154
Less: Reserve for Loan
Losses (3,217) (2,197) (2,178)
-------- -------- --------
Total Net Loans $318,717 $252,795 $259,976
======== ======== ========
At December 31, 1996, the Company's average loan (excluding
installment loans) was approximately $91,000 and carried a variable
interest rate. Many factors, including a high level of resident
migration to Colorado, the physical attractions of the mountain
environment, cultural and athletic amenities, strict land use zoning
and a limited supply of real estate available for development, have
contributed to residential home and land price appreciation in the
Company's primary service area in recent years.
Mortgage Loans. The Company's mortgage loan portfolio consists
of three types of loans. The term "real estate mortgage loan"
encompasses both short-term to medium-term loans secured by real
estate as well as the more traditional real estate mortgage.
Conventional mortgage loans which are offered with terms of 15, 20 and
30 years with interest on either a fixed or adjustable rate basis, are
underwritten in compliance with Federal Home Loan Mortgage Corporation
(FHLMC) and Federal National Mortgage Association (FNMA)
guidelines to ensure their salability in the secondary market. FHLMC
and FNMA standards require that loan to value ratios not exceed 80%
unless private mortgage insurance is in place in which case the loan
to value ratio can be as high as 95%. Also considered conventional
mortgage loans, the Company originates FHA and VA guaranteed loans.
The Company will loan up to 95% loan to value on FHA loans and 100%
loan to value on VA loans.
Short-term to medium-term loans secured by real estate mature
within five years but may have 15 to 30 year amortizations, or may be
structured on an interest-only basis. This contrasts to the typical
15 to 30 year amortizing principal and interest loan usually
associated with a real estate mortgage. These loans meet the medium-
term financing needs of many of the Company's customers who are
wealthy, part-time residents of Aspen. For this type of loan, the
Company has a general practice of not lending in excess of 65% of the
collateral value of improved real estate or 50% of the collateral
value of unimproved real estate. Loan to value ratios are based on
the lower of cost or appraised value. The Company's practice of
financing short-term to medium-term real estate loans result in the
Company having a loan portfolio that has shorter maturities than would
normally be expected for an institution with a high percentage of its
loans secured by real estate. Because of such maturities, the yield
on loans and therefore the net interest income is subject to greater
fluctuation than would otherwise be expected if typical real estate
mortgage loans were being made. Home Equity Lines of Credit are
principally secured by second priority deed on real property and are
written within aggregate loan to value guidelines (including the first
priority lien deed position) for up to a maximum of 80% of the lesser
of cost or appraised value. The draw period for the line of credit is
typically for a maximum of 5 years. The line is reviewed at the end
of 5 years, and can either be extended for an additional 5 years as a
line of credit or termed out on an amortizing basis over a maximum of
15 years.
Construction Loans. Construction loans are primarily made based
on first lien deed positions on real estate. Loan to value guidelines
are typically based on the lesser of cost or appraised value and
collateral margins range from 65% to 80%. Construction loans are
principally backed up by a permanent mortgage loan takeout commitment
issued by either of the Company's mortgage loan divisions or other
well-known, acceptable mortgage lenders. Construction loan terms
typically range from 9 months to a maximum of 18 months.
Commercial Loans. Commercial loans consist of loans made for
business purposes and loans made to individuals for the purchase of
equipment and investment purposes. Loans to businesses range from one
year to a maximum of 15 years. Collateral margins for loans to
businesses range from 60% to 100% depending on type of collateral,
strength of the borrower and personal guarantors. Consumer and
private banking loans are made to individuals for the acquisition of
tangible personal property.
Installment Loans. Installment loans are loans made primarily to
consumers and businesses for the acquisition of tangible property.
The majority of consumer installment loans are for purchases of
automobiles. Automobile loans are principally written at 90% loan to
value ratios based on the lesser of purchase price or trade
publication guidelines and for terms up to 5 years. Business
installment loans are subject to the loan to value ratios and terms
and conditions previously described. Personal Lines of Credit are
unsecured, revolving lines of credit that are intended principally to
provide overdraft protection for customers.
The Company's underwriting guidelines are conservative and are based
on historically safe and sound banking practices. All credit requests
are reviewed with regard to the quality of the borrower's prior credit
history, the financial strength and stability of the borrower and the
cash flow available to support the debt service. The Company
maintains strong collateral margins through striving to commit to
credit requests at the lowest possible end of acceptable loan to value
ranges. Customers who borrow for business purposes are typically
required to provide periodic, updated financial statements at least
annually, and their credit facilities are reviewed on an annual basis
with regard to safety and soundness.
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
Final loan maturities and rate sensitivity of the loan portfolio
before unearned income at the dates indicated, were as follows:
December 31, 1996
One to After
Within Five Five
One Year Years Years Total
------ ------ ------ ------
(in thousands)
Final Loan Maturities:
Real Estate Mortgage $118,338 $46,380 $35,024 $199,742
Real Estate Construction 18,758 1,253 - 20,011
Commercial 27,337 14,187 5,239 46,763
Installment 22,900 26,247 6,955 56,102
-------- ------- ------- --------
Total (1) $187,333 $88,067 $47,218 $322,618
======== ======= ======= ========
Loan Rate Sensitivity:
Loans at Fixed Interest Rates $25,985 $66,822 $47,218 $140,025
Loans at Variable Interest Rates 160,525 21,245 - 181,770
Nonaccrual Loans 823 - - 823
-------- ------- ------- --------
Total (1) $187,333 $88,067 $47,218 $322,618
======== ======= ======= ========
December 31, 1995
One to After
Within Five Five
One Year Years Years Total
------- ------- ------- -------
Final Loan Maturities: (in thousands)
Real Estate Mortgage $65,644 $13,031 $110,960 $189,635
Real Estate Construction 11,630 240 - 11,870
Commercial 14,071 6,490 5,927 26,488
Installment 6,912 21,322 8,315 36,549
------- ------- -------- --------
Total (1) $98,257 $41,083 $125,202 $264,542
======= ======= ======== ========
Loan Rate Sensitivity
Loans at Fixed Interest Rates $18,119 $34,375 $45,675 $98,169
Loans at Variable Interest Rates 80,138 6,708 79,527 166,373
Nonaccrual Loans - - - -
------- ------- -------- --------
Total (1) $98,257 $41,083 $125,202 $264,542
======= ======= ======== ========
December 31, 1994
One to After
Within Five Five
One Year Years Years Total
------- ------- ------- -------
Final Loan Maturities: (in thousands)
Real Estate Mortgage $100,379 $71,886 $39,986 $212,251
Real Estate Construction 4,551 1,905 - 6,456
Commercial 10,015 4,922 632 15,569
Installment 5,964 14,281 8,145 28,390
-------- ------- ------- --------
Total (1) $120,909 $92,994 $48,763 $262,666
======== ======= ======= ========
Loan Rate Sensitivity:
Loans at Fixed Interest Rates $25,445 $45,428 $48,474 $119,347
Loans at Variable Interest Rates 95,164 47,566 289 143,019
Nonaccrual Loans 300 - - 300
-------- ------- ------- --------
Total (1) $120,909 $92,994 $48,763 $262,666
======== ======= ======= ========
(1) Includes loans held for resale
C. Risk Elements
Management of the Company believes that the risks associated with
each category of loan outlined above are mitigated by its conservative
underwriting guidelines and loan to value ratio guidelines. There is
a risk of loss of any credit facility through default and subsequent
borrower insolvency and collateral devaluation. Evidence of the
strength of the Company's credit practices are reflected in the
following table showing nonperforming loans for each of the three
years ended December 31, 1996.
Real
Estate Real Estate
Commercial Consumer Mortgage Construction Total
---------- --------- --------- ------------ ------
December 31, 1996
Nonaccrual Loans $682 $ 86 $ 55 $ - $ 823
Loans 90 Days or More
Past Due $ 79 $141 $350 $599 $1,169
December 31, 1995
Nonaccrual Loans $ - $ - $ - $ - $ -
Loans 90 Days or More
Past Due $398 $ 25 $837 $ - $1,260
December 31, 1994
Nonaccrual Loans $ - $ - $300 $ - $ 300
Loans 90 Days or More
Past Due $ 77 $ - $ 91 $ - $ 168
The following table summarizes nonperforming assets by category as of
the dates indicated.
1996 1995 1994
------ ------ ------
(in thousands)
Nonaccrual Loans $823 $ - $300
Loans 90 Days Past Due and
still Accruing Interest 1,169 1,260 168
------ ------ ------
Total Nonperforming Loans $1,992 $1,260 $468
Other Real Estate Owned - - -
Total Nonperforming Assets $1,992 $1,260 $468
====== ====== ======
Nonperforming Loans to Total Ending Loans 0.62% 0.49% 0.18%
Nonperforming Assets to Total Ending Loans
and Other Assets Acquired 0.62% 0.49% 0.18%
Interest is not accrued on loans contractually past due 90 days
or more as to interest or principal payments and as to which payment
of principal and interest in full is not expected unless in the
judgment of management the loan is well secured and losses are not
expected.
When a loan reaches non-accrual status, interest accruals are
discontinued and prior accruals are reversed. The classification of a
loan on non-accrual status does not necessarily indicate that the
principal is uncollectible in whole or in part. A determination as to
collectability is made by management of the Company on a case-by-case
basis. Management considers both the adequacy of the collateral and
the other resources of the borrower in determining the steps to be
taken to collect non-accrual loans. The final determination as to
these steps is made on a case by case basis. Alternatives that are
considered are foreclosure, collecting on guarantees, restructuring
the loan or collection lawsuits.
The following table presents interest that would have been
recorded in each of the three years ended December 31, 1996 if non-
accrual loans had been current in accordance with their original
terms, and the amount of interest included in income for the same
period.
Twelve Months Ended
December 31,
1996 1995 1994
------ ------ ------
(in thousands)
Income if Loans were Current $43 $32 $121
Income Actually Recorded $9 $32 $116
IV. Summary of Loan Loss Experience
A. Analysis of the Allowance for Loan Loss
The following table shows certain information relating to the
loan loss reserve and the actual loan losses of the Company for each
of the three years ended December 31, 1996.
December 31,
1996 1995 1994
------ ------ ------
(in thousands)
Beginning Balance $2,197 $2,178 $2,074
Charge-offs:
Real Estate Mortgage - - -
Real Estate Construction - - -
Commercial - 10 20
Installment 137 9 20
------ ------ ------
Total Charge-offs 137 19 40
Recoveries:
Real Estate Mortgage - - 20
Real Estate Construction - - -
Commercial 46 - 62
Installment 61 2 6
------ ------ ------
Total Recoveries 107 2 88
Net Charge-offs (Recoveries) 30 17 (48)
Additions to Reserve Charged
to Operating Expense 145 36 56
Other - Val Cor Balance at
Acquisition 905 - -
------ ------ ------
Ending Reserve Balance $3,217 $2,197 $2,178
====== ====== ======
Ratio of Net Charge-offs
(Recoveries)
to Average Loans Outstanding 0.01% 0.01% (0.02%)
======= ======= =======
B. Allocation of Loan Loss Reserve
The following table sets forth an allocation of the reserve for
loan losses among categories as of the dates indicated. The following
allocation table should not be interpreted as an indication of the
specific amounts or the relative proportion of future changes to the
allowance. Such a table is merely a convenient device for assessing
the adequacy of the allowance as a whole. Unallocated loan loss
reserves represent loan loss reserves established by management in
addition to the allocated loan loss reserves deemed advisable by
management as a result of an analysis of existing loans and historical
trends. The Company may use unallocated loan loss reserves for losses
on various types of loans as well as for losses from standby letters
of credit, unused letters of credit, participations with recourse to
the Company and other off-balance sheet commitments.
December 31,
1996 1995 1994
------ ------ ------
% of % of % of
Amount Total Amount Total Amount Total
------ ------ ------ ------ ------ ------
(in thousands)
Real Estate Mortgage $35 1.1% $15 0.7% $- 0.0%
Real Estate Construction - 0.0% - 0.0% - 0.0%
Commercial 27 0.8% 20 0.9% 3 0.1%
Installment 33 1.0% 4 0.2% - 0.0%
Unallocated 3,122 97.1% 2,158 98.2% 2,175 99.9%
------ ------ ------ ------ ------ ------
Total Loans $3,217 100.0% $2,197 100.0% $2,178 100.0%
====== ====== ====== ====== ====== ======
Management evaluates the loan loss reserve on a quarterly basis or
more frequently, as needed. The evaluation of the reserve is done on
a loan by loan basis for existing identified problems and unidentified
potential problem credits including off-balance sheet commitments.
Since projecting anticipated losses is not an exact science,
management attempts to project reasonable estimates for amounts to be
reserved both for specific, identified problem credits and anticipated
but unidentified potential losses.
Management applies a systematic methodology from period to period
in determining the amount of potential losses to be reported and the
related level of the allowance. Since the computation of the
allowance for loan losses is a point in time computation, facts and
circumstances can significantly change from period to period, which
can cause fluctuations in both the reserve and the provision.
Management believes that the reserve is adequate based upon
several factors. The methodology utilized by the Company in computing
the allowance takes into consideration the loan portfolio mix, types
of problem credits noted in prior years, and the loan collateral and
underwriting criteria currently being utilized by the Company.
V. Deposits
The Company's primary sources of funds are deposits for lending
and other investment purposes. The Company offers a variety of
accounts for depositors designed to attract both short-term and long-
term deposits. The Company's deposits consist of certificates of
deposit (CDs), savings accounts, money market accounts, NOW
accounts and individual retirement accounts. These accounts generally
earn interest at rates established by management based on competitive
market factors and management's desire to increase or decrease certain
types or maturities of deposits.
The following table presents the average balances for each major
category of deposits and the weighted average interest rates paid for
interest-bearing deposits for the periods indicated.
December 31,
1996 1995 1994
------ ------ ------
(in thousands)
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
Demand Deposits $130,093 3.25% $118,477 3.13% $146,045 2.97%
Savings Deposits 23,137 2.90% 20,057 3.04% 22,102 3.00%
Time Deposits over $100,000 52,945 5.93% 35,783 5.50% 21,949 3.25%
Other Time Deposits 105,080 5.72% 78,071 5.19% 66,440 3.89%
Non-interest Bearing Deposits 38,203 N/A 29,489 N/A 28,799 N/A
-------- -------- --------
Total $349,458 $281,877 $285,335
======== ======== ========
The following table shows, by the time remaining to maturity, the
amounts of outstanding CD's issued in amounts of $100,000 or more at
the dates indicated.
December 31.
1996 1995 1994
----- ----- -----
(in thousands)
Maturity Range:
Three Months or Less $19,228 $19,495 $13,450
Three Months through Six Months 11,401 12,110 7,033
Six Months through Twelve Months 6,512 9,870 6,324
Twelve Months and Over 23,262 11,014 2,684
------- ------- -------
Total $60,403 $52,489 $29,491
======= ======= =======
VI. Return on Equity and Assets
The following selected consolidated financial data is derived from
the audited consolidated financial statements of the Company and
should be read in conjunction with the Company's consolidated
financial statements and the related notes beginning on page 21
hereto, management's discussion and analysis of financial condition
and results of operations beginning on page 3 hereto, and other
detailed information included elsewhere herein.
December 31,
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(in thousands, except per share data)
Income Statement Data:
Interest Income $32,867 $27,865 $23,613 $12,938 $8,280
Interest Expense 15,537 12,271 9,586 4,658 3,098
------- ------- ------- ------- -------
Net Interest Income 17,330 15,594 14,027 8,280 5,182
Provision for Loan Losses 145 36 56 835 503
Non-interest Income 2,274 2,489 1,790 1,075 1,132
Non-interest Expense 13,408 10,840 9,628 4,623 3,030
------- ------- ------- ------- -------
Income from Operations 6,051 7,207 6,133 3,897 2,781
Provision for Income Taxes 1,965 2,524 2,085 1,332 1,034
------- ------- ------- ------- -------
Net Income $4,086 $4,683 $4,048 $2,565 $1,747
======= ======= ======= ======= =======
Per Share Data:
(adjusted for stock splits)
Net Income - Primary $1.10 $1.37 $1.17 $0.82 $0.59
Net Income - Fully Diluted 1.07 1.25 1.08 0.80 0.59
Cash Dividends 0.20 0.20 0.16 0.16 0.13
Book Value 8.36 7.00 5.36 5.01 4.30
Actual Shares Outstanding 3,718 2,980 2,966 2,966 2,966
Average Shares Outstanding-
Primary 3,603 3,093 3,064 3,033 2,966
Fully Diluted 3,835 3,735 3,740 3,214 2,966
Balance Sheet Data:
Total Assets $450,606 $349,123 $349,563 $324,539$142,262
Total Loans 322,618 264,542 262,666 214,314 85,782
Reserve for Loan Losses 3,217 2,197 2,178 2,074 667
Investment Securities 78,170 42,183 64,301 53,672 26,078
Total Deposits 398,874 300,017 283,557 284,022 121,331
Long-term Debt 15,975 16,285 17,636 8,400 -
Shareholders' Equity 31,101 27,298 22,335 21,358 12,782
Ratios: (unaudited)
Return on Average Assets 1.01% 1.37% 1.21% 1.44% 1.61%
Return on Average Equity 13.72 18.04 18.32 16.89 14.58
Net Interest Margin 4.55 4.83 4.42 4.90 5.11
Shareholders' Equity
to Total Assets 6.90 7.82 6.39 6.58 8.98
Net Charge-offs(Recoveries)
to Average Loans 0.01 0.01 (0.02) 0.13 0.61
Non-performing and Past Due
Loans over 90 Days to
Total Loans 0.62 0.49 0.18 0.24 1.13
Reserve for Loan Losses to
Total Loans 1.00 0.83 0.83 0.97 0.78
Non-performing Assets to
Total Loans and Other
Assets Acquired 0.62 0.49 0.18 0.33 1.63
VII. Borrowings.
Although deposits are the Company's primary source of funds, the
Company has utilized borrowings as an alternative or less costly
source of funds or has invested borrowed funds at a positive rate of
return. In addition, the Company has relied upon selected borrowings
for short-term liquidity needs. The Company's main source of
borrowings is advances from the FHLB of Topeka. Another source has
been from repurchase agreements.
Borrowings from the FHLB of Topeka may be used on a short-term
basis to compensate for seasonal reductions in deposits or deposit
inflows at less than projected levels and have been used in the past
on a long-term basis to support lending activities.
Long-term debt consisted of the following at December 31
(in thousands).
1996 1995
------ ------
Federal Home Loan Bank advances, interest rates from
5.3% to 8.2% at December 31, 1996; various maturities
through 2002; collateralized by loans $10,100 $14,785
Bank debt, interest at 1.25% above prime rate (9.50%
at December 31, 1996); quarterly principal and
interest payments; collateralized by stock of Pitkin,
Centennial, Val Cor and Valley 5,875 1,500
------- -------
Total $15,975 $16,285
======= =======
These advances are collateralized by the capital stock of the
FHLB held by the Company and certain of the Company's loans and
investments. Such advances are made pursuant to several different
credit programs, each of which has its own interest rate and range of
maturities. The following table sets forth certain information as to
the Company's short-term borrowings at the dates indicated.
December 31,
1996 1995 1994
------ ------ ------
(in thousands)
Maximum Balance
---------------
FHLB Advances $19,610 $15,135 $27,610
Repurchase Agreements $ 145 $ 230 $ 4,485
Average Balance
---------------
FHLB Advances $15,843 $14,901 $ 7,967
Repurchase Agreements $ 48 $ 226 $ 2,322
Ending Balance
--------------
FHLB Advances $10,100 $14,785 $20,765
Repurchase Agreements $ - $ 145 $ 230
Weighted Average Interest Rate of Short-Term Borrowings
-------------------------------------------------------
FHLB Advances 7.03% 5.95% 5.10%
Repurchase Agreements 6.75% 6.75% 4.39%
Selected Quarterly Financial Data
---------------------------------
The selected quarterly financial data included below should be read in
conjunction with the financial review and the financial statements
included elsewhere in this report. In the opinion of management, all
material adjustments necessary for a fair presentation of the results
of operations for the interim periods have been made. All such
adjustments were of a normal recurring nature (in thousands, except
for per share and market data).
Dec 31, Sep 30, Jun 30,Mar 31,
1996 1996 1996 1996
------ ------ ------ ------
Total interest income $8,356 $9,218 $7,971 $7,321
Total interest expense 4,286 4,359 3,509 3,382
------ ------ ------ ------
Net Interest Income 4,070 4,859 4,462 3,939
Provision for loan losses 33 - 103 9
------ ------ ------ ------
Net Interest Income After
Provision for Loan Losses 4,037 4,859 4,359 3,930
Total non-interest income 804 737 532 725
Total non-interest expense 3,927 4,491 2,834 2,680
------ ------ ------ ------
Income Before Income Taxes 914 1,105 2,057 1,975
Income taxes 18 489 753 705
------ ------ ------ ------
Net Income $896 $616 $1,304 $1,270
====== ====== ====== ======
Net Income Per Share - Primary $ 0.23 $ 0.16 $ 0.35 $ 0.36
====== ====== ====== ======
Average shares outstanding 3,849 3,841 3,602 3,137
====== ====== ====== ======
Net Income Per Share - Fully
Diluted $ 0.23 $ 0.16 $ 0.34 $ 0.34
====== ====== ====== ======
Average shares outstanding 3,849 3,841 3,828 3,780
====== ====== ====== ======
Total dividends $ 186 $ 186 $ 193 $ 255
====== ====== ====== ======
Market range: (1)
High $20.00 $19.75 $16.50 $17.25
Low $17.63 $15.75 $15.00 $13.23
Close $19.13 $19.25 $16.50 $16.00
Dec 31, Sep 30, Jun 30,Mar 31,
1995 1995 1995 1995
------ ------ ------ ------
Total interest income $6,928 $7,178 $6,923 $6,836
Total interest expense 3,140 3,262 3,025 2,844
------ ------ ------ ------
Net Interest Income 3,788 3,916 3,898 3,992
Provision for loan losses 9 9 9 9
------ ------ ------ ------
Net Interest Income After
Provision for Loan Losses 3,779 3,907 3,889 3,983
Total non-interest income 942 734 390 423
Total non-interest expense 2,895 2,728 2,558 2,659
------ ------ ------ ------
Income Before Income Taxes 1,826 1,913 1,721 1,747
Income taxes 596 691 600 637
------ ------ ------ ------
Net Income $1,230 $1,222 $1,121 $1,110
====== ====== ====== ======
Net Income Per Share - Primary $ 0.36 $ 0.36 $ 0.33 $ 0.32
====== ====== ====== ======
Average shares outstanding 3,125 3,113 3,086 3,050
====== ====== ====== ======
Net Income Per Share - Fully
Diluted $ 0.33 $ 0.32 $ 0.30 $ 0.30
====== ====== ====== ======
Average shares outstanding 3,768 3,755 3,729 3,693
====== ====== ====== ======
Total dividends $ 227 $ 227 $ 227 $ 231
====== ====== ====== ======
Market range: (1)
High $14.88 $14.40 $13.40 $11.80
Low $11.50 $12.70 $11.20 $8.80
Close $13.38 $13.60 $13.40 $11.80
(1)Note: Stock price quotations were obtained from National
Association of Securities Dealers Automated Quotations
NASDAQ) and were adjusted for the five for four split
effected as a dividend.
Board of Directors
Aspen Bancshares, Inc. and Subsidiaries
REPORT OF INDEPENDENT AUDITORS
We have audited the accompanying consolidated statements of financial
condition of Aspen Bancshares, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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
audits 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 consolidated
financial position of Aspen Bancshares, Inc. and subsidiaries as of
December 31, 1996 and 1995, and the consolidated results of their
operations and cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for mortgage servicing rights
during 1995 and certain investments effective January 1, 1994.
Grand Junction, Colorado
January 24, 1997
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share data)
December 31,
1996 1995
-------- --------
ASSETS
Cash and due from banks, including interest bearing
deposits of $222 at 1996 and $1,115 at 1995 $15,114 $11,144
Certificates of deposit 400 -
Federal funds sold 17,540 20,740
Securities:
Available for sale, at market 78,170 42,183
Loans held for resale (market value of $684 at 1996
and $9,708 at 1995) 684 9,550
Loans receivable (net of allowance for credit losses
of $3,217 at 1996 and $2,197 at 1995) 318,717 252,795
Properties and equipment, net 9,477 7,761
Accrued interest receivable 3,052 2,145
Other assets 7,452 2,805
-------- --------
Total Assets $450,606 $349,123
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand non-interest bearing $47,061 $29,634
Demand interest bearing 150,269 108,987
Savings and time deposits less than $100,000 141,141 108,907
Time deposits $100,000 and over 60,403 52,489
-------- --------
Total Deposits 398,874 300,017
Accrued interest payable 776 571
Dividends payable 185 257
Long-term debt 15,975 16,285
Other liabilities 3,695 4,695
-------- --------
Total Liabilities 419,505 321,825
-------- --------
Shareholders' equity, substantially restricted:
Preferred stock, 7%, $.01 par value, cumulative
convertible, 5,000,000 shares authorized,
246,000 (1995) shares outstanding - 6,150
Common stock, $.01 par value, 5,000,000 shares
authorized, 3,717,714 (1996) and 2,979,728
(1995) shares outstanding 37 30
Additional paid in capital 11,632 4,879
Retained earnings 20,260 16,994
Net unrealized loss on available for sale
securities, net of taxes (828) (755)
-------- --------
Total Shareholders' Equity
31,101 27,298
-------- --------
Total Liabilities and Shareholders' Equity $450,606 $349,123
======== ========
See accompanying notes.
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Year ended December 31,
1996 1995 1994
------ ------ ------
Interest income:
Interest and fees on loans $28,518 $24,289 $19,818
Investment securities:
Interest and dividends on
available for sale securities:
Taxable 3,088 2,647 2,140
Tax exempt 187 73 -
Dividends 234 209 201
Interest on held to maturity
securities:
Taxable - 440 1,027
Tax exempt - 79 180
Deposits in banks 58 65 53
Federal funds sold 782 63 194
------- ------- -------
Total Interest Income 32,867 27,865 23,613
------- ------- -------
Interest expense:
Deposits 14,052 10,332 8,298
Other 1,485 1,939 1,288
------- ------- -------
Total Interest Expense 15,537 12,271 9,586
------- ------- -------
Net Interest Income Before
Provision for Loan Losses 17,330 15,594 14,027
Provision for loan losses 145 36 56
------- ------- -------
Net Interest Income After
Provision for Loan Losses 17,185 15,558 13,971
------- ------- -------
Non-interest income:
Service charges on deposit accounts 1,047 768 682
Other fees and charges 1,006 844 952
Gain (loss) on sale of investments,
net (2) 13 (9)
Gain on sale of loans, net 404 363 128
Gain (loss) on sale of other assets,
net (181) 501 37
------- ------- -------
Total Other Income 2,274 2,489 1,790
------- ------- -------
Non-interest expense:
Salaries and benefits 6,371 5,600 4,990
Occupancy 1,110 1,158 910
Furniture and fixtures 313 383 530
Data processing 689 644 407
Insurance and supervisory fees 1,641 671 820
Professional fees 465 577 489
Other 2,819 1,807 1,482
------ ------ ------
Total Other Expenses 13,408 10,840 9,628
------ ------ ------
Income From Operations 6,051 7,207 6,133
Provision for income taxes 1,965 2,524 2,085
------ ------ ------
Net Income $4,086 $4,683 $4,048
====== ====== ======
Net Income Per Share - Primary $ 1.10 $ 1.37 $ 1.17
====== ====== ======
Average Shares Outstanding 3,603 3,093 3,064
====== ====== ======
Net Income Per Share - Fully Diluted $ 1.07 $ 1.25 $ 1.08
====== ====== ======
Average Shares Outstanding 3,835 3,735 3,740
====== ====== ======
See accompanying notes.
<TABLE>
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
(in thousands, except share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Add-
Preferred Common itional Securities
Paid in Retained Valuation Treasury
Shares Amount Shares Amount Capital Earnings Allowance Shares Amount Total
------ ------ ------ ------ ------- -------- --------- ------ ------ -------
Balance at 12/31/93 260,000 $6,500 1,963,480 $ 20 $5,020 $10,076 $ - 65,280 $(258) $21,358
Net unrealized gain on
securities available
for sale at 1/01/94 - - - - - - 79 - - 79
Cancel treasury shares - - (65,280) (1) (257) - - (65,280) 258 -
Redeem preferred shares (2,000) (50) - - - (3) - - - (53)
Cash dividend - - - - - (862) - - - (862)
Five for four stock
split effected as a
stock dividend - - 474,550 5 - (5) - - - -
Net change in unrealized
loss on securities
available for sale - - - - - - (2,235) - - (2,235)
Net income - - - - - 4,048 - - - 4,048
-------- ------ -------- ---- ------ ------- ------ ------- ---- --------
Balance at 12/31/94 258,000 6,450 2,372,750 24 4,763 13,254 (2,156) - - 22,335
Redeem preferred shares (12,000) (300) - - - -
Stock options exercised - - 12,906 - 116 - - - - (300)
Cash dividend - - - - - (937) - - - (937)
Five for four stock
split effected as a
stock dividend - - 594,072 6 - (6) - - - -
Net change in unrealized
loss on securities
available for sale - - - - - - 1,401 - - 1,401
Net income - - - - 4,683 - - - - 4,683
-------- ------ --------- ----- ------- ------- ------ ------- ---- --------
Balance at 12/31/95 246,000 6,150 2,979,728 30 4,879 16,994 (755) - - 27,298
Conversion of preferred
for common (246,000)(6,150) 642,674 6 6,144 - - - - -
Conversion of warrants
for common - - 93,750 1 599 - - - - 600
Stock options exercised - - 1,562 - 10 - - - - 10
Cash dividend - - - - - (820) - - - (820)
Net change in unrealized
loss on securities
available for sale - - - - - - (73) - - (73)
Net income - - - - - 4,086 - - - 4,086
-------- ------ --------- ----- ------- ------- ------ ------- ---- --------
Balance at 12/31/96 - $ - 3,717,714 $ 37 $11,632 $20,260 $(828) - $ - $31,601
======== ====== ========= ===== ======= ======= ====== ======= ==== ========
See accompanying notes.
</TABLE>
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
1996 1995 1994
------ ------ ------
Operating Activities:
Net income $ 4,086 $ 4,683 $ 4,048
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Provision for loan losses 145 36 56
Depreciation and amortization 533 805 744
Stock dividends (223) (204) (197)
Amortization of premiums and accretion
of discounts on investments and
other assets 162 (412) 138
Deferred income taxes 46 (34) 105
Net (gain) loss on sale of investments 2 (13) 9
Net gain on sale of loans (404) (363) (128)
Net gain(loss) on sale and disposition
of other assets 181 (501) (37)
Proceeds from loan sales 50,197 31,870 26,576
Loans originated for resale (40,927) (41,598) (3,543)
Trading securities sales (purchases) - 484 (478)
(Increase) decrease in other assets (1,083) 276 225
(Increase) decrease in interest (61) 118 (534)
receivable
Increase (decrease) in other
liabilities (1,460) 129 (847)
------- ------- -------
Net Cash Provided (Used) By Operating
Activities 11,194 (4,724) 26,137
------- ------- -------
Investing Activities:
Federal funds sold and certificates of
deposit, net 5,630 (20,242) 17,000
Proceeds from maturities of held to
maturity securities - 3,488 1,523
Purchases of held to maturity securities - (75) (11,294)
Proceeds from the sales of available for
sale securities 8,515 20,101 2,383
Proceeds from the maturities of
available for sale securities 18,921 2,386 6,804
Purchases of available for sale
securities (39,422) (2,000) (15,796)
Net (increase) decrease in loans (24,690) 8,470 (47,993)
Purchase of mortgage servicing rights - (1,194) -
Purchase of property and equipment (636) (1,226) (1,183)
Proceeds from the sale of property - 1,898 -
Sale of other real estate owned - - 145
Acquisition of subsidiary, net of cash
acquired (7,279) - -
-------- ------- --------
Net Cash Provided (Used) By Investing
Activities (38,961) 11,606 (48,411)
-------- ------- --------
Financing Activities:
Net increase in deposit accounts 32,474 16,651 44
Proceeds from sale of stock and stock
options 610 116 -
Dividends paid (892) (912) (834)
Net increase (decrease) in lines of
credit - (20,765) 20,765
Proceeds from long-term debt and FHLB
advances 36,250 2,375 12,111
Repayments of long-term debt and FHLB
advances (36,705) (3,726) (5,300)
Redemption of preferred stock - (300) (53)
-------- ------- --------
Net Cash Provided (Used) By Financing
Activities 31,737 (6,561) 26,733
-------- ------- --------
Net Increase in Cash and Cash
Equivalents 3,970 321 4,459
Cash and cash equivalents - beginning of
year 11,144 10,823 6,364
-------- ------- --------
Cash and cash equivalents - end of year $15,114 $11,144 $10,823
======= ======= =======
Cash paid during the year
Interest $15,609 $12,101 $9,051
======= ======= =======
Income taxes $ 2,357 $ 3,223 $4,510
======= ======= =======
See accompanying notes.
ASPEN BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 - ACCOUNTING POLICIES
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of
Aspen Bancshares, Inc., (the Company), and its subsidiaries
Pitkin County Bank & Trust Company (Pitkin), Centennial Savings
Bank, F.S.B. (Centennial), and Val Cor Bancorporation, Inc.
(Val Cor). Val Cor owns 99.1% of the outstanding stock of
Valley National Bank (Valley). All significant inter-company
accounts and transactions have been eliminated in
consolidation. Certain amounts in the consolidated financial
statements for prior years have been reclassified to conform
with the current year presentation.
Nature of Operations
--------------------
The Company provides real estate mortgage and construction,
commercial, and consumer loans and a variety of deposit
services and products through Pitkin, Centennial, and Valley
(the Banks). The principal market area for Pitkin's services
and products include the Colorado mountain communities of
Aspen, Telluride and surrounding locations. Centennial has
branches located throughout western Colorado and northern New
Mexico and considers these areas its market area. The
southwestern corner of Colorado is Valley's principal market
area.
Use of Estimates
----------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Cash and Cash Equivalents
-------------------------
For the purpose of reporting cash flows, the Company includes
as cash equivalents, all cash accounts that are not subject to
withdrawal restrictions or penalties. Also included are highly
liquid debt instruments and time deposits with original
maturities of three months or less.
Trading Securities
------------------
Trading securities are held for resale within a short period of
time and are stated at market value.
Held to Maturity and Available for Sale Securities
--------------------------------------------------
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities (SFAS No. 115).
Securities that may be sold in response to or in anticipation
of changes in interest rates and resulting prepayment risk, or
other factors, are classified as available for sale and carried
at fair value. The unrealized gains and losses on these
securities are reported net of applicable taxes in a separate
component of shareholders' equity. Securities that the Company
has the positive intent and ability to hold to maturity are
carried at amortized cost.
Interest income on securities, including amortization of
premiums and accretion of discounts, is recognized using the
interest method or the straight line method, which is not
materially different from the interest method. The specific
identification method is used to determine realized gains and
losses on the sale of securities.
Loans Held for Resale
---------------------
Mortgage and education loans originated and intended for sale
in the secondary market are carried at the lower of cost or
estimated market value in the aggregate. Net unrealized losses
are recognized in a valuation allowance by charges to income.
Loans
-----
Loans are reported at the principal amount outstanding, less
net deferred loan origination fees and costs, loan purchase
discount and premium, and the allowance for loan losses.
Interest on loans is calculated by using the simple interest
method on the daily balance of the principal amount
outstanding.
Beginning with fiscal 1995, the Company adopted Statement of
Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan (SFAS No. 114), and Statement of
Financial Accounting Standards No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures
(SFAS No. 118). The Company had no loans that were considered
impaired during the years ended December 31, 1996 and 1995.
A loan is considered impaired when, based on current
information and events, it is probable that the Company will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. Loans are not classified as
impaired because of minimal payment delays or insignificant
shortfalls in amounts if management expects to collect all
amounts due including interest. Management determines loan
impairments on a loan by loan basis for the entire portfolio.
Accrual of interest can be discontinued on impaired loans and
loans designated as nonaccrual loans. Accrual of interest on
loans is generally discontinued either when reasonable doubt
exists as to the full, timely collection of interest or
principal, or when a loan becomes contractually past due 90
days or more with respect to interest or principal. When a
loan is placed on impaired or nonaccrual status, all interest
previously accrued but not collected is charged against income.
Income on such loans is then recognized only to the extent that
cash is received and where the future collection of principal
is probable. Interest accruals are resumed on such loans only
when they are brought fully current with respect to such
interest and principal and when, in the judgment of management,
the loans are estimated to be fully collectible as to both
principal and interest.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through a
provision for loan losses charged to expense. Loans are
charged against the allowance for loan losses when management
believes that the collectibility of the principal is unlikely.
Management believes the allowance is adequate to absorb losses
inherent in existing loans, based on evaluations of the
collectibility and prior loss experience of loans. The
evaluations take into consideration such factors as changes in
the nature and size of the portfolio, overall portfolio
quality, specific problem loans, and current and anticipated
economic conditions that may affect borrowers' ability to pay.
For impaired loans, if the present value of expected future
cash flows is less than the recorded investment in the loan, an
allowance is recognized with a charge to the provision for loan
losses.
Mortgage Servicing Rights
-------------------------
In 1995, the Company adopted Statement of Financial Accounting
Standards No. 122, Accounting for Mortgage Servicing Rights
(SFAS No. 122). The primary effect of this statement is the
recording of an asset, mortgage servicing rights (MSRs), for
loans originated and sold with servicing retained. Prior to
this statement, only purchased mortgage servicing rights
(PMSRs) could be capitalized.
The acquisition costs of bulk-servicing purchases and servicing
rights acquired through the purchase of mortgage loans
originated by others are capitalized as PMSRs. MSRs are
determined upon the sale of loans with servicing retained,
based on allocation of the sold mortgage loans' total cost
between the MSRs and the loans (without the mortgage servicing
rights) based upon their relative fair values. The PMSRs and
MSRs capitalized do not exceed the present value of the
expected net future servicing income at the time of
acquisition. The PMSRs and MSRs are amortized over the
estimated period of net servicing revenues. The Company
periodically evaluates the PMSRs and MSRs for impairment by
making its best estimate of the undiscounted anticipated future
cash flows. If the recorded balance of the PMSRs and MSRs
exceed these future cash flows, an allowance is recorded.
For 1996, the Company capitalized approximately $359,000 of
MSRs and amortized approximately $130,000 of PMSRs and MSRs as
a reduction of loan servicing revenue. As of December 31,
1996, the balances for PMSRs and MSRs were $1,038,000 and
$446,000, respectively.
In 1995, the Company capitalized approximately $1,194,000
(PMSRs) and $114,000 (MSRs), of which approximately $52,000 has
been amortized as a reduction of loan servicing revenue.
Loan Fees and Loan Costs
------------------------
Loan origination fees and direct loan origination costs are
deferred for long-term loans where the fee is greater than the
cost and recognized as an adjustment of yield according to the
straight-line method, which is not significantly different from
the interest method. The net deferral is an offset to loans on
the statements of financial condition, and the amortization of
these fees and costs is recorded as an adjustment to interest
income.
Other Real Estate Owned
-----------------------
Other real estate owned and in judgment, including in-substance
foreclosures, is recorded at the lower of cost (principal
balance of former mortgage loan) or estimated fair value less
estimated selling costs. If the estimated fair value declines
after foreclosure, a valuation allowance is provided by a
charge to income. Management periodically evaluates the
adequacy of this allowance. Expenses of holding foreclosed
properties, net of rental income, are generally charged to
operations as incurred. Costs incurred in connection with
improvements to the properties are capitalized unless the costs
result in an amount which is in excess of the estimated fair
value.
Properties and Equipment
------------------------
Properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets or terms
of the lease, whichever is shorter.
Income Taxes
------------
The Company uses an asset and liability approach for financial
accounting and reporting for income taxes. If it is more
likely than not that some portion or all of a deferred tax
asset will not be realized, a valuation allowance is
recognized. The provision for income taxes includes federal
and state income taxes currently payable and those deferred
because of temporary differences between the financial
statement and tax basis of assets and liabilities.
Earnings Per Share of Common Stock
----------------------------------
Primary earnings per share of common stock is based on the
weighted average number of common shares outstanding and common
equivalent shares arising from warrants and stock option plans.
The computation of fully diluted earnings per share
further assumes the conversion of the 7% cumulative
convertible preferred stock, which occurred in 1996 (See Note
9). Accounting rules governing the computation of earnings per
share require that dividends on cumulative preferred stock be
deducted in the earnings per share computation.
During 1995 and 1994, the Company had a five for four stock
split effected as a stock dividend. All per share data and
average shares outstanding for all periods presented were
adjusted to reflect the stock splits.
Supplemental Disclosure of Cash Flow Information
-------------------------------------------------
Excluded from the consolidated statement of cash flows for 1996
were the effects of non-cash investing and financing activities
related to the acquisition of Val Cor. The excluded
transactions are as follows (in thousands):
Non-cash assets (and liabilities) acquired (assumed):
Certificates of Deposit $ 300
Investments 26,621
Loans 40,487
Property and equipment 1,965
Other assets 5,290
Deposits (66,428)
Other liabilities (956)
Equity (10,396)
--------
Net non-cash assets and liabilities $(3,117)
========
Cash and cash equivalents at
acquisition date $ 3,117
========
Effect of New Accounting Standards
----------------------------------
In June 1996, Statement of Financial Accounting Standards No.
125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities (SFAS No. 125) was issued.
SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996. It requires the recognition of
financial assets and servicing assets that are controlled by
the reporting entity, the derecognition of financial assets
when control is surrendered and the derecognition of
liabilities when they are extinguished.
Management believes adoption of this new accounting standard
will not have a material effect on financial position and
results of operations, nor will adoption require additional
capital resources. The Company expects to adopt this statement
when required.
NOTE 2 - ACQUISITION
On June 18, 1996, the Company acquired Val Cor Bancorporation,
Inc. Val Cor owns 99.1% of Valley's outstanding stock.
Valley's primary business is the solicitation of deposits from
customers and the general public and the granting of
commercial, agricultural, mortgage and consumer loans.
Southwestern Colorado and northern New Mexico are Valley's
primary market area.
The total purchase price of approximately $10,396,000,
including acquisition expenses, was financed with available
cash and the issuance of long-term debt. The acquisition has
been accounted for as a purchase and the results of Val Cor
have been included in the accompanying consolidated financial
statements since the date of acquisition. Goodwill resulting
from this acquisition of $4,336,000 is being amortized on a
straight-line basis for a period of 25 years.
The unaudited consolidated results of operations on a pro forma
basis as though Val Cor had been acquired as of the beginning
of 1995 are as follows (in thousands, except per share data):
1996 1995
---- ----
Interest income $ 35,656 $ 33,686
Net income $ 4,443 $ 5,123
Net income per share-fully diluted $ 1.13 $ 1.26
The pro forma financial information is presented for
informational purposes only and is not necessarily indicative
of the operating results that would have occurred had the Val
Cor acquisition been consummated as of the above date, nor are
they necessarily indicative of future operating results.
NOTE 3 - SECURITIES
On January 1, 1994, the Company adopted SFAS No. 115, which
addresses the accounting for investments in equity securities
that have readily determinable fair values and for investments
in all debt securities. Such securities are classified in three
categories and accounted for as follows: debt securities that
the Company has the positive intent and ability to hold to
maturity are classified as held to maturity and are measured at
amortized cost; debt and equity securities bought and held
principally for the purpose of selling in the near term are
classified as trading securities and are measured at fair value,
with unrealized gains and losses included in earnings; and debt
and equity securities not classified as either held to maturity
or trading securities are deemed available for sale and are
measured at fair value, with unrealized gains and losses, net of
applicable taxes, reported in a separate component of
shareholders' equity.
During 1995, Pitkin transferred all of its held to maturity
securities to available for sale primarily for liquidity. The
unamortized cost and unrealized loss at the time of transfer
were $10,195,000 and $18,000, respectively. This was done
before the special time frame allowed by the Financial
Accounting Standards Board to transfer securities regardless of
the reason. Centennial transferred all of its securities from
held to maturity to available for sale during the time frame
allowed by the Financial Accounting Standards Board. This
transfer was done primarily for liquidity. The unamortized cost
and unrealized loss at the time of transfer were $11,000,000 and
$51,000, respectively.
Available for Sale Securities
-----------------------------
The amortized cost and estimated fair value of available for
sale securities were as follows (in thousands):
Gross Gross
Unreal- Unreal-
Amortized ized ized Fair
December 31, 1996 Cost Gains Losses Value
-----------------
U.S. Treasury securities and
obligations of other U.S.
government agencies $38,986 $ 96 $(601) $38,481
Obligations of state and political
subdivision 6,293 75 (60) 6,308
Corporate and other debt securities
101 - (15) 86
Mortgage backed securities 28,571 58 (784) 27,845
------- ------ ------- -------
Total debt securities 73,951 229 (1,460) 72,720
Other securities 5,450 - - 5,450
------- ------ -------- -------
Total available for sale securities $79,401 $ 229 $(1,460) $78,170
======= ====== ======== =======
December 31, 1995
-----------------
U.S. Treasury securities and
obligations of other U.S.
government agencies $16,742 $ 42 $(491) $16,293
Obligations of state and political
subdivision 2,710 13 (5) 2,718
Corporate and other debt securities 101 - (5) 96
Mortgage backed securities 20,215 10 (652) 19,573
------- ------ ------- -------
Total debt securities 39,768 65 (1,153) 38,680
Other securities 3,494 9 - 3,503
------- ------ ------- -------
Total available for sale securities $43,262 $ 74 $(1,153) $42,183
======= ====== ======== =======
Other securities consist primarily of Federal Reserve Bank (FRB)
and Federal Home Loan Bank (FHLB) stock, which is carried at
cost. At December 31, 1996 and 1995, this category also
included marketable equity securities totaling $57,000 and
$61,000, respectively.
The net loss on sale of available for sale securities during
1996 was $2,000 (gross gains of $18,000 and gross losses of
$20,000). The net gain on sale of available for sale securities
during 1995 was $13,000 (gross gains of $92,000 and gross losses
of $79,000). The net loss on sale of available for sale
securities during 1994 was $9,000 (gross gains of $26,000 and
gross losses of $35,000).
The amortized cost and estimated fair value of debt securities
at December 31, 1996, by contractual maturity, were as follows
(in thousands):
Available for Sale
------------------
Amortized Fair
Cost Value
--------- -------
Due in one year or less $12,022 $12,026
Due after one year through five years 21,269 21,155
Due after five years through ten years 10,115 9,744
Due after ten years 1,974 1,950
------- -------
45,380 44,875
Mortgage backed securities 28,571 27,845
------- --------
Total debt securities $73,951 $72,720
======= ========
Market value of securities pledged at December 31, 1996 for
public, customer and other deposits and FHLB advances totaled
$66,845,000.
NOTE 4 - LOANS
The following is a summary of loans receivable at December 31
(in thousands):
1996 1995
----- -----
Real estate mortgage $199,058 $180,085
Real estate construction 20,011 11,870
Commercial 37,508 26,488
Installment and other 56,102 36,549
Agricultural 9,255 -
-------- --------
321,934 254,992
Less allowance for loan losses (3,217) (2,197)
-------- --------
Total loans receivable $318,717 $252,795
======== ========
Changes in the allowance for loan losses are summarized as follows
(in thousands):
Year ended December
31,
1996 1995 1994
----- ----- -----
Balance at beginning of period $2,197 $2,178 $2,074
Provision for loan losses charged to operations 145 36 56
Loan charge-offs (137) (19) (40)
Loan recoveries 107 2 88
Other - Valley balance at acquisition date 905 - -
------ ------ ------
Balance at end of period $3,217 $2,197 $2,178
====== ====== ======
Mortgage loans of $137,345,000 were eligible as collateral for
FHLB advances at December 31, 1996. Also, mortgage loans of
$1,749,000 were pledged to secure public deposits at December
31, 1996.
Mortgage loans serviced for others are not included in the
accompanying statements of financial condition. The unpaid
principal balances of these loans at December 31, 1996 and 1995
were $193,180,000 and $189,239,000, respectively.
NOTE 5 - PROPERTIES AND EQUIPMENT
Properties and equipment are stated at cost and consist of the
following at December 31 (in thousands):
1996 1995
------ ------
Building and improvements $7,215 $4,719
Furniture and equipment 4,768 3,705
Leasehold improvements 599 437
------- -------
12,582 8,861
Less accumulated depreciation and amortization (4,708) (2,364)
------- -------
7,874 6,497
Land 1,603 1,264
------- -------
Total $9,477 $7,761
======= =======
Depreciation expense for the years ended December 31, 1996,
1995, and 1994 was approximately $533,000, $805,000, and
$744,000, respectively.
NOTE 6 - BORROWED FUNDS
Long-term debt consisted of the following at December 31 (in
thousands):
1996 1995
------ ------
Federal Home Loan Bank advances, interest
rates from 5.3% to 8.2% at December 31,
1996; various maturities through 2002;
collateralized by loans $10,100 $14,785
Bank debt, interest at 1.25% above prime
rate (9.50% at December 31, 1996);
quarterly principal and interest
payments; collateralized by stock of
Pitkin, Centennial, Val Cor, and Valley. 5,875 1,500
------- -------
Total $15,975 $16,285
======= =======
Pitkin, Centennial, and Valley each have a line of credit for
short-term purposes with the FHLB of $30,000,000, $40,000,000,
and $5,000,000, respectively. If the need arises, Pitkin and
Centennial may rely upon additional advances from the FHLB and
FRB discount window to supplement their supply of lendable funds
or to meet deposit withdrawal requirements.
The terms of the Company's bank debt contain various restrictive
covenants. As of December 31, 1996, the Company was in
compliance with all such covenants.
The following table summarizes the maturities of long-term debt
(in thousands):
Year
-----
1997 $1,000
1998 6,500
1999 6,500
2000 1,500
2001 375
2002 and thereafter 100
-------
Total $15,975
=======
NOTE 7 - INCOME TAXES
Income tax expense (benefit) is summarized as follows (in
thousands):
Year ended
December 31,
1996 1995 1994
----- ----- -----
Current:
Federal $1,766 $2,288 $1,900
State 153 270 80
------ ------ ------
1,919 2,558 1,980
Deferred (primarily federal) 46 (34) 105
------ ------ ------
Total $1,965 $2,524 $2,085
====== ====== ======
The differences between the U.S. federal statutory tax rate and
the Company's effective rate are as follows (in thousands):
Year ended
December 31,
1996 1995 1994
------ ------ ------
Tax based on statutory rate $2,058 $2,450 $2,085
State income taxes, net of federal 147 196 38
benefit
Tax-exempt interest (66) (37) (51)
Thrift tax bad debt deduction
in excess of book provision - (108) (1)
Other, net (174) 23 14
------ ------ ------
Total $1,965 $2,524 $2,085
====== ====== ======
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The deferred tax assets and
deferred tax liabilities, recorded on the balance sheet as a
deferred tax liability as of December 31, 1996, are as follows
(in thousands):
Deferred Deferred
Tax Tax
Assets Liabilites
Difference between tax basis and
carrying basis of acquired subsidiary $ - $598
Difference between tax basis and -
carrying basis of investments 519
Excess tax bad debt reserve over base -
year reserve 479
Depreciation - 263
Excess book provision for loan losses
over bank tax provisions 719 -
State net operating loss carry forward 156 -
Deferred loan fees, net 48 -
Other, net 27 -
---- ------
$950 $1,859
==== ======
In 1996, the Company determined that a valuation allowance for
deferred tax assets was unnecessary since it is more likely than
not that deferred tax assets will be realized through future
taxable income and tax planning strategies. Therefore, in 1996,
the valuation allowance of $70,000 was eliminated.
Base year bad debt reserves for tax purposes for Centennial at
December 31, 1996 were $3,838,000. No deferred income tax
liability has been provided for these reserves which are
included in retained earnings. If such reserves are used for
purposes other than to absorb bad debts of Centennial, the
amount used is subject to the then current corporate income tax
rate.
At December 31, 1996, Val Cor had net operating loss
carryforwards for state income tax purposes of approximately
$3,083,000, which expire in 2004 through 2007. These net
operating loss carryforwards can be used to reduce future
separate state taxable income of Val Cor. There were no net
operating loss carryforwards for federal income tax purposes.
NOTE 8 - RELATED PARTY TRANSACTIONS
Certain directors, officers, and companies with which they are
associated, were customers of, and had banking transactions
with, the Company or its subsidiaries in the ordinary course of
business. It is the Company's policy that all loans and
commitments to lend to officers and directors be made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other borrowers.
Activity in loans to directors and executive officers is
summarized as follows (in thousands):
Year ended December 31,
1996 1995
------ ------
Beginning balance $2,798 $2,568
Loans disbursed 1,771 2,083
Principal repayments and changes in
directors and officers (818) (1,853)
Valley balance at acquisition date 599 -
------ ------
Ending balance $4,350 $2,798
====== ======
Pitkin sells participating interests in loans to officers,
directors, shareholders, other individuals, affiliated entities
of the foregoing, Centennial, Valley and other entities. At
December 31, 1996 and 1995, participations of approximately
$7,848,000 and $3,609,000, respectively, were held by related
parties.
In addition to loan and deposit arrangements, Pitkin leases the
unowned portion of the building it occupies from a related
partnership. The lease expires September 30, 2013. Certain
partners in the partnership are also shareholders in the
Company. Pitkin has an option to purchase the remaining 40%
interest in the building for $572,000.
NOTE 9 - SHAREHOLDERS' EQUITY
Regulatory Matters
The banking subsidiaries of the Company are subject to various
regulatory capital requirements administered by the federal
banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional
discretionary actions by regulators. These actions, if
undertaken, could have a direct material effect on the Company's
consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective
action, banks must meet specific capital guidelines that involve
quantitative measures of bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory
accounting practices. Bank's capital amounts and
classifications are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require banks to maintain minimum amounts and
ratios of total and Tier 1 capital (as defined in the
regulations) to risk-weighted assets (as defined in the
regulations), and of Tier 1 capital to average assets (as
defined in the regulations). As of December 31, 1996, the
most recent notification from applicable regulatory agencies
categorize the Company's banking subsidiaries as adequately
capitalized under the regulatory framework for prompt
corrective actions. To be categorized as adequately
capitalized, the Banks must maintain minimum ratios as set
forth in the following table:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capitalized Under
For Capital Prompt Corrective Purposes Action Provisions
As of December 31, 1996 $ $ Ratio $ Ratio
- ----------------------- ------------- ----------------- ----------------
Total Capital
(to risk weighted assets)
Consolidated $30,749 10.39% > $23,672 > 8.00% N/A
Pitkin $12,428 11.96% > $8,313 > 8.00% > $10,391 > 10.00%
Valley $7,313 16.44% > $3,559 > 8.00% > $4,449 > 10.00%
Centennial $15,186 11.59% > $10,479 > 8.00% > $13,099 > 10.00%
Tier 1 Capital
(to risk weighted assets)
Consolidated $27,532 9.30% > $11,836 > 4.00% N/A
Pitkin $11,128 10.71% > $4,156 > 4.00% > $6,235 > 6.00%
Valley $6,751 15.18% > $1,779 > 4.00% > $2,669 > 6.00%
Centennial $14,327 10.94% > $3,930 > 3.00% > $7,859 > 6.00%
Tier 1 Capital
Consolidated(to average
assets) $27,532 6.12% > $18,008 > 4.00% > N/A
Pitkin(to average
assets) $11,128 7.05% > $6,310 > 4.00% > $7,888 > 5.00%
Valley(to average
assets) $6,751 8.72% > $3,098 > 4.00% > $3,872 > 5.00%
Centennial(to adjusted $14,327 6.94% > $8,263 > 4.00% > $10,329 > 5.00%
total assets)
</TABLE>
Also, Centennial's tangible equity and tangible capital ratios
were both 7% at December 31, 1996, which exceeds the
requirement for capital adequacy purposes of 2% and 1.5%,
respectively.
Preferred Stock
---------------
On April 15, 1996, all of the Company's issued and outstanding
shares of preferred stock were converted to common stock. Each
share of preferred was converted into 2.6125 shares of common
resulting in the issuance of 642,674 shares of common stock.
Dividends on the stated value of preferred stock were cumulative
at 7% annually, payable quarterly.
Warrants
--------
On June 28, 1996, all issued and outstanding warrants were
exercised to purchase 93,750 shares of the Company's common
stock at a purchase price of $6.40 per share.
NOTE 10 - LEASE OBLIGATION
At December 31, 1996, the Company was obligated under non-
cancelable operating leases for office space and branch
facilities. Projected minimum rental payments under operating
leases are as follows (in thousands):
Year
----
1997 $271
1998 174
1999 132
2000 78
2001 57
2002 and thereafter 710
------
Total minimum payments required $1,422
======
Rental expense for the years ended December 31, 1996, 1995, and
1994 for all operating leases with terms longer than one year was
approximately $301,000, $254,000, and $185,000, respectively.
NOTE 11 - STOCK OPTIONS
At December 31, 1996, the Company had an incentive stock option
plan and a non-qualified stock option plan. The Company applies
APB Opinion 25, Accounting for Stock Issued to Employees, and
related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for these plans. Had
compensation cost for these plans been determined based on the
fair value at the grant dates for awards under those plans
consistent with the method of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, the
Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
Year ended December 31,
(in thousands except
per share data)
1996 1995
----- -----
Net Income As reported $4,086 $4,683
Pro forma $3,989 $4,557
Primary earnings As reported $1.10 $1.37
per share Pro forma $1.07 $1.33
Fully diluted As reported $1.07 $1.25
earnings per share Pro forma $1.01 $1.22
Incentive Stock Option Plan
---------------------------
The Company's incentive stock option plan (the Plan) authorizes
the grant to directors, officers, and employees, of options to
purchase an aggregate of 156,250 shares of the Company's common
stock. The Plan has certain eligibility provisions for all
participants and restrictions for those individuals who are
greater than ten percent shareholders.
Under the terms of the Plan, stock options are granted with
option prices at fair market value as of the date of the grant
and are exercisable at any time prior to ten years from the
grant date. The Company granted additional options for 6,109
shares on January 2, 1997, which are exercisable at any time
prior to six years from the grant date.
Non-qualified Stock Option Plan
-------------------------------
A non-qualified stock option plan (NSOP) was approved by the
Company's shareholders during 1993. Under the NSOP, 156,250
shares were reserved for options to be granted to certain
directors and advisory directors of the Company. Directors are
granted options in January for 1,000 shares for the prior year
of service as a director. A director must serve a minimum of
five years before options can be exercised. Advisory directors
are granted options for 100 shares for each board meeting
attended. These shares are granted in January and are
exercisable at date of grant. Advisory directors receive no
other compensation. The option price is the fair market value
of the Company's common stock on the date the option is granted.
The Company granted additional options for 13,400 shares on
January 2, 1997, which are exercisable at any time prior to six
years from the grant date.
A summary of the transactions of the incentive and non-qualified
stock option plans follows:
Incentive Plan Non-qualified Plan
-------------- ------------------
Weighted Weighted
Average Average
Shares Exercise Shares Exercise
Price Price
Outstanding December 31, 1993 123,828 $6.32 60,938 $9.60
Granted 1,563 10.88 11,879 10.88
------- ------
Outstanding December 31, 1994 125,391 6.38 72,817 9.81
Granted 13,750 9.40 17,250 9.40
Exercised (4,687) 5.87 (9,250) 9.57
------- ------
Outstanding December 31, 1995 134,454 6.70 80,817 9.75
Granted 11,000 13.38 12,400 13.38
Exercised (1,562) 6.40 - 0.00
------- ------
Outstanding December 31, 1996 143,892 $7.22 93,217 $10.23
======= ======
Exercise Price Range $4.80 to $13.38 $9.40 to $13.38
Weighted average fair value
of options granted during 1996 $13.38 $13.38
Weighted average remaining
contractual life 5.75 years 7.27 years
NOTE 12 - 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. Those instruments involve, to varying degrees, elements
of credit risk in excess of the amount recognized in the balance
sheet. The contract amounts of those instruments reflect the
extent of involvement the Company has in particular classes of
financial instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it
does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates of one year or less 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 credit
worthiness on a case-by-case basis. The amount of collateral
obtained as considered necessary by the Company upon extension
of credit is based on management's credit evaluation of the
counter-party. Collateral held varies, but may include accounts
receivable, inventory, property, plant and equipment and income-
producing commercial properties.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of a customer to a
third party. Those guarantees are primarily issued to support
private borrowing arrangements. Most standby letters of credit
are issued for one year or less. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral
requirements vary but, in general, follow the requirements for
other loan facilities.
A summary of the Company's commitments at December 31, 1996
follows (in thousands):
Commitments to extend credit secured by real estate $13,314
Standby letters of credit 4,050
Other commitments 18,136
-------
Total $35,500
=======
NOTE 13 - CONCENTRATION OF CREDIT RISK
The Company, through its subsidiaries, grants real estate
mortgages and construction, commercial and installment and
agricultural loans to customers located throughout western
Colorado and northern New Mexico. Loans, commitments and standby
letters of credit have been granted to customers in the
Company's market area.
NOTE 14 - CONTINGENCIES
At December 31, 1996, Pitkin owned 70.2% of the total capital
stock of Thatcher Financial Group, Inc. (TFG). Pitkin acquired
the stock at sale of the collateral on a loan made by Pitkin.
TFG's primary asset was 100% of the common stock of Thatcher
Bank, F.S.B. (Thatcher Bank). Pitkin also had a loan
collateralized by the stock of Thatcher Bank and an art
collection. During 1993, Pitkin sold the stock of Thatcher Bank
and part of the art collection. Proceeds from the sales were
used to satisfy outstanding loan principal, interest and
expenses related to the loans made by Pitkin. Directors of TFG,
certain of whom are parties related to Pitkin, are in the
process of determining and resolving outstanding liabilities,
including possible federal and state income taxes payable. After
determination and payment of outstanding liabilities of TFG, TFG
directors plan to distribute the remaining funds, if any, to the
shareholders of TFG. There is no determination as to when this
can be accomplished. Pitkin has not recorded any asset with
respect to its ownership of TFG stock. At December 31, 1996,
TFG had net assets, primarily cash and investments, of
approximately $1,000,000 (unaudited).
On November 19, 1996, the Company signed an Agreement of Merger
and an Agreement and Plan of Reorganization (collectively, the
Agreement) with Zions Bancorporation (Zions). The Agreement
provides for the merger of the Company into Zions, whereby Zions
will be the surviving corporation. Upon consummation of the
Agreement, each outstanding share of the Company's common stock
will be converted into a right to receive a certain number of
shares of Zions' common stock. The purchase price is
$73,000,000 plus certain accretions. The Company is responsible
for its expenses associated with the merger including an
advisory fee of approximately $1,500,000. The Agreement is
subject to certain contingencies, including shareholder and
regulatory approval.
The Company granted an option to Zions to purchase up to 19.9%
of the Company's common stock as an inducement for Zions to
enter into the Agreement. Under this option, Zions has the
right to purchase up to 739,825 shares of the Company's common
stock for $18.875 per share. Zions may exercise the option only
upon the occurrence of a triggering event which has been defined
to include actions by the Company's board of directors that
authorize or support the execution of a merger agreement or
offer with another party or recommend the Company's shareholders
not approve the Agreement, a willful material breach by the
Company, or certain actions by any third party relative to their
acquisition of the Company.
On September 17, 1996, Centennial voluntarily entered into a
Supervisory Agreement with the Office of Thrift Supervision
(OTS). The Supervisory Agreement requires Centennial to take
actions to achieve compliance with applicable consumer and
public interest related laws and regulations and related safe
and sound business practices, review its records to determine if
disclosures of finance charges and/or annual percentage rates to
its customers were accurate, establish and maintain accurate and
complete records demonstrating its regulatory compliance with
the various consumer laws and regulations and implement a
compliance program relative to consumer and public interest
related laws and requirements. Management and the board of
directors of Centennial have established policies and procedures
to comply with all aspects of the Supervisory Agreement.
In the normal course of business, the Company and its
subsidiaries are involved in various legal actions arising from
its lending, collection and operational activities. In the
opinion of management, the outcome of these legal actions will
not significantly affect the financial position of the Company.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made as of a specific point in time
based on the characteristics of the financial instruments and
relevant market information. Where available, quoted market
prices are used. In other cases, fair values are based on
estimates using present value or other valuation techniques.
These techniques involve uncertainties and are significantly
affected by the assumptions used and judgments made regarding
risk characteristics of various financial instruments, discount
rates, estimates of future cash flows, future expected loss
experience and other factors. Changes in assumptions could
significantly affect these estimates and the resulting fair
values. Derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not
be realized in an immediate sale of the instrument. Also,
because of differences in methodologies and assumptions used to
estimate fair values, the Company's fair values should not be
compared to those of other financial institutions.
Fair value estimates are based on existing 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. Accordingly, the aggregate
fair value amounts presented do not purport to represent the
underlying market of the Company.
The carrying amounts reported in the statement of condition for
cash and due from banks, interest-bearing deposits in banks and
federal funds sold approximate fair value.
Fair values for available for sale securities are based on
quoted market prices of dealer quotes. If quoted prices are not
available for the specific security, fair values are based on
quoted market prices of comparable instruments.
For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on
carrying amounts. The fair values for other loans are estimated
using a discounted cash flow analysis, based on interest rates
currently offered for loans with similar terms to borrowers of
similar credit quality. Loan fair value estimates include
judgments regarding future expected loss experience and risk
characteristics. Loan commitments, letters of credit and unused
commitments generally have short-term, variable rate features
and contain clauses which limit the Company's exposure to
changes in customer credit quality. Accordingly, their carrying
values, which are immaterial at December 31, 1996, are
reasonable estimates of fair value.
By definition, fair values of deposits with no stated
maturities, such as demand deposits, savings and NOW accounts
and money market deposit accounts are equal to the amounts
payable on demand at the reporting date. The fair values of all
other fixed rate deposits are based on discounted cash flows
using rates currently offered for deposits of similar remaining
maturities.
The fair value of long-term debt with fixed rates is based on
quoted market prices for similar issues, or current rates
offered to the Company for debt of the same remaining maturity.
For long-term debt with floating rates, fair value and carrying
value are considered the same.
The estimated fair values for the Company's on-balance sheet
financial instruments were as follows at December 31 (in
thousands):
1996 1995
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ------- -------- -------
Financial Assets:
Cash and due from banks $15,114 $15,114 $11,144 $11,144
Certificates of deposit 400 400 0 0
Federal funds sold 17,540 17,540 20,740 20,740
Available for sale securities 78,170 78,170 42,183 42,183
Loans held for resale 684 684 9,550 9,708
Loans 318,717 318,597 252,795 252,771
Financial Liabilities:
Deposits 398,874 399,822 300,017 300,257
Long-term debt 15,975 15,778 16,285 16,374
NOTE 16 - PARENT COMPANY ONLY FINANCIAL INFORMATION
CONDENSED PARENT COMPANY ONLY
STATEMENTS OF FINANCIAL CONDITION
(in thousands)
December 31,
1996 1995
----- -----
Assets:
Cash $514 $252
Investment in banking subsidiaries 36,821 27,104
Other assets 691 2,726
------- -------
Total Assets $38,026 $30,082
======= =======
Liabilities and shareholders' equity:
Dividends payable $185 $257
Other liabilities 37 272
Borrowed funds 5,875 1,500
Shareholders' equity 31,929 28,053
------- -------
Total Liabilities and Shareholders'
Equity $38,026 $30,082
======= =======
STATEMENTS OF INCOME
Year ended December 31,
1996 1995 1994
------ ------ ------
Revenue:
Equity in earnings of banking
subsidiaries $4,671 $5,148 $4,561
Other income 15 0 18
Expense:
Operating expenses (938) (729) (834)
Income tax benefit 338 264 303
------ ------ ------
Net Income $4,086 $4,683 $4,048
====== ====== ======
STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995 1994
------ ------ ------
Operating Activities:
Net income $4,086 $4,683 $4,048
Adjustments to reconcile net income to
net cash used for operating activities:
Earnings of subsidiaries (4,671) (5,148) (4,561)
(Increase) decrease in other
assets and accrued liabilities
164 (220) 27
------ ------ ------
Net Cash Used By Operating Activities (421) (685) (486)
------ ------ ------
Investing Activities:
Dividends received from subsidiaries 7,050 2,960 4,913
Purchase of equipment (64) (522) (45)
Acquisition of subsidiary (10,396) 0 0
-------- ------- ------
Net Cash Provided (Used) By Investing
Activities (3,410) 2,438 4,868
-------- ------- ------
Financing Activities:
Proceeds (repayment) of bank loan, net 4,375 (1,000) (3,000)
Payment of dividends (892) (912) (834)
Proceeds (redemption) of stock, net 610 (184) (53)
-------- ------- -------
Net Cash Provided (Used) By Financing
Activities 4,093 (2,096) (3,887)
Net Increase (Decrease) in Cash 262 (343) 495
Cash - beginning of period 252 595 100
------ ------ ------
Cash - end of period $514 $252 $595
====== ====== ======
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
Aspen Bancshares, Inc.
---------------------
Registrant
Date: March 7, 1997 /s/: Amy G. Beidleman
---------------------
Amy G. Beidleman
Vice President/Chief
Financial Officer/Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 14892
<INT-BEARING-DEPOSITS> 622
<FED-FUNDS-SOLD> 17540
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78170
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 321934
<ALLOWANCE> 321
<TOTAL-ASSETS> 450606
<DEPOSITS> 398874
<SHORT-TERM> 0
<LIABILITIES-OTHER> 4656
<LONG-TERM> 15975
0
0
<COMMON> 37
<OTHER-SE> 31064
<TOTAL-LIABILITIES-AND-EQUITY> 31101
<INTEREST-LOAN> 28518
<INTEREST-INVEST> 3509
<INTEREST-OTHER> 840
<INTEREST-TOTAL> 32867
<INTEREST-DEPOSIT> 14052
<INTEREST-EXPENSE> 15537
<INTEREST-INCOME-NET> 17330
<LOAN-LOSSES> 145
<SECURITIES-GAINS> (2)
<EXPENSE-OTHER> 13408
<INCOME-PRETAX> 6051
<INCOME-PRE-EXTRAORDINARY> 6051
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4086
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 8.63
<LOANS-NON> 823
<LOANS-PAST> 1169
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2197
<CHARGE-OFFS> 137
<RECOVERIES> 107
<ALLOWANCE-CLOSE> 3217
<ALLOWANCE-DOMESTIC> 3217
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3122
</TABLE>
