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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20552
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE 000-18911
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 81-0468393
(State or other jurisdiction of incorporation or organization) (IRS employer Identification No.)
P.O. Box 27; 202 Main Street, Kalispell, Montana 59903-0027
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 406-756-4200
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (i) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (ii) has been subject to such filing
requirements for the past 90 days. Yes [X] No[ ]
Indicate by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 21, 1997, there were issued and outstanding 4,532,437 shares of the
Registrant's Common Stock. No preferred shares are issued or outstanding.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as of the
close of trading on March 21, 1997, was $107,645,379.
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Annual Report to Stockholders for the fiscal year
ended December 31, 1996 (only portions of which are incorporated by reference).
Part III of Form 10-K - The definitive Proxy statement filed with the Securities
and Exchange Commission in connection with Registrant's Annual Meeting of
Stockholders to be held on April 23, 1997 (only portions of which are
incorporated by reference).
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GLACIER BANCORP, INC.
FORM 10-K ANNUAL REPORT
For the year ended December 31, 1996
TABLE OF CONTENTS
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Page
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PART I
Item 1. Business 3
Item 2. Properties 37
Item 3. Legal Proceedings 38
Item 4. Submission of Matter to a Vote of Security Holders 38
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 38
Item 6. Selected Financial Data 38
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 38
Item 8. Financial Statements and Supplementary Data 39
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 39
PART III
Item 10. Directors and Executive Officers of the Registrant 39
Item 11. Executive Compensation 39
Item 12. Security Ownership of Certain Beneficial Owners
and Management 39
Item 13. Certain Relationships and Related Transactions 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 39
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PART I
Item 1. Business
BACKGROUND
Glacier Bancorp, Inc. Kalispell, Montana (the "Company") is a Delaware
corporation incorporated in 1990, pursuant to the reorganization of Glacier
Bank, FSB ("Savings Bank") into a bank holding company.
In addition to the Savings Bank, Glacier is also the parent holding company of
First National Bank of Eureka ("Eureka") and Glacier National Bank, Whitefish,
Montana ("GNB"), formerly First National Bank of Whitefish ("Whitefish"), owning
approximately 93% and 94%, respectively, of the outstanding stock of Eureka and
GNB (collectively referred to as the "National Banks"). Glacier has an open
offer to all minority shareholders of the National Banks to acquire their shares
of Eureka and GNB at the then current book value. Effective March 14, 1997,
Whitefish acquired certain of the assets and the liabilities of the Whitefish
branch of Savings Bank and changed its name to "Glacier National Bank".
Concurrent with the closing of this acquisition, the Whitefish branch of Savings
Bank was closed.
As of December 31, 1996, Whitefish and Eureka had assets of $35 million and $25
million, respectively.
On December 31, 1996, the Company completed its acquisition of 100% of the
outstanding stock of the First Security Bank of Missoula ("First Security"),
through an exchange of stock with Missoula Bancshares, Inc., ("Bancshares") the
parent company of First Security, shareholders. Bancshares merged out of
existence and First Security became a direct subsidiary of Glacier. Total assets
of First Security on December 31, 1996 were approximately $120 million.
The Savings Bank is a federally-chartered savings bank. It began operations in
1955 and converted from a savings and loan association to a savings bank in
1983, and from a mutual form of ownership to a stock form in 1984. The Savings
Bank's savings and checking accounts are insured by the Federal Deposit
Insurance Corporation ("FDIC"). The Savings Bank is a member of the Federal Home
Loan Bank of Seattle ("FHLB"), which is one of twelve banks which comprise the
Federal Home Loan Bank System. The Savings Bank is subject to regulation and
examination by the OTS.
The Savings Bank's main office is located at 202 Main Street, Kalispell, MT,
59901 and its telephone number is (406) 756-4200. See "Item 2. Properties."
GNB's address is 319 2nd Street, Whitefish, MT, 59937 (406) 862-3535, Eureka's
address is 222 Dewey Ave, Eureka, MT 59917 (406) 296-2521, and First Security's
address is 1704 Dearborn, Missoula, MT 59801 (406) 728-3115.
The business of the Company's subsidiaries (collectively referred to hereafter
as "Banks") consists primarily of attracting deposit accounts from the general
public and originating residential, installment and other loans. The Bank's
principal sources of income are interest on loans, loan origination fees, fees
on deposit accounts and interest and dividends on investment securities. Its
principal expenses are interest on deposits, FHLB advances, and repurchase
agreements, as well as general and administrative expenses.
The Company provides full service brokerage services through INVEST Financial
Services, an unrelated brokerage firm, through Community First Inc., a wholly
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owned subsidiary, maintained for this purpose.
The following abbreviated organizational chart illustrates the various existing
parent/subsidiary relationships:
Glacier
Bancorp, Inc.
(Parent Holding Company)
Glacier First Security Bank
Bank OF Missoula
(Savings Bank) (Commercial bank)
Community First First National Bank
Inc, of Whitefish
(Brokerage services) (Commercial bank)
First National Bank
of Eureka
(Commercial bank)
The First Security Bank of Missoula was acquired on December 31, 1996 through an
exchange of stock with Missoula Bancshares, Inc., formerly the parent company of
First Security Bank. The pooling of interests accounting method is being used
for this merger transaction. Under this method, financial information for each
of the periods presented include the combined companies as though the merger had
occurred prior to the earliest date presented.
MARKET AREA
The Company historically has specialized in serving the savings and mortgage
loan needs of the retail financial services market. Since 1981 the Company has
emphasized transaction accounts, including non-interest bearing checking
accounts and consumer lending. In recent years commercial loans and related
deposits have received increased attention, rounding out the mix of products
offered.
The Company's primary market area includes the four northwest Montana counties
of Flathead, Lake, Lincoln, and Glacier; the west central Montana counties of
Missoula and Ravalli, and the community of Billings in south central Montana.
Kalispell, the location of its home office, is the county seat of Flathead
County, and is the primary trade center of what is known as the Flathead Basin.
The Savings Bank has its home office and branch offices in Kalispell, Columbia
Falls, Evergreen, Bigfork, and Polson (the county seat of Lake County), Libby
(the county seat of Lincoln County), Cut Bank (the county seat of Glacier
County), Hamilton (the county seat of Ravalli County), and Billings (the county
seat of Yellowstone County). First Security's main office and two branch
locations are in Missoula (the county seat of Missoula County). GNB and Eureka
are located in Whitefish, Montana and Eureka, Montana, respectively; each have
one office.
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This northwest Montana area has a diversified economic base, primarily comprised
of wood products, primary metal manufacturing, mining, energy exploration and
production, agriculture, high-tech related manufacturing and tourism. Tourism is
heavily influenced by the close proximity of Glacier National Park, which has in
excess of 1.5 million visitors per year. The area also contains the Big Mountain
Ski Area, Flathead Lake, the largest natural body of fresh
water west of the Mississippi River, along with many other smaller lakes, and
the Bob Marshall Wilderness Area, which provides summer and off-season hunting
and fishing opportunities.
Transportation to the area is furnished year round by Amtrack rail service to
Whitefish and air service to Glacier International Airport.
Missoula, the home of the University of Montana, has a large population base
with a diverse economy comprised of government services, transportation, medical
services, forestry, technology, tourism, trade and education. Missoula is
located on Interstate Highway 90, and has good air service.
COMPETITION
The Savings Bank and National Banks comprise the largest financial institution
group in terms of total assets in the four county area of northwest Montana, and
have approximately 20% of the total deposits in this area. The Billings branches
are located in both the most populous city and county of Montana. One of the
Billings branches was converted from a mortgage origination office to a
full-service branch in April 1995. The supermarket branch opened in July 1996.
First Security has approximately 11% of the total deposits in Missoula County.
Under Montana's existing branch banking law, commercial banks, unlike federal
thrift institutions such as the Savings Bank, are not permitted to branch,
except in a community that does not have a financial institution. A Montana bank
holding company may control more than one bank and convert individual banks to
branches. Interstate banking is allowed with certain restrictions. Out-of-state
bank holding companies, headquartered in the Ninth Federal Reserve District, or
in neighboring states, can purchase (not branch) Montana banks. Montana banks
can also purchase banks in neighboring states. President Clinton signed, and
made effective September 29, 1994, the Interstate Banking and Branching
Efficiency Act of 1994 which allows bank holding companies to acquire banks in
any state. States may chose not to allow Interstate branching under this act,
which is effective June 1, 1997. The Montana Legislature in its 1997 session has
passed legislation to "opt out" of permitting mergers with banks in other
states. For further information see "Regulation of the Company" - "Recent
Legislation".
There are 30 depository institutions including savings banks, commercial banks
and credit unions with offices in the area. No bank holding company has more
than two banks in the four county area, and the one other thrift institution has
only one office. There are 13 credit unions and 18 banks in the area.
The Banks, like other depository institutions, are operating in a rapidly
changing environment. Non-depository financial service institutions, primarily
in the securities and insurance industries, have become competitors for retail
savings and investment funds. Mortgage banking/brokerage firms are actively
competing for residential mortgage business. On the other hand, removal of
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regulatory restrictions has enabled the Savings Bank to enter the highly
competitive consumer lending business as well as the specialized commercial loan
market.
In addition to offering competitive interest rates, the principal methods used
by banking institutions to attract deposits include the offering of a variety of
services and convenient office locations and business hours. The primary factors
in competing for loans are interest rates and rate adjustment provisions, loan
maturities, loan fees, and the quality of service to borrowers and brokers.
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
AVERAGE BALANCE SHEET
The following table sets forth for the periods indicated, information regarding
(i) the total dollar amount of interest and dividend income of the Company for
earning assets and the resultant average yield; (ii) the total dollar amount of
interest expense on interest-bearing liabilities and the resultant average rate;
(iii) net interest and dividend income; (iv) interest rate spread; and (v) net
interest margin:
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<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET For the year ended 12-31-96 For the year ended 12-31-95
(Dollars in Thousands) Interest Average Interest Average
Average and Yield/ Average and Yield/
Balance Dividends Rate Balance Dividends Rate
------- --------- ---- ------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Real Estate Loans $195,215 15,962 8.18% $188,461 16,095 8.54%
Commercial Loans 89,266 9,008 10.09% 76,183 8,284 10.87%
Installment and Other Loans 84,719 8,374 9.88% 72,145 6,436 8.92%
-------- ------- ----- -------- ------ -----
Total Loans 369,200 33,344 9.03% 336,789 30,815 9.15%
------- ----- ------ -----
Mortgage-Backed Securities 44,260 3,236 7.31% 30,769 2,310 7.51%
Investment Securities 68,433 4,568 6.68% 55,556 3,727 6.71%
-------- ------- ----- -------- ------ -----
Total Earning Assets 481,893 41,148 8.54% 423,114 36,852 8.71%
------- ----- ------ -----
Non-Earning Assets 38,418 32,959
-------- --------
TOTAL ASSETS $520,311 $456,073
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
NOW Accounts 58,860 1,184 2.01% 55,000 1,074 1.95%
Savings Acounts 38,797 1,328 3.42% 41,051 1,197 2.92%
Money Market Demand Accounts 50,701 2,159 4.26% 41,419 1,667 4.02%
Certificates of Deposit 101,559 5,601 5.51% 85,368 4,681 5.48%
FHLB Advances 127,300 7,302 5.74% 102,986 6,041 5.87%
Other Borrowings and Repurchase Agreements 23,197 982 4.23% 26,182 1,409 5.38%
-------- ------- ----- -------- ------ -----
Total Interest Bearing Liabilities 400,414 18,556 4.63% 352,006 16,069 4.56%
------- ----- ------ -----
Non-interest Bearing Deposits 58,289 50,815
Other Liabilities 12,603 10,088
-------- --------
Total Liabilities 471,306 412,909
-------- --------
Common Stock 43 42
Paid-in Capital 32,469 24,710
Retained Earnings 17,569 18,928
Treasury stock (1,006) (531)
Net unrealized gains and losses on AFS securities (70) 15
-------- --------
Total Stockholders' Equity 49,005 43,164
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $520,311 $456,073
======== ========
Net Interest Income $22,592 $20,783
======= =======
Net Interest Spread 3.90% 4.14%
Net Interest Margin on average earning assets 4.69% 4.56%
Return on Average Assets (1) 1.43% 1.74%
Return on Average Equity (2) 15.15% 18.48%
Dividend Payout Ratio (3) 38.18% 31.64%
Equity to Assets Ratio (4) 9.42% 9.46%
</TABLE>
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEET For the year ended 12-31-94
(Dollars in Thousands) Interest Average
Average and Yield/
Balance Dividends Rate
------- --------- ----
<S> <C> <C> <C>
ASSETS:
Real Estate Loans 172,894 13,621 7.88%
Commercial Loans 67,517 5,911 8.75%
Installment and Other Loans 48,950 4,986 10.19%
-------- ------ -----
Total Loans 289,361 24,518 8.47%
------ -----
Mortgage-Backed Securities 26,252 2,018 7.69%
Investment Securities 50,449 2,825 5.60%
-------- ------ -----
Total Earning Assets 366,062 29,361 8.02%
------ -----
Non-Earning Assets 28,715
--------
TOTAL ASSETS $394,777
========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
NOW Accounts 52,875 1,039 1.97%
Savings Acounts 44,714 1,247 2.79%
Money Market Demand Accounts 40,251 1,259 3.13%
Certificates of Deposit 72,492 3,302 4.55%
FHLB Advances 67,434 3,811 5.65%
Other Borrowings and Repurchase Agreements 24,027 838 3.49%
-------- ------ -----
Total Interest Bearing Liabilities 301,793 11,496 3.81%
------ -----
Non-interest Bearing Deposits 46,454
Other Liabilities 9,112
--------
Total Liabilities 357,359
--------
Common Stock 42
Paid-in Capital 19,419
Retained Earnings 18,153
Treasury stock (32)
Net unrealized gains and losses on AFS securities (164)
--------
Total Stockholders' Equity 37,418
--------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $394,777
========
Net Interest Income $17,865
=======
Net Interest Spread 4.21%
Net Interest Margin on average earning assets 4.53%
Return on Average Assets (1) 1.75%
Return on Average Equity (2) 18.41%
Dividend Payout Ratio (3) 32.03%
Equity to Assets Ratio (4) 9.48%
</TABLE>
(1) Net Income divided by Average Total Assets
(2) Net Income divided by Average Equity
(3) Dividends Declared per Share divided by Net Income per Share
(4) Average Equity divided by Average Total Assets Note: Averages are based on
quarter-end balances, using 5 quarters.
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RATE/VOLUME ANALYSIS
Net interest income can be evaluated from the perspective of relative dollars of
change in each period. Interest income and interest expense which are the
components of net interest income, are shown in the following table on the basis
of the amount of any increases or (decreases) attributable to changes in the
dollar levels of the Company's interest-earning assets and interest-bearing
liabilities ("Volume") and the yields earned and rates paid on such assets and
liabilities ("Rate"):
RATE/VOLUME ANALYSIS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Years ended December 31, Years ended December 31, Years ended December 31,
1996 vs 1995 1995 vs 1994 1994 vs 1993
Increase due to: Increase (Decrease) due to: Increase (Decrease) due to:
Volume Rate Net Volume Rate Net Volume Rate Net
------ ---- --- ------ ---- --- ------ ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income:
Real Estate Loans $755 ($888) ($133) $1,282 $1,192 $2,474 $1,827 ($732) $1,095
Commercial Loans 1,244 (520) 724 822 1,551 2,373 936 588 1,524
Consumer and Other Loans 1,198 740 1,938 1,967 (517) 1,450 868 (148) 720
Mortgage-backed Securities 986 (60) 926 338 (46) 292 (269) (92) (361)
Investment Securities 858 (17) 841 305 597 902 354 (405) (51)
------ ----- ------ ------ ------ ------ ------ ----- ------
Total Interest Income $5,041 ($745) $4,296 $4,714 $2,777 $7,491 $3,716 ($789) $2,927
------ ----- ------ ------ ------ ------ ------ ----- ------
Interest Expense:
NOW Accounts $77 $34 $111 $47 ($12) $35 $150 ($225) ($75)
Savings Accounts (66) 28 (38) (116) 66 (50) 69 (50) 19
Money Market Demand Accounts 386 103 489 38 370 408 80 (40) 40
Certificates of Deposit 1,060 31 1,091 641 738 1,379 (169) (243) (412)
FHLB Advances 1,392 (131) 1,261 2,077 153 2,230 1,259 (255) 1,004
Other Borrowings and
Repurchase Agreements (149) (278) (427) 81 490 571 170 37 207
------ ----- ------ ------ ------ ------ ------ ----- ------
Total Interest Expense $2,700 ($213) $2,487 $2,768 $1,805 $4,573 $1,559 ($776) $783
------ ----- ------ ------ ------ ------ ------ ----- ------
Net Interest Income $2,341 ($532) $1,809 $1,946 $ 972 $2,918 $2,157 ($13) $2,144
====== ===== ====== ====== ====== ====== ====== ===== ======
</TABLE>
The change in interest income and interest expense attributable to changes in
both volume and rate has been allocated proportionately to the change due to
volume and the change due to rate.
Net interest income increased $1.809 million in 1996 over 1995. The increase was
due to increases in volumes.
Interest rates have increased during 1996, with long term rates somewhat higher
than short term rate levels. Short-term rates are approximately the same levels
as at December 31, 1995. Long terms rates have increased slightly with the
spread in basis points approximately 77 at December 31, 1996 between the 30 year
bond and the 2 year treasury note. This relatively small spread, and low rates,
may result in a reduction in interest income as assets mature or reprice at
lower rate levels. Pages 29 and 30 of the Management's Discussion and Analysis
section in the Company's Annual Report to Stockholders for the year ended
December 31, 1996 contain more information concerning interest rate spreads.
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INVESTMENT ACTIVITIES
The Savings Bank is required to maintain a daily average balance of liquid
assets (cash, certain time deposits, bankers' acceptances, investment grade
corporate debt obligations and commercial paper, and specified United States
Government, state or federal agency obligations) equal to a monthly average of
not less than a specified percentage of its net withdrawable savings deposits
plus short-term borrowings ("liquidity base"). This liquidity requirement is set
by the OTS at 5.0%. Short-term liquid assets currently must constitute 1.0% of
the liquidity base. Monetary penalties may be imposed for failure to meet
monthly liquidity requirements. Liquidity requirements were met in 1996. It has
generally been the Company's policy to maintain a liquidity portfolio only
slightly above federal regulatory requirements, because higher yields can
generally be obtained from loan originations than from short-term deposits and
investment securities.
Liquidity levels may be increased or decreased depending upon the yields on
investment alternatives and upon management's judgment as to the attractiveness
of the yields then available in relation to other opportunities and its
expectation of the level of yield that will be available in the future.
There has been no active trading in the Company's investment portfolios during
1996. Investment securities are generally held to maturity and carried at cost
plus or minus any unamortized premium or discount. Those securities classified
as available for sale are carried at estimated fair value with unrealized gains
or losses reflected as an adjustment to stockholders' equity. Refer to footnote
3 in the Annual Report to Stockholders for the year ended December 31, 1996 for
more detailed information. During 1996, there was a small net realized gain from
the sale of securities, resulting from the disposition of less desirable
investments and acquiring investments with better total return probabilities.
The Company uses an effective tax rate of 31.28% in calculating the tax
equivalent yield. Approximately $18 million of the investment portfolio is
comprised of tax exempt investments. The following table sets forth the
maturities and weighted average tax equivalent yields of the debt securities in
the Company's investments as of December 31, 1996:
INVESTMENT PORTFOLIO - VALUES AND YIELDS
(Dollars in thousands)
At December 31, 1996:
<TABLE>
<CAPTION>
U.S. Government and State, Local, and Mortgage-backed
Federal Agencies Other Issues and REMIC Equity Securities Total
------------------- ----------------- --------------- ----------------- --------------
Book Book Book Book Book
Value Yield Value Yield Value Yield Value Yield Value Yield
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Maturity dates:
Less than 1 year $10,977 5.68% $506 7.08% $1,372 5.92% $250 7.90% $13,105 5.80%
After 1 year through 5 years 9,177 5.94% 1,356 8.65% 2,929 6.45% 247 6.88% 13,709 6.33%
After 5 years through 10 years 7,203 7.30% 585 8.07% 2,758 7.18% 0 0.00% 10,546 7.31%
After 10 years 13,094 7.17% 15,768 8.42% 38,989 7.52% 300 2.50% 68,151 7.64%
------- ---- ------- ---- ------- ---- ---- ---- -------- ----
TOTAL $40,451 6.51% $18,215 8.39% $46,048 7.38% $797 5.55% $105,511 7.21%
======= ==== ======= ==== ======= ==== ==== ==== ======== ====
</TABLE>
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For information about the Company's equity investment in the stock of the FHLB
of Seattle, see "Sources of Funds - Advances and Other Borrowings."
For additional information, see Notes 1 and 3 to the Consolidated Financial
Statements included in the Annual Report to Stockholders for the year ended
December 31, 1996.
LENDING ACTIVITY
General
The Banks focus their lending activity primarily on several types of loans: 1)
first-mortgage, conventional loans secured by residential properties,
particularly single-family, 2) installment lending for consumer purposes (e.g.,
auto, credit card, etc.), and 3) commercial lending that concentrates on
targeted businesses (1991 saw the development of a Commercial Loan Department at
the Savings Bank). The Management's Discussion & Analysis in the Annual Report
to Stockholders for the year ended December 31, 1996, and footnote 4 of the
Consolidated Financial Statements, contain more information about the lending
portfolio.
Loan Portfolio Composition
The following table sets forth information summarizing the composition of the
Company's loan portfolio by type of loan:
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LOAN PORTFOLIO COMPOSITION
(Dollars in Thousands)
<TABLE>
<CAPTION>
At At At At At
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TYPE OF LOAN
Real Estate Loans:
Residential first
mortgage loans $160,116 41.41% $145,058 41.06% $144,753 45.54% $119,843 44.99% $92,373 41.40%
Construction 16,651 4.31% 18,425 5.22% 15,184 4.78% 18,526 6.96% 11,111 4.98%
FHA and VA loans 17,940 4.64% 23,426 6.63% 26,130 8.22% 20,150 7.57% 24,927 11.17%
Loans held for sale 3,900 1.01% 5,951 1.68% 3,119 0.98% 4,743 1.78% 2,733 1.23%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $198,607 51.37% $192,860 54.59% $189,186 59.51% $163,262 61.29% $131,144 58.78%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Commercial Loans:
Real estate $49,130 12.71% $43,059 12.19% $38,595 12.13% $30,176 11.34% $34,571 15.51%
Other commercial loans 50,940 13.18% 42,557 12.05% 33,880 10.66% 32,711 12.28% 19,948 8.94%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $100,070 25.88% $85,616 24.24% $72,475 22.80% $62,887 23.61% $54,519 24.45%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Installment and Other
Loans:
Consumer loans $87,523 22.64% $74,725 21.15% $56,053 17.63% $39,813 14.95% $37,036 16.60%
Outstanding balances
on credit cards 3,725 0.96% 3,139 0.89% 2,835 0.89% 2,725 1.02% 2,671 1.20%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total $91,248 23.60% $77,864 22.04% $58,888 18.52% $42,538 15.97% $39,707 17.79%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Allowance for Losses (3,284) -0.85% (3,077) -0.87% (2,647) -0.83% (2,330) -0.87% (2,267) -1.02%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
NET LOANS $386,641 100.00% $353,263 100.00% $317,902 100.00% $266,357 100.00% $223,103 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
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Loan Portfolio Maturities or Repricing Term
The stated maturities or first repricing term (if applicable) for the loan
portfolio at December 31, 1996 was as follows:
LOAN MATURITIES OR REPRICING TERM
(Dollars in Thousands)
<TABLE>
<CAPTION>
Real Estate Commercial Consumer Total
----------- ---------- -------- -------
<S> <C> <C> <C> <C>
Variable rate $ 41,703 56,989 32,463 131,155
Maturing or Repricing in:
6 Months or Less 24,981 8,732 11,773 45,486
6 Months to 1 Year 22,376 5,547 10,546 38,469
1 Year to 3 Years 51,729 12,269 22,325 86,323
3 Years to 5 Years 24,952 6,210 11,242 42,404
5 Years to 10 Years 25,102 8,363 2,257 35,722
10 Years to 20 Years 7,557 1,943 331 9,831
Thereafter 207 17 311 535
-------- ------- ------ -------
Totals $198,607 100,070 91,248 389,925
======== ======= ====== =======
</TABLE>
Loan Portfolio Scheduled Contractual Principal Repayments
The following table sets forth certain information at December 31, 1996
regarding the dollar amount of scheduled loan contractual repayments (demand
loans, loans having no stated scheduled repayments and no stated maturity, and
overdrafts are reported as due in one year or less):
SCHEDULED CONTRACTUAL LOAN PRINCIPAL REPAYMENTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
After 1 year
Amounts due within: 1 year through After
or less 5 years 5 years Totals
------- ------- ------- ------
<S> <C> <C> <C> <C>
Real estate loans 12,394 42,871 143,342 198,607
Commercial loans 28,138 39,160 32,773 100,070
Consumer loans 25,252 41,285 24,711 91,248
------ ------- ------- -------
Totals 65,784 123,316 200,826 389,925
====== ======= ======= =======
</TABLE>
Neither scheduled maturities nor scheduled contractual amortization of loans are
expected to reflect the actual term of the Banks' loan portfolio. Based on
historical information, the average life of loans is substantially less than
their contractual terms because of prepayments and, in the case of conventional
mortgage loans (i.e., those loans which are neither insured nor partially
guaranteed by the Federal Housing Administration or the Veterans
Administration), due-on-sale clauses, which give the Company the right to
declare a loan immediately due and payable in the event, among other things, the
borrower sells the real property subject to the mortgage and the loan is not
repaid.
12
<PAGE> 13
Real Estate Lending
The Banks' principal lending activities have generally consisted of the
origination of both construction and permanent loans on residential and
commercial real estate. With respect to residential loans, the Banks make both
conventional mortgage loans and loans insured by the Federal Housing Authority
("FHA") or partially guaranteed by the Veterans Administration ("VA"). Newly
originated FHA, VA and conventional fixed-rate term loans are sometimes sold in
the secondary market, as discussed below.
Since the enactment of FIRREA, the Banks generally may not make loans to one
borrower and related entities in an amount which exceeds 15% of its unimpaired
capital and surplus (approximately $4.9 million for the Savings Bank, $1.9
million for First Security and $.5 million for the National Banks), although
loans in an amount equal to an additional 10% of unimpaired capital and surplus
may be made to a borrower if the loans are fully secured by readily marketable
securities. As of December 31, 1996, loans to the Saving Bank's eight largest
borrowers and related entities amounted to $3,425,177 (8 loans); $3,238,585 (6
loans); $3,238,409 (6 loans); $2,272,200 (12 loans) and; 4 borrowers with
$2,099,240 each (4 loans). First Security has one borrower with 14 loans
totalling $1,800,000.
OTS regulations limit the amount which federally-chartered savings and loan
associations and savings banks may lend in relationship to the appraised value
of the real estate securing the loan, as determined by an appraisal at the time
of loan origination. Current regulations generally permit a maximum
loan-to-value ratio of 100% for one-to-four family dwellings and 95% for all
other real estate loans. The Bank's lending policies, however, generally limit
the maximum loan-to-value ratio on residential mortgage loans to 80% of the
lesser of the appraised value or purchase price or up to 90% of the loan if
insured by a private mortgage insurance company. The other banks follow the same
general guidelines.
The Savings Bank has continued its efforts to originate adjustable rate long
term mortgage loans. The Savings Bank currently offers a six month adjustable
rate loan based upon the weekly yield on United States Treasury Securities, with
limitations on adjustments of 2% per year, a life-time floor, and a life-time
ceiling. Generally, the rates are adjusted at six-month intervals and fully
reflected in the borrower's monthly payment.
The Banks also provide interim construction financing for single-family
dwellings, and make land acquisition and development loans on properties
intended for residential use. At December 31, 1996, the Banks had $16.7 million,
or 4.3% of total loans outstanding, in construction loans.
All improved real estate which serves as security for a loan must be insured
against fire, extended coverage, vandalism, malicious mischief and other
hazards. Such insurance must be maintained through the entire term of the loan
and in an amount not less than that amount necessary to pay the indebtedness to
the Bank in full.
Loan Solicitation and Processing
The Banks actively solicit mortgage loan applications from real estate brokers,
contractors, existing customers, customer referrals, and walk-ins to their
offices. Residential mortgage loan originators take applications from
13
<PAGE> 14
borrowers, process the credit information, obtain property appraisals, and then
submit the loan to the loan committee for approval.
Upon receipt of a loan application from a prospective borrower, a credit report
and verifications are ordered to verify specific information relating to the
loan applicant's employment, income, and credit standing. An appraisal of the
real estate intended to secure the proposed loan is requested.
In connection with the loan approval process, the Banks' loan personnel analyze
the loan applications and the property involved.
Loan applicants are promptly notified of the loan committee decision. If
approved, the terms and conditions include the amount of the loan, interest
rate, amortization term, a brief description of the real estate to be mortgaged,
and the notice of requirement of fire and casualty insurance coverage to be
maintained to protect the lender's interest.
Consumer Lending
Under federal laws and regulations, the Savings Bank may make secured and
unsecured consumer loans in an aggregate amount up to 35% of its total assets.
The 35% limitation does not include certain loans, however, including home
equity loans (loans secured by the equity in the borrower's residence but not
necessarily for the purpose of home improvement), home improvement loans, loans
secured by deposit accounts, credit card loans, or education loans. The other
banks are not subject to this restriction.
The majority of all consumer loans are secured by either real estate,
automobiles, or other assets. Presently 35.6% of the Banks' consumer portfolio
is variable. The Banks intend to continue lending for such loans because of
their short-term nature, generally between three months and five years, with an
average term of approximately two years. Moreover, interest rates on consumer
loans are generally higher than on mortgage loans.
The Banks also originate second mortgage and home equity loans, especially to
its existing customers in instances where the first and second mortgage loans
are less than 75% of the current appraised value of the property.
The National Banks and First Security derive a slightly higher percentage of
loans from the consumer area than the Savings Bank.
Commercial Loans
Federal laws and regulations permit a federally-chartered savings institution to
make secured or unsecured loans for commercial, corporate, business and
agricultural purposes, provided that such loans do not exceed 20% of the
institution's assets. The National Banks and First Security are not subject to
this restriction. The Banks make commercial loans of three types: Commercial
Real Estate, Commercial Non-Real Estate secured by other assets, and a
relatively small amount of unsecured loans.
The Banks' policy has historically been conservative in commercial lending and,
applies strict underwriting standards. Commercial lending has been a much bigger
percentage of the respective loan portfolios at the National Banks and First
Security than at the Savings Bank. The following table shows the breakdown of
Glacier's net commercial loans outstanding by institution:
14
<PAGE> 15
<TABLE>
<CAPTION>
Com'l Real Estate Other Commercial loans
----------------- ----------------------
<S> <C> <C>
Savings Bank $25,026 $13,690
Whitefish 3,172 4,539
Eureka 2,021 3,023
First Security 18,911 29,688
------- -------
$49,130 $50,940
======= =======
</TABLE>
These amounts are well within limitations contained in Federal laws and
regulations.
Approximately 28% of the commercial loans are guaranteed by The Small Business
Association ("SBA"). Of these SBA loans, the percentage of the loan's principal
balance that is guaranteed is usually between 70% and 90%.
Loan Approval Limits
Individual loan approval limits have been established for each lender based on
the experience and technical skills of the individual. Limits for fully secured
loans range from $30,000 to $100,000, and unsecured limits range from $5,000 to
$25,000. An officers loan committee, consisting of senior lenders and members of
senior management, has approval authority up to $300,000. Loans over $300,000 go
to the Company's Board of Directors for approval. First Security Bank's internal
loan committee can approve loans up to $400,000. Loans over $400,000 must be
approved by the executive loan committee which includes the bank's executive
officers, the Chairman and an additional Director.
Loan Purchases and Sales
At times, fixed-rate, long term mortgage loans are sold in the secondary market.
The Banks have been active in the secondary market, primarily through the
origination of conventional FHA and VA residential mortgages for sale in whole
or in part to savings associations, banks and other purchasers in the secondary
market. The sale of loans in the secondary mortgage market reduces the Banks'
risk of increases in interest rates while holding long-term, fixed-rate loans in
the loan portfolio and allows the Banks to continue to make loans during periods
when deposit flows decline or funds are not otherwise available for lending
purposes. In connection with conventional loan sales, the Savings Bank typically
retains the servicing of the loans (i.e., collection of principal and interest
payments), for which it generally receives a fee payable monthly of
approximately .375% per annum of the unpaid balance of each loan. The National
Banks sell nearly all their residential real estate originations. First Security
sells a majority of mortgage loans originated, retaining servicing only on loans
sold to certain lenders. First Security has also been very active in generating
commercial SBA loans, and other commercial loans, with a portion of those loans
sold to other investors. As of December 31, 1996, loans serviced for others
aggregated approximately $115 million.
Loan Origination Fees And Other Fees
In addition to interest earned on loans, the Banks receive loan origination fees
for originating loans. Loan fees generally are a percentage of the principal
amount of the loan and are charged to the borrower for originating the loan, and
are normally deducted from the proceeds of the loan. Loan origination fees are
15
<PAGE> 16
generally 1.0% to 1.5% on residential mortgages and .5% to 1.5% on commercial
loans. Consumer loans require a flat fee of $50 to $75 as well as a minimum
interest amount.
The Banks also receive other fees and charges relating to existing loans, which
include charges and fees collected in connection with loan modifications, and
tax service fees.
Non-Performing Loans and Asset Classification
Loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of additional interest is
doubtful. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income. Subsequent payments are
either applied to the outstanding principal balance or recorded as interest
income, depending on the assessment of the ultimate collectability of the loan.
Consumer loans generally are charged off when the loan becomes over 120 days
delinquent.
Real estate acquired as a result of foreclosure or by deed-in-lieu of
foreclosure is classified as real estate owned ("REO") until such time as it is
sold. When such property is acquired, it is recorded at the lower of the unpaid
principal balance or estimated fair value, not to exceed estimate net realizable
value. Any write-down at the time of recording REO is charged to the allowance
for loan losses. Any subsequent writedowns are a charge to current expenses.
The following table sets forth information regarding the Banks' non-performing
assets at the dates indicated:
NONPERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
At At At At At
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
Mortgage loans $ 157 $ 0 $ 0 $ 0 $1,056
Commercial loans 172 249 110 318 644
Consumer loans 45 15 28 0 28
------ ------ ------ ------ ------
Total $ 374 $ 264 $ 138 $ 318 $1,728
------ ------ ------ ------ ------
Accruing Loans 90 days or more overdue:
Mortgage loans $ 290 $ 2 $ 29 $ 32 $ 2
Commercial loans 157 66 108 108 129
Consumer loans 431 179 159 123 74
------ ------ ------ ------ ------
Total $ 878 $ 247 $ 296 $ 263 $ 205
------ ------ ------ ------ ------
Troubled debt restructuring: $ 0 $ 0 $ 0 $ 0 $ 0
Real estate and other assets owned, net 410 52 93 31 246
Total non-performing loans, troubled debt
restructurings, and real estate and other
assets owned, net $1,662 $ 563 $ 527 $ 612 $2,179
------ ------ ------ ------ ------
As a percentage of total assets 0.30% 0.15% 0.16% 0.21% 0.81%
------ ------ ------ ------ ------
Interest Income (1) $ 37 $ 26 $ 14 $ 32 $ 173
------ ------ ------ ------ ------
</TABLE>
(1) This is the amount of interest that would have been recorded on loans
accounted for on a non-performing basis as of the end of each period if
such loans had been current for the entire period.
16
<PAGE> 17
An insured institution's problem assets are subject to classification according
to one of three categories: "substandard," "doubtful" and "loss." For assets
classified "substandard" and "doubtful," the institution is required to
establish prudent general loan loss reserves in accordance with generally
accepted accounting principles. Assets classified as "loss" must be either
completely written off or supported by a 100% specific reserve. A classification
category designated "Special Mention" also must be established and maintained
for assets not currently requiring classification but which have potential
weaknesses or risk characteristics that could result in future problems. Under
the regulation, an institution must develop an in-house program to classify its
assets, including investments in subsidiaries, on a regular basis and set aside
appropriate loss reserves on the basis of such classification. Each institution
is required to specify in the regular report it files with their respective
regulators the aggregate amounts of its assets included in each of the three
main classification categories and the amounts of its general loan loss reserves
or maintain additional capital due to the assets classified as "substandard" or
"doubtful."
The aggregate amounts of the Banks' internally classified assets, and general
and specific loss allowances were as follows:
CLASSIFIED ASSETS AND LOSS ALLOWANCES
<TABLE>
<CAPTION>
At At At At At
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
------------------ ---------------- ----------------- ------------------ -----------------
(dollars in thousands) % of net % of net % of net % of net % of net
Amount loans Amount loans Amount loans Amount loans Amount loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Substandard assets $2,671 0.69% $2,152 0.61% $1,227 0.39% $2,512 0.94% $2,817 1.26%
Doubtful assets 93 0.02% 194 0.05% 240 0.08% 334 0.13% 261 0.12%
Loss assets 15 0.00% 8 0.00% 1 0.00% 11 0.00% 7 0.00%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total classified assets $2,779 0.72% $2,354 0.67% $1,468 0.46% $2,857 1.07% $3,085 1.38%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Special mention $2,733 0.71% $1,526 0.43% $1,243 0.39% $1,358 0.51% $559 0.25%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
General loss allowance $3,269 $3,077 $2,647 $2,319 $2,267
Specific loss allowance $15 $0 $0 $11 $0
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
</TABLE>
Reserves for Loan Losses
The Savings Bank's Board of Directors establishes reserves for loan losses on
recommendations of senior management. The Savings Bank continues to evaluate
each loan with delinquent payments and to consider whether to continue this
relationship or liquidate the account.
The Board of Directors has established the level of the allowance for loan
losses to be maintained, by using the following calculations:
.5% of Conventional Real Estate and Home Equity loans that are not
government guaranteed or government insured .75% of Commercial Real
Estate and direct Consumer loans 2.0% of Credit Card Balances 1.0% of
Other loans
17
<PAGE> 18
The Board of Directors believes that this method of providing for losses closely
matches the risk nature of the individual types of loans. At December 31, 1996,
the Savings Bank met the reserve goals set above.
First Security calculates its reserve using regulatory guideline percentages for
special mention and classified assets, the bank's historic five year loss level
for all other loans, and a .5% contingency reserve on the non classified
portfolio.
Whitefish and Eureka review and evaluate loan losses monthly from three separate
perspectives: 1) payment experience with that particular borrower, 2) percentage
loss calculation as performed by the Office of the Comptroller of the Currency
("OCC"), and 3) management's assessment of the individual situation. The Banks'
consider a "worst case" basis which is a combination of the three methods above
and establish a loan loss reserve accordingly.
The following table illustrates the loan loss experience:
Analysis of the Allowance for Loan Losses:
(dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $3,077 2,647 2,330 2,267 1,662
Charge offs:
Residential real estate (122) 0 (4) 0 0
Commercial Loans (191) (77) (57) (148) (561)
Installment loans to individuals (503) (201) (141) (139) (147)
------ ----- ----- ----- -----
Total charge offs (816) (278) (202) (287) (708)
------ ----- ----- ----- -----
Recoveries:
Residential real estate 1 0 0 0 0
Commercial Loans 51 37 123 31 171
Installment loans to individuals 91 90 75 80 74
------ ----- ----- ----- -----
Total recoveries 143 127 198 111 245
------ ----- ----- ----- -----
Net charge offs (673) (151) (4) (176) (463)
------ ----- ----- ----- -----
Provision acquired 0 0 0 0 550
Provision expense 880 581 321 239 518
------ ----- ----- ----- -----
Balance at end of period 3,284 3,077 2,647 2,330 2,267
====== ===== ===== ===== =====
</TABLE>
In analyzing the chargeoffs and recoveries over the past three reporting
periods, management anticipates the level of charge-offs to remain relatively
constant, or to decrease slightly, during the next full year of operations. This
assumption is based on the fact that 1) the Savings Bank has continued to
upgrade underwriting standards, particularly for consumer installment loans, and
2) the local/regional economy although still growing, is showing signs of
slowing. With respect to Whitefish and Eureka, the Company's management has
implemented these same or similar conservative underwriting guidelines.
SOURCES OF FUNDS
General
Deposits are the most important source of the Banks' funds for lending and other
business purposes. In addition, the Banks derive funds from loan repayments,
advances from the FHLB of Seattle, repurchase agreements, and loan sales. Loan
repayments are a relatively stable source of funds, while interest bearing
18
<PAGE> 19
deposit inflows and outflows are significantly influenced by general interest
rate levels and money market conditions. Borrowings and advances may be used on
a short-term basis to compensate for reductions in normal sources of funds such
as deposit inflows at less than projected levels. They also may be used on a
long-term basis to support expanded activities and to match maturities of
longer-term assets. Deposits obtained through the Savings Banks' and First
Security's branch offices, and the National Banks, have traditionally been the
principal source of funds for use in lending and other business purposes.
Currently, the Banks have a number of different deposit programs designed to
attract both short-term and long-term deposits from the general public by
providing a wide selection of accounts and rates. These programs include regular
statement savings, interest-bearing checking, money market deposit accounts,
fixed rate certificates of deposit with maturities ranging from three months to
five years, negotiated-rate jumbo certificates, non-interest demand accounts,
and individual retirement accounts.
The Management's Discussion and Analysis section in the Annual Report to
Stockholders contains information relating to changes in the overall deposit
portfolio.
Deposits are obtained primarily from individual and business residents of
western Montana. The Banks issue negotiated-rate certificates of deposit with
balances of $100,000, or more, and have paid a limited amount of fees to brokers
to obtain deposits. The following table illustrates the amounts outstanding for
deposits greater than $100,000, according to the time remaining to maturity:
DEPOSITS GREATER THAN $100,000 at December 31, 1996
(dollars in thousands)
<TABLE>
<CAPTION>
Certificates of Deposit Savings and Checking Totals
----------------------- -------------------- -------------------
Amount Number Amount Number Amount Number
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Maturing:
Within three months $4,677 42 $49,148 179 $53,825 221
Greater than three months through six months $4,546 41 0 0 4,546 41
Greater than six months through twelve months $3,811 34 0 0 3,811 34
Greater than twelve months $5,496 47 0 0 5,496 47
------- --- ------- --- ------- ---
Totals $18,530 164 $49,148 179 $67,678 343
======= === ======= === ======= ===
</TABLE>
For additional information, see Note 6 to the Consolidated Financial Statements
included in the Annual Report to Stockholders for the year ended December 31,
1996.
Advances and Other Borrowings
As a member of the FHLB, the Banks may borrow from the FHLB on the security of
stock which it is required to own in that bank and certain of its home mortgages
and other assets (principally, securities which are obligations of, or
guaranteed by, the United States), provided certain standards related to
credit-worthiness have been met. Advances are made pursuant to several different
19
<PAGE> 20
credit programs, each of which has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based either on a fixed percentage of an institution's capital or on the FHLB's
assessment of the institution's credit-worthiness. FHLB advances have been used
from time to time to meet seasonal and other withdrawals of savings accounts and
to expand lending by matching a portion of the estimated amortization and
prepayments of retained fixed rate mortgages. All four banks are members in the
FHLB.
From time to time, primarily as a short-term financing arrangement for
investment or liquidity purposes, the Savings Bank has made use of reverse
repurchase agreements with various securities dealers. This process involves the
"selling" of one or more of the securities in the Savings Bank's portfolio and
by entering into an agreement to "repurchase" that same security at an agreed
upon later date. A rate of interest is paid to the dealer for the subject period
of time. In addition, although the Savings Bank has offered retail repurchase
agreements to its retail customers, the Government Securities Act of 1986
imposed confirmation and other requirements which generally made it impractical
for financial institutions to offer such investments on a broad basis. Through
polices adopted by the Board of Directors, the Savings Bank usually enters into
reverse repurchase agreements with major investment brokerage firms and local
municipalities and has adopted procedures designed to ensure proper transfer of
title and safe-keeping of the underlying securities. Whitefish has used a small
number of repurchase agreements under the same terms as the Savings Bank. Eureka
and First Security have not utilized repurchase agreements for liquidity
purposes.
The following chart illustrates the average balances and the maximum outstanding
month-end balances for FHLB Advances and Repurchase Agreements:
Advances and Repurchase Agreements
(dollars in thousands)
<TABLE>
<CAPTION>
For the For the
year ended year ended
12/31/96 12/31/95
-------- --------
<S> <C> <C>
FHLB Advances:
Average balance $128,842 $102,986
Maximum oustanding at any month-end $143,289 $120,714
Repurchase Agreements:
Average balance $17,189 $23,758
Maximum outstanding at any month-end $22,102 $29,545
</TABLE>
For additional information concerning Glacier's advances and reverse repurchase
agreements, see Notes 7 and 8 to the Consolidated Financial Statements included
in the Annual Report to Stockholders for the year ended December 31, 1996.
SUBSIDIARIES
The Company has five direct subsidiaries, the Savings Bank (wholly owned), First
Security (wholly owned), GNB (majority owned), Eureka (majority owned) and
Community First, Inc. ("CFI") (wholly owned). For information regarding the
20
<PAGE> 21
holding company, as separate from the subsidiaries, see Note 14 to the
Consolidated Financial Statements included in the Annual Report to Stockholders
for the year ended December 31, 1996.
Brokerage services (selling products such as stocks, bonds, mutual funds,
limited partnerships, annuities, and other insurance products), are available
through Invest Financial Corporation, a non-affiliated company. CFI shares in
the commissions generated, without devoting significant management and staff
time to this portion of the business.
See Item I "Business - Background" on pages 3 and 4 for a detailed discussion
and visual representation of the various existing parent/subsidiary
relationships.
The Savings Bank is permitted to invest an amount equal to 2% of it assets in
its service corporations, with an additional investment of 1% of assets where
such investment serves primarily community, inner-city and community development
purposes. Under such limitations, at December 31, 1996, the Savings Bank was
authorized to invest up to approximately $10.9 million in the stock of, or loans
to, service corporations (based upon the 3% limitation). In addition, under
certain circumstances, federally-chartered savings institutions may invest up to
approximately 50% of their regulatory capital in conforming first mortgage loans
to service corporations.
EMPLOYEES
As of December 31, 1996, the Company employed 298 persons, 200 of whom were full
time, none of whom were represented by a collective bargaining group. The
Company provides its employees with a comprehensive benefit program, including
medical insurance, dental plan, life and accident insurance, long-term
disability coverage, sick leave, and both a defined contribution pension plan
and a 401(k) savings plan. The Company considers its employee relations to be
excellent. See Note 11 in the Annual Report to Stockholders for the year ended
December 31, 1996 for detailed information regarding pension/savings plan costs
and eligibility.
21
<PAGE> 22
SUPERVISION AND REGULATION
The following generally refers to certain significant statutes and
regulations affecting the banking industry. These references are only intended
to provide brief summaries and therefore, are not complete and are qualified by
the statutes and regulations referenced. In addition, due to the numerous
statutes and regulations which apply to and regulate the banking industry, many
are not referenced below.
The Holding Company
General
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1958, as amended ("BHCA"), due to its ownership of
Glacier National Bank of Whitefish, formerly the First National Bank of
Whitefish, First National Bank of Eureka (collectively, "National Banks") and
First Security Bank of Missoula ("State Bank"), a Montana state-chartered
commercial bank. Until recently, due to its ownership of Savings Bank, the
Company was a savings and loan holding company within the meaning of the Home
Owners' Loan Act ("HOLA") and, as such, was registered with and subject to
examination and supervision by the OTS. With the enactment of the Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA"), the OTS no
longer supervises holding companies like the Company that control both a bank
and a savings association and are registered as bank holding companies.
Accordingly, the FRB supervises and examines the Company and its subsidiaries,
and the Company files annual and any other reports the FRB may require from time
to time.
Bank Holding Company Structure
In general, the BHCA limits bank holding company business to owning or
controlling banks and engaging in other banking-related activities. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions in interstate banking may expand opportunities for bank holding
companies (see below under "Regulation of Banking subsidiaries - Recent Federal
Legislation - Interstate Banking and Branching"). Additionally, the EGRPRA
relaxed certain BHCA restrictions on bank holding companies' engagement in
permissible nonbanking activities. However, the impact that this legislation may
have on the Company and its subsidiaries is unclear at this time.
Bank holding companies must obtain the FRB's approval before they: (1)
acquire direct or indirect ownership or control of any voting shares of any bank
that results in total ownership or control (directly or indirectly) of more than
5% of the voting shares of the bank; (2) merge or consolidate with another bank
holding company; and (3) acquire substantially all of the assets of any
additional banks. Until September of 1995, the BHCA also prohibited Glacier from
acquiring any such interest in a bank or bank holding company located outside of
Montana unless the laws of both states expressly authorized the acquisition.
Now, subject to certain state laws, such as age and contingency laws, a bank
holding company that is adequately capitalized and adequately managed may
acquire the assets of an out-of-state bank.
Control of Nonbanks. With certain exceptions, the BHCA also prohibits
bank holding companies from acquiring direct or indirect ownership or control of
22
<PAGE> 23
voting shares in any company other than a bank or a bank holding company, unless
the FRB finds that Glacier's activities are incidental to the banking business.
When making this determination, the FRB weighs the expected benefits to the
public, such as greater convenience, increased competition or gains in
efficiency, against the possible adverse effect, such as undue concentration of
resources, decreased or unfair competition, conflicts of interest or unsound
banking practices.
The EGRPRA amended the BHCA to eliminate the requirement that a bank
holding company seek FRB approval before engaging de novo in permissible
nonbanking activities if the holding company is well-capitalized and meets other
criteria specified in the statute. A bank holding company meeting the
specifications is now required only to notify the FRB within 10 business days
after commencing the activity. On February 28, 1997, the FRB issued a final rule
incorporating the changes enacted by the EGRPRA. Effective April 21, 1997, a
well-run bank holding company, without any prior notice or FRB approval, may
commence immediately any activity that is currently or at the time of
commencement included in the FRB's list of acceptable nonbanking activities.
Acceptable nonbanking activities include: (1) operating a mortgage
company, finance company, credit card company, factoring company, trust company
or savings association; (2) performing certain data processing operations; and
(3) providing investment or financial advice. Prohibited nonbanking activities
include real estate brokerage and syndication, land development, property
management, and underwriting of life insurance not related to credit
transactions. From time to time, the FRB may add to or delete from the list of
activities permissible for bank holding companies.
When the Company acquired the National Banks in 1992, the Company
divested its partnership interest in a general agency held by a subsidiary. The
BHCA restricted the Company from engaging in certain of the insurance agency's
activities.
Control Transactions. The Change in Bank Control Act of 1978, as
amended, requires a person (or group of persons acting in concert) acquiring
"control" of a bank holding company to provide the FRB with at least 60 days'
advance written notice of the proposed acquisition. Following receipt of this
notice, the FRB has 60 days to issue a notice disapproving the proposed
acquisition, but the FRB may extend this time period for up to an additional 30
days. An acquisition may be completed before the expiration of the disapproval
period if the FRB issues written notice of its intent not to disapprove the
transaction. In addition, any "acquiror" must obtain the FRB's approval before
acquiring 25% (5% if the "acquiror" is a bank holding company) or more of the
outstanding shares of or otherwise obtaining control over Glacier.
Transactions with Affiliates
The Company and its subsidiaries are affiliates within the meaning of
the Federal Reserve Act, and transactions between affiliates are subject to
certain restrictions. Accordingly Glacier and its subsidiaries must comply with
Sections 23A and 23B of the Federal Reserve Act. Section 23A of the Federal
Reserve Act places limits on certain "covered transactions" with affiliates.
These "covered transactions" include, subject to specific exceptions, loans by
bank subsidiaries to affiliates, investments by bank subsidiaries in securities
issued by an affiliate or the accepting of those securities as collateral, and
the purchase by a bank subsidiary of an affiliate's assets. Section 23B of the
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Federal Reserve Act, among other things, restricts an institution form engaging
in certain transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable, to the institution as
those prevailing at the time for comparable transactions with non-affiliated
companies.
In addition to the restrictions in Sections 23A and 23B, certain other
restrictions apply to savings banks, including those that are part of a holding
company organization. First, savings banks may not lend money or extend credit
to an affiliate unless (1) for any affiliate, the aggregate amount of the
covered transactions are no more than 10% of the capital stock and surplus of
the savings bank, and (2) for all affiliates, the covered transaction are not
more than 20% of the capital stock and surplus of the savings bank. Second,
savings banks may not purchase or invest in affiliate securities except those of
a subsidiary. Finally, the Director of the OTS has the authority to impose more
stringent restrictions for reasons of safety and soundness.
Regulation of Management
Federal law: (1) sets forth the circumstances under which officers or
directors of a financial institution may be removed by the institution's federal
supervisory agency; (2) limits lending by an institution to its executive
officers, directors, principal stockholders, and their related interests; and
(3) prohibits management personnel from serving as a director or in other
management positions with another financial institution whose assets exceed a
specified amount or which has an office within a specified geographic area.
FIRREA
The Financial Institution Reform, Recovery and Enforcement Act of 1989
("FIRREA") became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial bank and savings bank deposits
and the other to insure savings association deposits; (3) for the first time,
permitted bank holding companies to acquired healthy savings association; (4)
permitted commercial banks that meet certain housing-related asset requirements
to secure advances and other federal services from their local Federal Home Loan
Banks; and (5) greatly enhanced the regulators' enforcement powers by removing
procedural barriers and sharply increasing the civil and criminal penalties for
violating statutes and regulations.
Tie-In Arrangements
The Company and its subsidiaries cannot engage in certain tie-in
arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither the Company nor its subsidiaries may condition an extension of credit on
either (1) a requirement that the customer obtain additional services provided
by it or (2) an agreement by the customer to refrain from obtaining other
services from a competitor.
With the enactment of EGRPRA, the OTS for the first time has authority
to establish by regulation or order exemptions to the anti-tying provisions of
HOLA. The exemptions must be consistent with the proposes of HOLA and conform to
the exemptions granted by the FRB to banks under the BHCA. Effective April
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21, 1997, the FRB has also adopted significant amendments to its anti-tying
rules that: (1) remove FRB-imposed anti-tying restrictions on bank holding
companies and their non-bank subsidiaries; (2) allow banks greater flexibility
to package products with their affiliates; and (3) establish a safe harbor from
the trying restrictions for certain foreign transactions. These amendments are
designed to enhance competition in banking and nonbanking products and allow
banks and their affiliates to provide more efficient, lower cost service to
their customers. However, the impact of the amendments on Glacier and its
subsidiaries is unclear at this time.
State Law Restrictions
As a Delaware corporation, the Company may be subject to certain
limitations and restrictions as provided under applicable Delaware corporate
laws.
Securities Registration and Reporting
The common stock of the Company is registered as a class with the SEC
under the Securities Exchange Act of 1934 and thus is subject to the periodic
reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by the Company under that Act can be inspected and copied at
or obtained from the Washington, D.C. office of the SEC. In addition, the
securities issued by Glacier are subject to the registration requirements of the
Securities Act of 1933 and applicable state securities laws unless exemptions
are available.
The Subsidiaries
General
Applicable federal and state statutes and regulations governing a
bank's operations relate, among other matters, to capital requirements, required
reserves against deposits, investments, loans, legal lending limits, certain
interest rates payable, mergers and consolidations, borrowings, issuance of
securities, payment of dividends (see below), establishment of branches, and
dealings with affiliated persons. The FDIC may prohibit banks under its
supervision from engaging in what it considers to be an unsafe and unsound
practice in conducting business.
The Savings Bank, as a federally-chartered savings association, is
subject to federal regulation and oversight by the OTS. The National Banks are
subject to extensive regulation and supervision by the OCC. The State Bank is
subject to extensive regulation and supervision by the Montana Department of
Commerce's Banking and Financial Institutions Division. The Company's
subsidiaries are also subject to regulation and examination by the FDIC, which
insures the deposits of the Savings Bank, the National Banks, and the State Bank
to the maximum extent permitted by law. In addition, the National Banks and the
State Bank are subject to regulation by the FRB as a result of their membership
in the Federal Reserve System, and the Savings Bank is subject to regulation
incidental to its membership in the Federal Home Loan Bank ("FHLB") System. The
federal laws that apply to the Company's subsidiaries regulate, among other
things, the scope of their business, their investments, their reserves against
deposits, the timing of the availability of deposited funds and the nature and
amount of and collateral for loans. The laws and regulations governing the
Company's
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subsidiaries generally have been promulgated to protect depositors and not to
protect stockholders of such institutions or their holding companies.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal banking regulators to adopt regulations or
guidelines in a number of areas to ensure bank safety and soundness, including:
internal controls; credit underwriting; asset growth; management compensation;
ratios of classified assets to capital; and earning. FDICIA also contains
provisions that are intended to change independent auditing requirements,
restrict the activities of state-chartered insured banks, amend various consumer
banking laws, limit the ability of "undercapitalized banks" to borrow from the
FRB's discount window, and require regulators to perform annual on-site bank
examinations and set standards for real estate lending. FDICIA recapitalized the
Bank Insurance Fund ("BIF") and required the FDIC to maintain the BIF and
Savings Association Fund ("SAIF") at 1.25% of insured deposits by increasing
deposit insurance premiums as necessary to maintain such ratio. (See "FDIC
Insurance" below).
Loans-to-One Borrower
Each of the Company's subsidiaries is subject to limitations on the
aggregate amount of loans that it can make to any one borrower, including
related entities. Applicable regulations generally limit loans-to-one borrower
to 15% to 20% of unimpaired capital and surplus. As of December 31, 1996, each
of Glacier's subsidiaries was in compliance with applicable loans-to-one
borrower requirements.
FDIC Insurance
Generally, customer deposit accounts in banks are insured by the FDIC
for up to a maximum amount of $100,000. The FDIC has adopted a risk-based
insurance assessment system under which depository institutions contribute funds
to the BIF and SAIF based on their risk classification. The FDIC assigns
institutions a risk classification based on three capital groups and three
supervisory subgroups.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Funds
Act") was enacted. Among other things, the Funds Act significantly impacts the
BIF and SAIF and imposes a one-time assessment on institutions that were holding
SAIF deposits on March 31, 1995. This one-time assessment is designed to place
SAIF at its 1.25 reserve ratio goal. Additionally, for the three year period
beginning in 1997, the Funds Act subjects BIF-insured deposits to a Financing
Corporation ("FICO") premium assessment on domestic deposits at one-fifth the
premium rate (approximately 1.3 basis points) imposed on SAIF-insured deposits
(approximately 6.5 basis points). In the year 2000, BIF-insured institutions
will be required to share in the payment of the FICO obligations on a pro-rata
basis with all thrift institutions, with annual assessments expected to equal
approximately 2.4 basis points until the year 2017, and to be phased out
completely by 2019.
For at least the first half of 1997, BIF premiums will be maintained at
their current level. Accordingly, institutions in the lowers risk category will
continue to pay no premiums, and other institutions will be assessed based on a
range of rates, with those in the highest risk category paying 27 cents for
every $100 of BIF-insured deposits. Rates in the SAIF assessments schedule,
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previously ranging from 4 to 31 basis points, have been adjusted by 4 basis
points to a range of 1 to 27 basis points as of October 1, 1996.
The Funds Act empowers banking regulators to prohibit insured
institutions and their holding companies from facilitating or encouraging the
shifting of deposits from the SAIF to the BIF in order to avoid higher thrift
assessment rates. Accordingly, the FDIC recently proposed a rule that would, if
adopted as proposed, impose entrance and exit fees on depository institutions
attempting to shift deposits from the SAIF to the BIF as contemplated by the
Funds Act. The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, only if no thrift institutions exist on that date. It is
expected that Congress will address comprehensive legislation on the merger of
funds and elimination of the thrift charter during the 1997 session.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law. The insurance may be
terminated permanently, if the institution has no tangible capital. If deposit
insurance is terminated, the accounts at the institution at the time of the
termination, less subsequent withdrawals, will continue to be insured for a
period of six months to two years, as determined by the FDIC.
Capital Requirements
Banks and Bank Holding Companies. The FRB, the FDIC and the OCC
(collectively, the "Agencies") have established uniform capital requirements for
all commercial banks. Bank holding companies are also subject to certain minimum
capital requirements. A bank that does not achieve and maintain required capital
levels may be subject to supervisory actions through the issuance of a capital
directive to ensure the maintenance of adequate capital levels. In addition,
banks must meet certain guidelines concerning the maintenance of an adequate
allowance for loan and lease losses.
The Agencies' "risk-based" capital guidelines make regulatory capital
requirements more sensitive to differences in risk profiles among banking
organizations, account for off-balance sheet exposures in assessing capital
adequacy, and minimize disincentives to holding liquid, low-risk assets. The
current guidelines require banks to achieve a minimum total risk-based capital
ratio of 8% and a minimum Tier 1 risk-based capital ratio of 4%. Tier 1 capital
includes common stockholders' equity, qualifying perpetual preferred stock, and
minority interest in equity accounts of consolidated subsidiaries, but excludes
goodwill and most other intangibles. Tier 2 capital includes the excess of any
preferred stock not included in the Tier 1 capital, mandatory convertible
securities, subordinated debt and general reserves for loan and lease losses up
to 1.25% of risk weighted assets.
The Agencies also have adopted leverage ratio standards that require
commercial banks to maintain a minimum ratio of core capital to total assets
("Leverage Ratio") of 3%. Any institution operating at or near this level should
have well-diversified risk and in general be a strong banking organization
without any supervisory, financial or operational weaknesses. Institutions
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels
(e.g., an additional cushion of at least 100 to 200 basis points, depending upon
the particular circumstances and risk profile).
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The minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as stand-by letters of credit) required by
the FRB for bank holding companies is 8%. At least one-half of the total capital
must be Tier 1 capital; the remainder may consist of Tier 2 capital. Bank
holding companies are also subject to minimum Leverage Ratio guidelines. These
guidelines provide for a minimum Leverage Ratio of 3% for bank holding companies
meeting certain specified criteria, including achievement of the highest
supervisory rating. All other bank holding companies are required to maintain a
Leverage Ratio which is at least 100 to 200 basis points higher (4% to 5%).
These guidelines provide that banking organizations experiencing internal growth
or making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels, without significant reliance
on intangible assets.
Savings Banks. Federally insured savings associations, such as the
Savings Bank, must also maintain minimum levels of regulatory capital. Under
FIRREA, the OTS has established capital standards applicable to all savings
associations. These standards generally must be as stringent as comparable
capital requirements imposed on national banks. The OTS may also impose capital
requirements exceeding these standards on individual associations on a
case-by-case basis.
Savings associations must satisfy three different OTS capital
requirements. A savings association must maintain (1) a minimum risk-based
capital equal to 8% of its risk-weighted assets; (2) a minimum leverage ratio of
core capital equal to at least 3% of adjusted total assets; and (3) minimum
tangible capital equal to at least 1.5% of adjusted total assets.
Failure of the Savings Bank to maintain any required level of capital
would have a number of adverse consequences, including the imposition of
numerous restrictions on its lending, investment, deposit and borrowing
activities, capital expenditures and compensation and employment practices, as
well as possible restrictions on growth of the institution. An institution that
lacks adequate capital or that fails to comply with a capital directive may be
deemed to be in an unsafe and unsound condition. FIRREA expands the grounds for
appointment of a conservator or receiver for a savings institution to include
being in an unsafe and unsound condition to transact business. Furthermore,
under certain conditions, which include an institution's lack of any tangible
capital, the FDIC may seek to suspend an institution's deposit insurance.
Finally, FDICIA provides that a regulator may treat an "unsafe or unsound"
institution as if it were at a lower capital level, thus subjecting the
institution to greater restrictions on its activities.
Interest-Rate-Risk ("IRR") Component. FDICIA requires each federal
banking agency to revise its risk-based capital standards to ensure that they
take adequate account of IRR, concentration of credit risk and the risks of
nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family residential loans. Since January of 1994,
the OTS has included an IRR component to its risk-based capital standards. An
association's measured IRR is the change that occurs in its Net Portfolio Value
("NPV") as a result of a 200 basis point increase or decrease in interest rates
(whichever leads to the lower NPV) divided by the estimated economic value
(present value) of its assets; NPV equals the present value of expected cash
inflows from existing assets less the present value of expected cash outflows
from existing liabilities, plus the present value of net expected cash inflows
from existing off-balance sheet contracts. A normal level of IRR is less than
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2%. Only institutions whose measured IRR exceeds 2% must maintain an IRR
component. An association must maintain capital of at least 8% of risk-weighted
assets after the IRR component is deducted.
In August of 1995, the Agencies adopted a joint final rule to revise
their risk-based capital standards to ensure that they take adequate account of
interest rate risk. As of September 1, 1995, when evaluating the capital
adequacy of a bank, examiners from the Agencies consider exposure to declines in
the economic value of the bank's capital due to changes in interest rates. A
bank may be required to hold additional capital for IRR if it has significant
exposure or a weak interest rate risk management process. Concurrent with the
publication of this final rule, the Agencies proposed for comment a joint policy
statement describing the process they will use to measure and assess a bank's
interest rate risk. This joint policy statement was superseded by an updated
Joint Policy Statement in June of 1996. Any impact the joint final rule and
Joint Policy Statement may have on the National Banks or the State Bank cannot
be predicted at this time.
In addition, the Agencies published a joint final rule on September 6,
1996, amending their respective risk-based capital standards to incorporate a
measure for market risk to cover all positions located in an institution's
trading account and foreign exchange and commodity positions wherever located.
This final rule took effect on January 1, 1997 and implements an amendment to
the BASLE Capital Accord that sets forth a supervisory framework for measuring
market risk. The final rule effectively requires banks and bank holding
companies with significant exposure to market risk to measure that risk using
their own internal value-at-risk model, subject to the parameters of the final
rule, and to hold a sufficient amount of capital to support the institution's
risk exposure.
Institutions subject to this final rule must be in compliance with it
by January 1, 1998. This final rules applies to any bank or bank holding
company, regardless of size, whose trading activity equals 10% or more of its
total assets, or whose trading activity equals $1 billion or more. The Agencies
may require an institution not otherwise subject to the final rule to comply
with it for safety and soundness reasons and also may exempt an institution
otherwise subject to the final rule from compliance under certain circumstances.
Prompt Corrective Action. Under FDICIA, each federal banking agency
must implement a system of prompt corrective action for institutions that it
regulates. In September of 1992, the federal banking agencies adopted
substantially similar regulations, which became effective on December 19, 1992,
intended to implement this prompt corrective action system. Under the
regulations, an institution is deemed to be (1) "well capitalized" if it has a
total risk-based capital ratio of 10% or more, a Tier I risk-based capital ratio
of 6% or more, a Tier I leverage capital ratio of 5% or more, and is not subject
to specified requirements to meet and maintain a specific capital level for any
capital measure; (2) "adequately capitalized" if it has a total risk-based
capital of 8% or more, a Tier I risk-based capital ratio of 4% or more, a Tier I
leverage capital ratio of 4% or more (3% under certain circumstances) and does
not meet the definition of "well capitalized;" (3) "undercapitalized" if it has
a total risk-based capital ratio of under 8%, a Tier I risk-based capital ratio
of under 4% and a Tier I leverage capital ratio of under 4% (3% under certain
circumstances); (4) "significantly undercapitalized" if it has a total
risk-based capital ratio of under 6% , a Tier I risk-based capital ratio of
under 3%, a Tier I leverage capital ratio of under 3%; and (5) "critically
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undercapitalized" if it has a ratio of tangible equity to total assets of 2% or
less.
Increasingly severe restrictions are imposed on the payment of
dividends and management fees, asset growth and other aspects of the operations
of institutions that fall below the category of "adequately capitalized."
Undercapitalized institutions must develop and implement capital plans
acceptable to the appropriate federal regulatory agency. Such plans must require
any company that controls an undercapitalized institution to provide certain
guarantees that the institution will comply with the plan until it is
"adequately capitalized". As of December 31, 1996, neither the Savings Bank, the
State Bank, nor the National Banks were subject to any regulatory order,
agreement, or directive to meet and maintain a specific capital level for any
capital measure.
Liquidity Requirements
All savings associations, including the Savings Bank, must maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. The liquidity requirement may vary from time to
time (between 4% and 10%) depending upon the economic conditions and savings
flows of all savings associations. At the present time, the required liquid
asset ratio is 5%.
Liquid assets for purposes of this ratio include specified short-term
assets (e.g., cash, certain time deposits, certain banker's acceptances and
short-term United States Government obligations.), and long-term assets (e.g.,
United States Government obligations of more than one and less than five years
and state agency obligations with a minimum term of 18 months). Short-term
liquid assets currently must constitute at least 1% of an association's average
daily balance of net withdrawable deposit accounts and short-term borrowings
during the preceding calendar year. Monetary penalties may be imposed upon
associations for violations of liquidity requirements.
The National Banks and the State Bank follow the following liquidity
quidelines:
<TABLE>
<S> <C>
Loans/available deposits Less than 90%
Investments/available deposits Less than 50%
Loans + Investments/available deposits Less than 120%
Fed Funds Purchase/total capital Less than 50%
Net liquid assets/net liabilities Greater than 15%
</TABLE>
QTL Test
In order to avoid certain restrictions on their operations, all savings
associations, including the Savings Bank, must meet the QTL test. A savings
association that does not meet the QTL test must either convert to a bank
charter or comply with the following restrictions on its operations: (1) the
association may not engage in any new activity or make any new investment,
directly or indirectly, unless such activity or investment is permissible for
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a national bank; (2) the branching powers of the association are restricted to
those of a national bank; (3) the association will not be eligible to obtain any
advances from its FHLB without prior OTS approval; and (4) payment of dividends
by the association are subject to the rules governing payment of dividends by a
national bank. Three years following the date the association ceases to be a
QTL, it must cease all activity not permissible for a national bank and
immediately repay any outstanding FHLB advances (subject to safety and soundness
considerations).
Effective December 19, 1991, the definition of Qualified Thrift
Investments ("QTI") was amended in its entirety, and the QTL test was revised to
require that QTI represent 65% of portfolio assets. The OTS regulations define
portfolio assets as total assets less intangibles, property used by a savings
association in its business and liquidity investments in an amount not exceeding
20% of its assets. Under the amended definition of QTI, liquidity investments
and the book value of property used in an association's business are not
considered QTI. In addition, QTI do not include any intangible assets. Subject
to a 20% of portfolio assets limit, however, savings associations may treat as
QTI 200% of their investments in (1) loans to finance "starter homes;" (2) loans
for the construction, development or improvement of domestic residential housing
and community service facilities located within a "credit-needy area;" and (3)
loans to certain small businesses located within credit-needy areas. A savings
association that was not subject to sanctions for failure to comply with a QTL
test as of June 30, 1991, is deemed to initially satisfy the revised test. A
savings association that fails to maintain the QTL status may re-qualify one
time, and if it fails the QTL test a second time, it will become subject to all
penalties as if time limits on such penalties had expired.
Before the enactment of EGRPRA in late 1996, QTI were defined in a
manner that required every savings association to hold a substantial percentage
of its assets in mortgage loans or mortgage-related securities. Section 2303 of
the EGRPRA expanded the definition of QTI so that now small business loans,
credit card loans, and education loans qualify as QTI without restriction.
Consumer loans (other than credit card and education loans) now count as QTI in
an amount up to 20% of portfolio assets.
On December 31, 1996, approximately 77% of the Savings Bank's assets
were invested in QTI; this exceeded the percentage required to qualify the
Savings Bank under the QTL test in effect at that time. Because the Savings Bank
was not subject to sanctions for failure to comply with the QTL test as of June
30, 1991, it is deemed to satisfy the QTL test as in effect on July 1, 1991 and
will remain in compliance until its monthly average percentage of Qualified
Thrift Investments to portfolio assets falls below 65% in nine months out of any
12- month period.
The National Banks and the State Bank are not subject to a QTL test
comparable to that which is applicable to savings associations.
Restrictions on Capital Distributions
Dividends paid to the Company by its banking subsidiaries are a
material source of the Company's cash flow. Various federal and state statutory
provisions limit the amount of dividends the Company's banking subsidiaries may
pay to the Company without regulatory approval. FRB policy further limits the
circumstances under which bank holding companies may declare dividends. For
example, a bank holding company should not continue its existing rate of cash
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dividends on its common stock unless its net income is sufficient to fully fund
each dividend and its prospective rate of earnings retention appears consistent
with its capital needs, asset quality and overall condition.
If, in the opinion of the applicable federal banking agency, a
depository institution under its jurisdiction is engaged in or is about to
engage in an unsafe or unsound practice (which, depending on the financial
condition of the institution, may include the payment of dividends), the agency
may require, after notice an hearing, that such institution cease and desist
from such practice. In addition, the FRB and the FDIC have issued policy
statements which provide that insured banks and bank holding companies should
generally pay dividends only out of current operating earnings.
The Savings Bank. Generally, FDICIA prohibits an insured institution
from declaring any dividends, making any other capital distribution, or paying a
management fee to a controlling person if, following the distribution or
payment, the institution would be within any of the three undercapitalized
capital adequacy categories (see "Prompt Corrective Action," above). OTS
regulations govern capital distributions by savings associations, including
dividends, stock repurchases, cash-out mergers, capitalization of holding
companies in a reorganization and certain other transaction involving the
pay-out of capital, which the OTS may find to be subject to the capital
distribution regulations. Generally, these regulations create a safe harbor for
specified levels of capital distributions from associations meeting at least
their minimum capital requirements, so long as such associations notify the OTS
and receive no objection to the distribution from the OTS. Prior OTS approval is
required before making any capital distributions if the associations and/or
distributions do not qualify for the safe harbor.
Generally Tier I associations, which are savings associations that
before and after the proposed distribution meet or exceed their fully phased-in
capital requirements, may make capital distributions during any calendar year up
to the amount that would reduce its surplus capital ratio to no less than
one-half of its surplus capital ratio at the beginning of the calendar year. At
December 31, 1996, the Savings Bank was a Tier I association under the OTS
capital distribution regulation. The amount of allowable distributions was
approximately $1,150,000 as of December 31, 1996.
Tier 2 associations, which are associations that before and after the
proposed distribution meet or exceed their minimum capital requirements, but do
not meet their fully phased-in capital requirement, may make capital
distributions over the most recent four quarter period up to a specified
percentage of their net income during that four quarter period, depending on how
close the association is to meeting its fully phased-in capital requirements.
Tier 2 associations that meet the capital requirements in effect on January 1,
1993, (including the 8% risk-based requirement and then-applicable exclusions on
non-permissible subsidiary investments and goodwill) are permitted to make
distributions totaling up to 75% of net income over the four quarter period.
Tier 2 associations that meet the January 1, 1991, capital requirements
(including the 7.2% risk-based requirement and the then-applicable exclusions of
non-permissible subsidiary investments and goodwill) may make distributions
totaling up to 50% of net income over the four quarter period.
In order to make distributions under these safe harbors, Tier 1 and
Tier 2 associations must submit 30 days written notice to the OTS prior to
making the distribution. The OTS may object to the distribution during that
30-day period
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based on safety and soundness concerns. In addition, a Tier I association deemed
to be in need of more than normal supervision by the OTS may be downgraded to a
Tier 2 or 3 association as a result of such a determination.
Tier 3 associations, which are associations that do not meet minimum
capital requirements, cannot make any capital distribution without obtaining OTS
approval prior to making such distributions or without doing so in compliance
with an approved capital plan.
The National Banks. Under the National Bank Act, the National Banks may
not pay dividends without advance approval of the OCC if the total of all
dividends declared by the National Banks in any calendar year will exceed the
sum of their net profits (as defined) for that year plus their retained profits
for the preceding two calendar years, less any required transfer to surplus. The
National Bank Act also prohibits national banks from paying dividends that would
exceed net profits then on hand (as defined) after deducting losses and bad
debts (as defined). The amount available for dividend distribution by the
National Banks as of December 31, 1996, was approximately $1,242,000.
The State Bank. Montana law imposes the following limitations on the
payment of dividends by Montana state banks: (1) until the bank's surplus fund
is equal to 50% of its paid-up capital stock, no dividends may be declared
unless at least 25% of the bank's net earnings for the dividend period have been
carried to the surplus account, and (2) a bank must give notice to the Banking
and Financial Institutions Division before declaring a dividend larger than the
previous two years' net earnings.
Federal Home Loan Bank System
All of the Company's banking subsidiaries belong to the FHLB of
Seattle, which is one of the 13 regional FHLBs that administer the home
financing credit function of savings associations. Each FHLB serves as a reserve
or central bank for its members within its assigned region and is funded
primarily from proceeds derived from the sale of consolidated obligations of the
FHLB System. The FHLB makes loans to members (i.e., advances) pursuant to
policies and procedures established by the Board of Directors of the FHLB.
As members, each banking subsidiary of the Company's must purchase and
maintain stock in the FHLB of Seattle in an amount equal to at least 1% of its
aggregate unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. On December 31, 1996, the Company's
banking subsidiaries had $8.6 million in FHLB stock, which sufficed to comply
with this requirement.
The FHLBs must provide funds to assist troubled savings associations
and contribute to affordable housing programs through direct loans or interest
subsidies on advances targeted for community investment in low- and
moderate-income housing projects. These contributions have adversely affected
the level of FHLB dividends paid and may continue to do so in the future. These
contributions may also adversely affect the value of FHLB stock in the future.
Dividends paid by the FHLB of Seattle to the Company's banking subsidiaries for
the years ended December 31, 1996 and 1995, total $620,000 and $425,000,
respectively.
Federal Reserve System
33
<PAGE> 34
The FRB requires all depository institutions to maintain reserves
against their transaction accounts (primarily checking accounts) and
non-personal time deposits. Currently, reserves of 3% must be maintained against
total transaction accounts of $49.8 million or less (after a $4.2 million
exemption), and an initial reserve of 10% (subject to adjustment by the FRB to a
level between 8% and 14%) must be maintained against that portion of total
transaction accounts in excess of such amount. On December 31, 1996, each of the
Company's banking subsidiaries was in compliance with applicable requirements.
The balances maintained to meet the reserve requirements imposed by the
FRB may be used to satisfy applicable liquidity requirements. Because required
reserves must be maintained in the form of vault cash or a non-interest-bearing
account at a Federal Reserve Bank, the effect of this reserve requirement is to
reduce the earning assets of Glacier's subsidiaries.
Recent Federal Legislation
Interstate Banking and Branching. The Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994 ("Interstate Act") generally will, over the
next few months, permit nationwide interstate banking and branching as it
authorizes interstate branching and relaxes federal law restrictions on
interstate banking. These new interstate banking and branching powers will be
phased in through the next few months, and individual states may "opt out" of
certain of these provisions. The Interstate Act currently allows states to enact
"opting-in" legislation that (1) permits interstate mergers within their own
borders before June 1, 1997, and (2) permits out-of-state banks to establish de
novo branches within the state. Beginning September 29, 1995, subject to certain
state laws, such as age and contingency laws, bank holding companies may
purchase banks in any state. Additionally, subject to these state laws,
beginning June 1, 1997, banks will be permitted to merge with banks in any other
state as long as the home state of neither merging bank has "opted out."
As of March 20, 1997, Montana has "opted out" of the Interstate Act and
prohibited in-state banks from merging with out-of-state banks if the merger
would be effective on or before September 30, 2001. Montana law generally
authorized the acquisition of an in-state bank by an out-of-state bank holding
company through the acquisition of a financial institution if the in-state bank
being acquired has been in existence for at least 5 years prior to the
acquisition. Banks, bank holding companies, and their respective subsidiaries
cannot acquire control of a bank located in Montana if, after the acquisition,
the acquiring institution, together with its affiliates, would directly or
indirectly control more than 22% of the total deposits of insured depository
institutions and credit unions located in Montana.
Regulatory Improvement. In 1994, Congress enacted the Community
Development and Regulatory Improvement Act ("Regulatory Improvement Act"), which
among other things, is intended to relieve the regulatory burden on financial
institutions. Certain regulatory procedures are streamlined and certain
regulatory compliance requirements are eased. At this time, the full impact that
the Interstate Act and the Regulatory Improvement Act might have on the Company
is hard to predict.
Regulatory Enforcement Authority
The enforcement powers available to federal banking regulators are
34
<PAGE> 35
substantial and include, among other things, the ability to assess civil
monetary penalties, to issue cease-and-desist or removal orders and to initiate
injunctive actions against banking organizations and institution-affiliated
parties, as defined. In general, enforcement actions must be initiated for
violations of laws and regulations and unsafe or unsound practices. Other
actions, or inactions, may provide the basis for enforcement actions, including
misleading or untimely reports filed with regulatory authorities. Applicable law
also requires public disclosure of final enforcement actions by the federal
banking agencies.
TAXATION
Federal Taxation
Glacier files a consolidated federal income tax return and separate Montana
income tax returns (Montana laws do not permit a consolidated state tax return)
using the accrual method of accounting. Glacier and its subsidiaries have filed
all required income tax returns.
Savings institutions are subject to the provisions of the Internal Revenue Code
of 1986, as amended ("Code"), in the same general manner as other corporations.
An exception to this generally similar situation is the treatment of bad debts,
for which non-banking corporations may generally take deductions only where
specific debts are written down or off. Banking corporations may establish
reserves for bad debts (as other corporations were allowed to do under prior
law), and deduct the annual increase in the bad debt reserves.
These reserves are generally based upon prior bad debt experience (the
"experience method," as is used by the National Banks and First Security). Prior
to 1997, savings institutions that met certain definitional tests relating to
the composition of their assets and other matters (such as the Savings Bank)
could annually elect to base the addition to their reserves for "qualifying real
property loans" (generally loans secured by improved real property) under either
the experience method or upon a statutory formula potentially resulting in an
even greater deduction (the "percentage of taxable income method").
The percentage of specially computed taxable income that was used to compute a
savings institutions's bad debt reserve deduction under the percentage of
taxable income method (the "percentage bad debt deduction") was 8%. The
percentage bad debt deduction thus computed was reduced by the amount permitted
as a deduction for non-qualifying loans under the experience method. The
availability of the percentage of taxable income method permitted qualifying
savings institutions to be taxed at a lower effective federal income tax rate
than that applicable to corporations generally. The effective maximum federal
income tax rate applicable to a qualifying thrift institution (exclusive of any
alternative minimum tax or environmental tax), assuming the maximum percentage
bad debt deduction, was approximately 31.3%, as compared to a 34% statutory rate
for general corporations.
The 1996 Small Business Job Protection Act eliminates the percentage of taxable
income method of accounting for bad debts that was previously available only to
savings institutions. Under this new provision, savings institutions will use
the same method of accounting for tax bad debts as banks. As a result, savings
institutions will have to recapture into taxable income over a six-year period
their post-1987 additions to their bad debt tax reserves. At December 31, 1996,
the Savings Bank's post-1987 tax bad debt reserves were approximately $2.6
35
<PAGE> 36
million. The recapture may be suspended for up to two years, if during these
years, the institution satisfies a residential loan requirement which the
Savings Bank anticipates will be met.
Under the experience method, the bad debt deduction is equal to the greater of
two alternatives. Under the first alternative, a financial institution computes
the ratio of (i) total bad debts, net of recoveries, sustained during the
taxable year and during the five preceding taxable years to (ii) the sum of
"loans outstanding" at the close of each of those six years. This ratio is then
applied to "loans outstanding" at the close of the taxable year, and the result
of this calculation constitutes the maximum reserve balance. The maximum
addition for the taxable year under this first alternative is the amount
required to bring the reserve to this balance.
The second alternative under the experience method allows a financial
institution to claim a bad debt deduction necessary to maintain its reserves at
a minimum reserve level. This alternative authorizes an institution to add to
the reserves at least the amount required to maintain the reserve as it existed
at the end of the "base year." In effect, this allows a bad debt deduction equal
to the net bad debt charge-offs for a taxable year. This option is limited,
however, if loans outstanding decrease below the amount of loans outstanding at
the close of the "base year." If that occurs, the minimum reserve level that may
be maintained is equal to the amount that bears the same ratio of reserves to
loans at the end of the taxable year as the ratio of reserves to loans at the
close of the "base year." For taxable years beginning after 1987, the "base
year" is the last taxable year beginning before 1988 (i.e., fiscal year ended
June 30, 1988).
If the Company's accumulated bad debt reserves are deemed to have been used for
any purpose other than to absorb bad debt losses, such as for the payment of
dividends in excess of its current and accumulated earnings and profits (as
calculated for federal income tax purposes) or the redemption of the Company's
common stock, all or a portion of the amount used and the tax attributable
thereto may both be subject to federal income tax. As a result, distributions to
stockholders which are treated as having been made from the Company's bad debt
reserves could result in a federal recapture tax to the Company, up to
approximately 51% of the amount of such distributions. For additional
information, see Note 10 to the Consolidated Financial Statements included in
the Annual Report to Stockholders for the year ended December 31, 1996.
In addition to the regular corporate income tax, corporations, including
qualifying savings institutions, are subject to an alternative minimum tax if it
exceeds the Company's regular tax liability. The Company or its subsidiaries did
not incur a minimum tax liability for its fiscal years 1988 through December 31,
1996 and are not expected to incur such a liability in the foreseeable future.
State Taxation
Under Montana law, savings institutions are subject to a corporation license
tax, which incorporates or is substantially similar to applicable provisions of
the Code. The corporation license tax is imposed on federal taxable income,
subject to certain adjustments. State taxes were incurred at the rate of 6.75%
for 1996, 1995 and 1994.
36
<PAGE> 37
Item 2. Properties
At December 31, 1996, the Savings Bank owned eight of its twelve offices,
including its headquarters and other property having an aggregate book value of
approximately $4.5 million, and leased the remaining branches.
The Savings Bank believes that all of its facilities are well-maintained,
adequate and suitable for the current operations of its business, as well as
fully utilized.
The following table sets forth certain information regarding the Savings Bank's
offices at December 31, 1996:
<TABLE>
<CAPTION>
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
<S> <C> <C> <C>
Main Kalispell, MT Full Services Owned
Administration
Branch Libby, MT Full Services Owned
Branch Polson, MT Full Services Owned
Branch Whitefish, MT* Full Services Owned
Branch Columbia Falls, MT Full Services Owned
Branch Cutbank, MT Full Services Owned
Branch Bigfork, MT Full Services Leased
Branch Evergreen area Full Services Owned
of Kalispell, MT
Branch Billings, MT Full Services Owned
Branch Buffalo Hill area Deposit Branch Leased
of Kalispell, MT
Branch Billings, MT Full Services Leased
Heights area Supermarket Branch
Branch Hamilton, MT Full Services Leased
Supermarket Branch
</TABLE>
*Effective March 14, 1997, the Whitefish Branch was closed and certain of its
assets and the liabilities were acquired by Whitefish.
First Security conducts banking activities from three locations in Missoula, MT.
The main office has undergone extensive remodeling, and the Great Northern Way
office was new in 1996. The East Broadway facility was completed in 1992.
Management believes that each facility is in excellent condition. The net book
value of the below listed facilities is $2.6 million:
37
<PAGE> 38
<TABLE>
<CAPTION>
Office Services offered Ownership
- ------ ---------------- ---------
<S> <C> <C>
1704 Dearborn Full Services Owned
Main Office
541 East Broadway Full Services branch Owned
3220 Great Northern Way Full Services branch Owned
</TABLE>
GNB and Eureka each conduct their banking activities out of one office as listed
below. Both institutions have undergone a major remodeling and have net book
values of $721,000 and $607,000 respectively. Management believes that both
facilities are currently in excellent condition:
<TABLE>
<CAPTION>
Office City Services Offered Ownership
- ------ ---- ---------------- ---------
<S> <C> <C> <C>
Main Whitefish, MT Full Services Owned
Administration
Main Eureka, MT Full Services Owned
Administration
</TABLE>
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or its
subsidiaries is a party to or to which any of its property is subject.
Item 4. Submission of Matter To A Vote of Security Holders
At a special meeting held November 13, 1996, the shareholders approved the Plan
and Agreement of Merger with Bancshares.
PART II
Item 5. Market For The Registrant's Common Equity and Related Stockholder
Matters
The information required by this item is incorporated by reference to the inside
front cover and pages 1 and 19 to the Annual Report to Stockholders for the year
ended December 31, 1996. Reference is also made to the caption under Item 1
hereof entitled "Regulation - Limitations on Dividends and Other Capital
Distributions."
Item 6. Selected Financial Data
Information required by this item is incorporated by reference to Page 1 and
Page 9 of the Annual Report to Stockholders for the year ended December 31,
1996.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated by reference to Pages 27
through 31 of the Annual Report to Stockholders for the year ended December 31,
1996.
38
<PAGE> 39
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements which appear in the
Annual Report to Stockholders for the year ended December 31, 1996 are
incorporated by reference:
<TABLE>
<CAPTION>
Title Page
- ----- ----
<S> <C>
Consolidated Statements of Financial Condition 5
Consolidated Statements of Operations 6
Consolidated Statements of Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Consolidated Financial Statements 9 to 25
Independent Auditors' Report 26
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of Glacier on pages 3
through 8 and 16 of the Proxy Statement for the 1997 Annual Meeting of
Stockholders is incorporated herein by reference.
Item 11. Executive Compensation
Information regarding directors and executive officers of Glacier on pages 10
through 16 of the Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and
management on pages 4 and 5, and 8 and 9 of the Proxy Statement for the 1997
Annual Meeting of Stockholders is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions on pages 9,
and 15 and 16 of the Proxy Statement for the 1997 Annual Meeting of Stockholders
is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) The following financial statements are incorporated by reference from
Item 8 hereof and the Annual Report to Stockholders included herein as Exhibit
13:
Consolidated Statements of Financial Condition at December 31, 1996
and 1995.
39
<PAGE> 40
Consolidated Statements of Operations for the years ended December
31, 1996, 1995, and 1994.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the years ended December
31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a) (2) All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are omitted
because of the absence of conditions under which they are required or because
the required information is included in the financial statements and related
notes thereto.
(a) (3) The following exhibits are included as part of this Form 10-K.
<TABLE>
<CAPTION>
Exhibit No. Exhibit
- ----------- -------
<S> <C>
3 (a) Certificate of Incorporation (1)
3 (b) Bylaws (1)
4 Specimen stock certificate (1)
10 (a) 1989 Incentive Stock Option Plan (1)
10 (b) Employment Agreement dated March 27, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and John S. MacMillan.
10 (c) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Michael J. Blodnick.
10 (d) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Stephen J. VanHelden.
10 (e) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Joan Holling.
10 (f) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and James H. Strosahl.
10 (g) Employment Agreement between First Security Bank
and William L. Bouchee dated as of August 9,
1996. (2)
10 (h) 1994 Director Stock Option Plan (3)
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C>
10 (i) 1995 Employee Stock Option Plan (4)
10 (j) Deferred Compensation Plan (3)
10 (k) Supplemental Executive Retirement Agreement (3)
13 Annual Report to Stockholders for 1996
21 Subsidiaries of the Company - see Item 1,
"Subsidiaries."
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the identically numbered exhibit included in
the Company's Registration Statement on Form S-4 (No. 33-37025), declared
effective by the Securities and Exchange Commission on October 4, 1990.
(2) Incorporated by reference to Exhibit 10.2 of the Company's Registration
Statement on Form S-4 (No. 333-13595).
(3) Incorporated by reference to the exhibits 10(i), 10(k), and 10(h) included
in the Company's Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to Exhibit 99.1 of the Company's S-8
Registration Statement (No. 33-94648).
(b) No reports on Form 8-K were filed during the quarter ended December
31, 1996.
(c) See Item 14(a) (3) above for all exhibits filed herewith and the
Exhibit Index.
41
<PAGE> 42
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 26, 1997.
GLACIER BANCORP, INC.
By:/s/ John S. MacMillan
------------------------------------
John S. MacMillan
President/CEO
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on March 27, 1996, by the following persons in the
capacities indicated.
/s/ John S. MacMillan Chairman/President/CEO
John S. MacMillan (Principal Executive Officer)
/s/ James H. Strosahl Senior Vice President and CFO
James H. Strosahl (Principal Financial/Accounting
Officer)
Majority of the Board of Directors
/s/ Michael J. Blodnick Executive Vice President/COO, and
Michael J. Blodnick Director
/s/ L. Peter Larson Director
L. Peter Larson
/s/ Darrel R. Martin Director
Darrel R. (Bill) Martin
/s/ F. Charles Mercord Director
F. Charles Mercord
/s/ Everit A. Sliter Director
Everit A. Sliter
/s/ Harold A. Tutvedt Director
Harold A. Tutvedt
/s/ William L. Bouchee Director
William L. Bouchee
/s/ Allen J. Fetscher Director
Allen J. Fetscher
42
<PAGE> 43
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
----------------------------
(dollars in thousands) 1996 1995
------------ ------------
<S> <C> <C>
Assets:
Cash on hand and in banks ........................................... $ 24,666 20,979
Federal funds sold .................................................. 1,483 3,640
Interest bearing cash deposits ...................................... 1,000 710
Cash and cash equivalents ...................................... 27,149 25,329
Investment securities, available-for-sale ........................... 85,050 69,591
Investment securities, held-to-maturity ............................. 20,455 21,264
Loans receivable, net ............................................... 386,641 353,263
Premises and equipment, net ......................................... 11,292 10,079
Real estate and other assets owned, net ............................. 410 52
Federal Home Loan Bank of Seattle stock, at cost .................... 8,586 7,381
Federal Reserve stock, at cost ...................................... 340 254
Accrued interest receivable ......................................... 3,473 3,353
Goodwill, net ....................................................... 1,526 1,694
Other assets ........................................................ 1,070 804
------------ ------------
$ 545,992 493,064
============ ============
Liabilities:
Deposits - interest bearing ......................................... $ 257,409 237,830
Deposits - non-interest bearing ..................................... 64,330 53,755
Advances from Federal Home Loan Bank of Seattle ..................... 143,289 120,714
Securities sold under agreements to repurchase ...................... 9,791 20,805
Other borrowed funds ................................................ 5,202 1,500
Accrued interest payable ............................................ 799 667
Advance payments by borrowers for taxes and insurance ............... 940 1,072
Current income taxes ................................................ 0 544
Deferred income taxes ............................................... 1,446 1,941
Minority interest ................................................... 429 603
Other liabilities ................................................... 10,409 6,814
------------ ------------
Total liabilities .............................................. 494,044 446,245
Stockholders' equity:
Preferred stock, $.01 par value per share. Authorized 7,500,000
shares; none issued ................................................ 0 0
Common stock, $.01 par value per share. Authorized 12,500,000
shares; issued and outstanding 4,529,109 and 4,052,303, shares at
December 31, 1996 and 1995, respectively ........................... 46 42
Paid-in capital ..................................................... 34,571 26,938
Retained earnings - substantially restricted ........................ 18,392 19,969
Treasury stock at cost, 57,260 and 48,260 shares at December 31, 1996
and 1995 respectively .............................................. (1,066) (874)
Net unrealized gains on securities available-for-sale ............... 5 744
------------ ------------
Total stockholders' equity ..................................... 51,948 46,819
------------ ------------
$ 545,992 493,064
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 44
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
(dollars in thousands except per share data) 1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
INTEREST INCOME:
Real estate loans ............................................... $15,962 16,095 13,621
Commercial loans ................................................ 9,008 8,284 5,911
Consumer and other loans ........................................ 8,374 6,436 4,986
Mortgage-backed securities ...................................... 3,236 2,310 2,018
Investment securities and other ................................. 4,568 3,727 2,825
------- ------ ------
TOTAL INTEREST INCOME ......................................... 41,148 36,852 29,361
------- ------ ------
INTEREST EXPENSE:
Deposits ........................................................ 10,272 8,619 6,847
Advances ........................................................ 7,302 6,041 3,811
Securities sold under agreements to repurchase .................. 772 1,199 567
Other borrowed funds ............................................ 210 210 271
------- ------ ------
TOTAL INTEREST EXPENSE ........................................ 18,556 16,069 11,496
------- ------ ------
NET INTEREST INCOME ........................................... 22,592 20,783 17,865
Provision for loan losses ....................................... 880 581 321
------- ------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES ............................................. 21,712 20,202 17,544
NON-INTEREST INCOME:
Service charges and other fees .................................. 4,360 3,725 3,216
Miscellaneous loan fees and charges ............................. 2,852 2,898 2,633
Gain (Loss) on sale of investments, net ......................... 121 (6) (22)
Other income .................................................... 1,006 975 907
------- ------ ------
TOTAL NON-INTEREST INCOME ..................................... 8,339 7,592 6,734
NON-INTEREST EXPENSE:
Compensation, employee benefits and related expenses ............ 8,608 7,514 6,599
Occupancy expense ............................................... 1,688 1,529 1,243
Data processing expense ......................................... 666 499 434
FDIC insurance expense .......................................... 351 467 561
FDIC/SAIF assessment ............................................ 947 0 0
Merger expense .................................................. 563 0 0
Other expense ................................................... 4,649 4,559 3,973
Minority interest ............................................... 64 112 112
------- ------ ------
TOTAL NON-INTEREST EXPENSE .................................... 17,536 14,680 12,922
------- ------ ------
Earnings before income taxes .................................... 12,515 13,114 11,356
Federal and state income tax expense ............................ 5,090 5,139 4,467
------- ------ ------
NET EARNINGS .................................................. $ 7,425 7,975 6,889
======= ====== ======
Net earnings per share .......................................... $ 1.65 1.77 1.53
======= ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 45
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION> Retained Net
Common Stock earnings unrealized Total
---------------- Paid-in substantially Treasury gains (losses) stockholders'
(dollars in thousands) Shares Amount capital restricted Stock on securities equity
- --------------------------------- -------- ------ -------- ------------ -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993..... 3,313,514 $ 34 $ 16,505 $ 18,233 $ $ $ 34,772
Effect on change in accounting
for investment securities as of
January 1, 1994................ - - - - - 292 292
Cash dividends paid ($.49 per
share)...............,........ - - - (1,642) - - (1,642)
Stock options exercised......... 40,341 1 323 - - - 324
10% stock dividend.............. 332 103 2 4,402 (4,410) - - (6)
Treasury stock acquired......... (9,500) - - - (160) - (160)
Decrease in net unrealized gains
on available-for-sale
securities.................... - - - - - (810) (810)
Additional shares issued........ 25,361 2 197 - - - 199
Net earnings.................... - - - 6,889 - - 6,889
--------- ---- -------- -------- -------- --------- --------
Balance at December 31, 1994.... 3,701,839 $ 39 $ 21,427 $ 19,070 $ (160) $ (518) $ 39,858
Cash dividends paid ($.56 per
share)....................... - - - (1,824) - - (1,824)
Stock options exercised........ 20,276 0 221 - - - 221
Increase in stock grant earned - - 46 - - - 46
10% stock dividend............. 368,946 3 5,244 (5,252) - - (5)
Treasury stock acquired........ (38,760) - - - (714) - (714)
Increase in net unrealized gains
on available-for-sale
securities................... - - - - - 1,262 1,262
Net earnings................... - - - 7,975 - - 7,975
--------- ---- -------- -------- -------- --------- --------
Balance at December 31, 1995... 4,052,303 $ 42 $ 26,938 $ 19,969 $ (674) $ 744 $ 46,619
Cash dividends paid ($.63
per share)................... - - - (2,291) - - (2,291)
Stock options exercised........ 36,697 1 629 - - - 630
Increase in stock grant earned. - - 21 - - - 21
Acquisition of minority
interest..................... 12,951 - 85 - - - 85
10% stock dividend............. 404,852 - 6,701 (6,711) - - (9)
Treasury stock acquired........ (9,000) - - - (192) - (192)
Decrease in net unrealized gains
on available-for-sale
securities................... - - - - - (739) (739)
Additional shares issued....... 31,306 2 197 - - - 199
Net earnings................... - - - 7,425 - - 7,425
--------- ---- -------- -------- -------- --------- --------
Balance at December 31, 1996... 4,529,109 $ 46 $ 34,571 $ 18,392 $ (1,066) $ 5 $ 51,948
========= ==== ======== ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 46
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
(dollars in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net Earnings ....................................................... $ 7,425 7,975 6,889
Adjustments to reconcile Net Earnings to Net
Cash Provided by Operating Activities:
Provision for loan losses ........................................ 880 581 321
Depreciation of premises and equipment ........................... 728 950 797
Amortization of goodwill ......................................... 168 179 189
Loss (gain) on sale of investments ............................... (121) 6 22
Amortization of investment securities premiums and discounts, net (32) 122 206
Net decrease in deferred income taxes ............................ (27) (41) (350)
Net increase in interest receivable .............................. (120) (679) (645)
Net increase in interest payable ................................. 132 249 72
Net increase (decrease) in current income taxes .................. (714) 675 (193)
Net (increase) decrease in other assets .......................... (84) 572 (732)
Net increase in other liabilities and minority interest .......... 3,620 1,662 930
FHLB stock dividends ............................................. (597) (413) (315)
----------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..................... 11,258 11,838 7,191
----------- ----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales, maturities and prepayments of investment
securities available-for-sale .................................. $ 53,206 17,668 21,393
Purchases of investment securities available-for-sale .............. (69,741) (39,221) (11,761)
Proceeds from maturities and prepayments of investment
securities held-to-maturity .................................... 1,813 10,493 6,841
Purchases of investment securities held-to-maturity ................ (982) (9,000) (31,702)
Principal collected on installment and commercial loans ............ 101,148 79,019 69,778
Installment and commercial loans originated or acquired ............ (137,516) (121,285) (105,036)
Proceeds from sales of commercial loans ............................ 7,857 10,001 6,779
Principal collections on mortgage loans ............................ 50,538 40,402 39,101
Mortgage loans originated or acquired .............................. (128,528) (102,779) (116,055)
Proceeds from sales of mortgage loans .............................. 72,243 58,702 55,717
Net proceeds from sales (acquisition) of real estate owned ......... (358) 52 434
Net purchase of FHLB and FRB stock ................................. (694) (1,310) (1,060)
Net addition of premises and equipment ............................. (1,941) (1,335) (2,233)
Acquisition of minority interest ................................... (114) (14) (55)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES ......................... (53,069) (58,607) (67,859)
----------- ----------- -----------
FINANCING ACTIVITIES:
Net increase in deposits ........................................... $ 30,154 32,863 11,108
Net increase in FHLB advances and other borrowed funds ............. 26,277 36,593 27,889
Net increase (decrease) in advance payments from borrowers for taxes
and insurance .................................................... (132) 305 (28)
Net decrease in securities sold under repurchase agreements ........ (11,014) (12,247) 18,064
Cash dividends paid to stockholders ................................ (2,291) (1,824) (1,642)
Treasury stock purchased ........................................... (192) (714) (160)
Proceeds from exercise of stock options and additional shares issued 829 221 523
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES ...................... 43,631 55,197 55,754
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ...................... 1,820 8,428 (4,914)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ................... 25,329 16,901 21,815
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ......................... $ 27,149 25,329 16,901
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for: Interest .......................... $ 18,424 15,821 11,424
Income taxes....................... $ 5,491 4,367 4,576
</TABLE>
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) GENERAL
Glacier Bancorp, Inc. (the "Company"), a Delaware corporation organized in
1990, is a multi-bank, thrift holding company which provides a full range of
banking services to individual and corporate customers in Montana through its
subsidiary banks. The subsidiary banks are subject competition from other
financial service providers. The subsidiary banks are also subject to the
regulations of certain government agencies and undergo periodic examinations by
those regulatory authorities.
The accounting and consolidated financial statement reporting policies of the
Company conform with generally accepted accounting principles and prevailing
practices within the banking industry. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that
affect the reported and disclosed amounts of assets and liabilities as of the
date of the statement of financial condition and income and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the subsidiary banks' allowance
for loan losses. Such agencies may require the subsidiary banks to recognize
additions to the allowance based on their judgements about information
available to them at the time of their examination.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its bank subsidiaries, Glacier Bank (the "Savings Bank"), First Security Bank
of Missoula, First National Bank of Whitefish, and First National Bank of
Eureka (collectively the "Commercial Banks"). All significant intercompany
transactions have been eliminated in consolidation. The Company owns 100% of
the outstanding stock of Glacier Bank and First Security Bank of Missoula, and
94% and 93% of the First National Banks of Whitefish and Eureka, respectively.
The First Security Bank of Missoula was acquired on December 31, 1996 through
an exchange of stock with Missoula Bancshares, Inc. formerly the parent company
of First Security Bank. The pooling of interests accounting method is being
used for this merger transaction. Under this method, financial information for
each of the periods presented include the combined companies as though the
merger had occurred prior to the earliest date presented.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are considered to be cash on hand, cash held as demand
deposits at various banks and regulatory agencies, interest bearing deposits and
federal funds sold with original maturities of three months or less.
<PAGE> 48
(d) INVESTMENT SECURITIES
Debt securities for which the Company has the positive intent and ability to
hold to maturity are classified as held-to-maturity and are stated at amortized
cost. Debt and equity securities held primarily for the purpose of selling them
in the near term are classified as trading securities and are reported at fair
market value, with unrealized gains and losses included in income. Debt and
equity securities not classified as held-to-maturity or trading are classified
as available-for-sale and are reported at fair value with unrealized gains and
losses, net of income taxes, shown as a separate component of stockholders'
equity.
Premiums and discounts on investment securities are amortized or accreted into
income using a method which approximates the level-yield interest method.
The cost of any investment, if sold, is determined by specific identification.
Declines in the fair value of available-for-sale or held-to-maturity securities
below carrying value that are other than temporary are charged to expense as
realized losses and the related carrying value reduced to fair value.
(e) LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at their
outstanding unpaid principal balance reduced by any chargeoffs or specific
valuation accounts and net of any deferred fees or costs on originated loans or
unamortized premiums or discounts on purchased loans. Discounts and premiums on
purchased loans are amortized over the expected life of loans using methods
that approximate the interest method.
(f) LOANS HELD FOR SALE
Mortgage 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 by charges to income.
(g) LOAN ORIGINATION FEES
Statement of Financial Accounting Standards (SFAS) No. 91 provides for the
deferral of loan origination fees and direct loan origination costs with those
amounts recognized over the lives of the related loans as an adjustment of the
loan's yield using a method which approximates the level-yield method.
(h) ALLOWANCE FOR LOAN LOSSES
Management's periodic evaluations of the adequacy of the allowance is based on
factors such as the Company's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, current
economic conditions, and independent appraisals.
The Company also provides an allowance for losses on specific loans which are
deemed to be impaired. Groups of small balance homogeneous loans (generally
consumer and residential real estate loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current
information and events, it is probable that the Company will be unable to
collect, on a timely basis, all principal and interest according to the
contractual terms of the loans's original agreement. When a specific loan is
determined to be impaired, the allowance for loan losses is increased through a
charge to expense for the amount of the impairment. The amount of the
impairment is measured using cash flows discounted at the loan's effective
interest rate, except when it is determined that the sole source of repayment
for the loan is the operations or liquidation of the underlying collateral. In
such case, the current value of the collateral, reduced by anticipated selling
costs, will be used in place of discounted cash flows. Generally, when a loan
is deemed impaired, current period interest previously accrued but not
collected is reversed against current period interest income. Income on such
impaired loans is then recognized only to the extent that cash in excess of any
amounts charged off to the allowance for loan losses is received and where the
future collection of principal is probable. Interest
<PAGE> 49
accruals are resumed on such loans only when they are brought fully current with
respect to interest and principal and when, in the judgement of management, the
loans are estimated to be fully collectible as to both principal and interest.
During 1996 and 1995 the amount of impaired loans was not material.
(I) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less depreciation. Depreciation is
generally computed on a straight-line method over the estimated useful lives,
which range from five to fifty years, of the various classes of assets from
their respective dates of acquisition.
(J) REAL ESTATE OWNED
Property acquired by foreclosure or deed in lieu of foreclosure is carried at
the lower of cost or estimated fair value, not to exceed estimated net
realizable value. Costs, excluding interest, relating to the improvement of
property are capitalized, whereas those relating to holding the property are
charged to expense. Fair value is determined as the amount that could be
reasonably expected in a current sale (other than a forced or liquidation sale)
between a willing buyer and a willing seller. If the fair value of the asset
minus the estimated cost to sell is less than the cost of the property, this
deficiency is recognized as a valuation allowance and is charged to expense.
(K) RESTRICTED STOCK INVESTMENTS
The Company holds stock in the Federal Home Loan Bank (FHLB); Federal Home Loan
Mortgage Corporation (FHLMC); and the Federal Reserve Bank (FRB). These
investments are carried at the lower of cost or market value.
(L) GOODWILL
Goodwill is being amortized against income using the straight-line method over
15 years.
(M) INCOME TAXES
Deferred tax assets and liabilities are recognized for estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(N) STOCK-BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
25, "Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded over the vesting period only if at
the date of grant the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards
determined on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 for stock
based awards to employees and provide pro forma income and pro forma earnings
per share disclosures for employee stock options granted in 1995 and future
years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
<PAGE> 50
(O) IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS
Effective January 1, 1996 the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of".
The statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. An asset is deemed impaired if the sum of the expected future cash
flow is less than the carrying amount of the asset. If impaired, an impairment
loss is recognized to reduce the carrying value of the asset to fair value.
Adoption of SFAS No. 121 did not have a material impact on the Company's
consolidated financial position or results of operations. At December 31, 1996
there were no assets that were considered impaired.
(P) MORTGAGE SERVICING RIGHTS
The Company recognizes mortgage servicing rights as an asset regardless of
whether the servicing rights are acquired or originated and retained. The
mortgage servicing rights are assessed for impairment based on the fair value
of the mortgage servicing rights. As of December 31, 1996 and 1995 the carrying
value of originated servicing rights was approximately $396,000 and $176,000,
respectively. There was no impairment of value at December 31, 1996 or 1995.
(Q) FUTURE ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities." SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishment of liabilities occurring after December 31,
1996 and is to be applied prospectively. This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishment of liabilities based on consistent application of the
financial-components approach that focuses on control. It distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Management of the Company does not expect the adoption of SFAS No.
125 will have a material impact on the Company's consolidated financial
position or results of operations.
<PAGE> 51
2. CASH ON HAND AND IN BANKS:
The subsidiary banks are required to maintain an average reserve balance with
the Federal Reserve Bank, or maintain such reserve in the form of cash. The
amount of this required reserve balance at December 31, 1996 was approximately
$4,000,000 and was met by maintaining cash and an average reserve balance with
the Federal Reserve Bank in excess of this amount.
<PAGE> 52
3. Investment Securities:
A comparison of the amortized cost and estimated fair value of the Company's
investment securities is as follows at:
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized ------------------------- Fair
(dollars in thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year .............. $ 1,993 13 0 2,006
maturing one through five years ....... 3,000 0 (18) 2,982
maturing five years through ten years . 4,998 3 (15) 4,986
maturing after ten years .............. 2,980 0 (48) 2,932
----------- ----------- ----------- -----------
12,971 16 (81) 12,906
----------- ----------- ----------- -----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .............. 506 1 0 507
maturing one year through five years .. 1,200 37 (1) 1,236
maturing five years through ten years . 585 12 0 597
maturing after ten years .............. 1,148 27 0 1,175
----------- ----------- ----------- -----------
3,439 77 (1) 3,515
----------- ----------- ----------- -----------
MORTGAGE-BACKED SECURITIES .................. 4,045 2 (32) 4,015
----------- ----------- ----------- -----------
TOTAL HELD-TO-MATURITY SECURITIES . $ 20,455 95 (114) 20,436
=========== =========== =========== ===========
AVAILABLE-FOR-SALE
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year .............. $ 8,984 8 (6) 8,986
maturing one year through five years .. 6,177 21 (7) 6,191
maturing five years through ten years . 2,205 10 (4) 2,211
maturing after ten years .............. 10,114 11 (188) 9,937
----------- ----------- ----------- -----------
27,480 50 (205) 27,325
----------- ----------- ----------- -----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .............. 250 5 0 255
maturing one year through five years .. 403 0 (19) 384
maturing after ten years .............. 14,920 125 (20) 15,025
----------- ----------- ----------- -----------
15,573 130 (39) 15,664
----------- ----------- ----------- -----------
MORTGAGE-BACKED SECURITIES .................. 24,319 534 (164) 24,689
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 17,684 0 (312) 17,372
----------- ----------- ----------- -----------
TOTAL AVAILABLE-FOR-SALE SECURITIES $ 85,056 714 (720) 85,050
=========== =========== =========== ===========
</TABLE>
<PAGE> 53
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized ------------------------- Fair
(dollars in thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
HELD-TO-MATURITY
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year .............. $ 1,000 0 (5) 995
maturing one through five years ....... 4,975 32 (14) 4,993
maturing five years through ten years . 4,994 99 0 5,093
maturing after ten years .............. 2,979 57 0 3,036
----------- ----------- ----------- -----------
13,948 188 (19) 14,117
----------- ----------- ----------- -----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .............. 210 1 0 211
maturing one year through five years .. 1,601 51 (1) 1,651
maturing five years through ten years . 579 32 (1) 610
maturing after ten years .............. 316 0 0 316
----------- ----------- ----------- -----------
2,706 84 (2) 2,788
----------- ----------- ----------- -----------
MORTGAGE-BACKED SECURITIES .................. 4,610 20 0 4,630
----------- ----------- ----------- -----------
TOTAL HELD-TO-MATURITY SECURITIES . $ 21,264 292 (21) 21,535
=========== =========== =========== ===========
AVAILABLE-FOR-SALE
U.S. GOVERNMENT AND FEDERAL AGENCIES:
maturing within one year .............. $ 7,964 5 (13) 7,956
maturing one year through five years .. 3,501 53 (7) 3,547
maturing five years through ten years . 5,459 77 0 5,536
maturing after ten years .............. 13,584 105 0 13,689
----------- ----------- ----------- -----------
30,508 240 (20) 30,728
----------- ----------- ----------- -----------
STATE AND LOCAL GOVERNMENTS AND OTHER ISSUES:
maturing within one year .............. 3,759 0 (114) 3,645
maturing one year through five years .. 246 0 (2) 244
maturing after ten years .............. 1,530 186 0 1,716
----------- ----------- ----------- -----------
5,535 186 (116) 5,605
----------- ----------- ----------- -----------
MORTGAGE-BACKED SECURITIES .................. 30,157 990 (63) 31,084
REAL ESTATE MORTGAGE INVESTMENT CONDUITS .... 2,174 7 (7) 2,174
----------- ----------- ----------- -----------
TOTAL AVAILABLE-FOR-SALE SECURITIES $ 68,374 1,423 (206) 69,591
=========== =========== =========== ===========
</TABLE>
Maturities of securities do not reflect repricing opportunities present in many
adjustable rate securities, nor do they reflect expected shorter maturities
based upon early prepayment of principal.
The Company has not entered into any swaps, options or futures contracts.
Included in the U.S. Government and Federal Agencies security amounts are
investments in structured notes which have contractual step-up interest rates
and call features.
Gross proceeds from sales of investment securities for the years ended December
31, 1996, 1995, and 1994, were approximately $23,065,000, $5,111,000, and
$6,469,000 respectively, resulting in gross gains of approximately $291,000,
$47,000 and $19,000 and gross losses of approximately $170,000, $53,000, and
$41,000, respectively.
At December 31, 1996, the Company had investment securities with book values of
approximately $38,793,000 pledged as security for deposits of several local
government units, securities sold under agreements to repurchase, and as
collateral for the Treasury tax and loan borrowings.
The Real Estate Mortgage Investment Conduits consist of nine certificates which
are backed by the FNMA, GNMA and FHLMC.
At December 31, 1996 and 1995 the minority interest share of the unrealized gain
(loss) was ($7,000) and $9,000, respectively.
<PAGE> 54
4. LOANS RECEIVABLE:
The following is a summary of loans receivable at:
<TABLE>
<CAPTION>
December 31,
------------------------
(dollars in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Real Estate Loans and Contracts:
Residential first mortgage loans ... $ 160,116 145,058
Construction ....................... 16,651 18,425
FHA and VA loans ................... 17,940 23,426
Loans held for sale ................ 3,900 5,951
----------- -----------
198,607 192,860
Commercial Loans:
Real estate ........................ 49,130 43,059
Other commercial loans ............. 50,940 42,557
----------- -----------
100,070 85,616
Installment and Other Loans:
Consumer loans ..................... 51,780 47,349
Home equity loans .................. 35,743 27,376
Outstanding balances on credit cards 3,725 3,139
----------- -----------
91,248 77,864
Less:
Allowance for losses ............... (3,284) (3,077)
----------- -----------
$ 386,641 353,263
=========== ===========
</TABLE>
Summary of activity in allowance for losses on loans:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------
(Dollars in thousands) 1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of period $ 3,077 2,647 2,330
Net charge offs ............ (673) (151) (4)
Provision .................. 880 581 321
----------- ----------- -----------
Balance, end of period ..... $ 3,284 3,077 2,647
=========== =========== ===========
</TABLE>
Approximately 90 percent of the Company's total loans receivable are with
customers located in Western Montana.
The weighted average interest rate on loans was 8.82%, and 9.01% at December 31,
1996 and 1995, respectively.
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 letters of
credit, and involve to varying degrees, elements of credit risk.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
At December 31, 1996 and 1995 serviced loans sold to others were $115,437,000
and $103,756,000, respectively.
At December 31, 1996, the Company had outstanding commitments as follows
(dollars in thousands):
<TABLE>
<S> <C>
Letters of credit ........................................... $ 3,028
Loans and loans in process .................................. 19,942
Unused consumer lines of credit ............................. 20,268
-----------
$ 43,238
===========
</TABLE>
Accrued Interest Receivable:
<TABLE>
<CAPTION>
December 31,
--------------------------
(dollars in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Investment securities ............................ $ 826 777
Mortgage-backed securities ....................... 291 253
Loans receivable ................................. 2,356 2,323
----------- -----------
$ 3,473 3,353
=========== ===========
</TABLE>
<PAGE> 55
5. PREMISES AND EQUIPMENT:
Premises and equipment consist of the following at:
<TABLE>
<CAPTION>
December 31,
-------------------------
(dollars in thousands) 1996 1995
----------- -----------
<S> <C> <C>
Land ............................................. $ 2,067 1,906
Office buildings and construction in progress .... 9,378 8,421
Furniture, fixtures and equipment ................ 5,313 4,777
Leasehold improvements ........................... 580 293
Accumulated depreciation ......................... (6,046) (5,318)
----------- -----------
$ 11,292 10,079
=========== ===========
</TABLE>
<PAGE> 56
6. DEPOSITS:
Deposits consist of the following at:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1996 1995
---------------------------------------- -------------------------
Weighted
(dollars in thousands) Average Rate Amount Percent Amount Percent
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Demand accounts ............................. 0.0% $ 64,330 20.0% 53,755 18.4%
----------- ----------- ------------ -----------
NOW accounts ................................ 2.0% 59,602 18.5% 56,067 19.3%
Savings accounts ............................ 3.0% 37,097 11.5% 39,274 13.5%
Money market demand accounts ................ 4.3% 54,754 17.0% 44,982 15.4%
Certificate accounts:
3.00% and lower ........................ 192 0.1% 76 0.0%
3.01% to 4.00% ......................... 513 0.2% 1,008 0.3%
4.01% to 5.00% ......................... 16,702 5.2% 23,706 8.1%
5.01% to 6.00% ......................... 63,466 19.8% 34,127 11.8%
6.01% to 7.00% ......................... 23,271 7.2% 36,939 12.7%
7.01% to 8.00% ......................... 1,443 0.4% 1,460 0.5%
8.01% to 9.00% ......................... 286 0.1% 106 0.0%
9.01% to 10.00% ........................ 74 0.0% 75 0.0%
10.01% to 11.00% ....................... 9 0.0% 10 0.0%
----------- ----------- ----------- -----------
Total certificate accounts ...... 5.6% 105,956 33.0% 97,507 33.4%
----------- ----------- ----------- -----------
Total interest bearing deposits ............. 4.1% 257,409 80.0% 237,830 81.6%
----------- ----------- ----------- -----------
Total deposits .............................. 3.3% $ 321,739 100.0% 291,585 100.0%
=========== =========== =========== ===========
Deposits with a balance in excess of $100,000 ............... $ 67,678 $ 52,576
</TABLE>
At December 31, 1996, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
Years ending December 31,
--------------------------------------------------------------
(dollars in thousands) Total 1997 1998 1999 2000 Thereafter
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
3.00% and lower ......... $ 192 154 13 21 3 1
3.01% to 4.00% .......... 513 475 18 3 0 17
4.01% to 5.00% .......... 16,702 14,066 1,957 671 4 4
5.01% to 6.00% .......... 63,466 47,637 11,314 2,558 608 1,349
6.01% to 7.00% .......... 23,271 7,336 4,695 2,679 4,855 3,706
7.01% to 8.00% .......... 1,443 97 1,242 70 0 34
8.01% to 9.00% .......... 286 34 205 24 8 15
9.01% to 10.00% ......... 74 63 0 11 0 0
10.01% to 11.00% ........ 9 0 0 9 0 0
---------- ---------- ---------- ---------- ---------- ----------
$ 105,956 69,862 19,444 6,046 5,478 5,126
========== ========== ========== ========== ========== ==========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
(dollars in thousands) 1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NOW accounts ............................ $ 1,185 1,074 1,039
Money market demand accounts ............ 2,156 1,667 1,259
Certificate accounts .................... 5,772 4,681 3,302
Savings accounts ........................ 1,159 1,197 1,247
---------- ---------- ----------
$ 10,272 8,619 6,847
========== ========== ==========
</TABLE>
<PAGE> 57
7. ADVANCES FROM FEDERAL HOME LOAN BANK OF SEATTLE:
Advances from the Federal Home Loan Bank of Seattle consist of the following at
December 31, 1996:
<TABLE>
<CAPTION>
Maturing in years ending December 31,
----------------------------------------------------------------------------------------
(dollars in thousands) Total 1997 1998 1999 2000 2001 2002-2011
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% to 5.00% .......... $ 15,435 877 377 336 1,000 12,845 0
5.01% to 6.00% .......... 96,696 66,969 16,414 7,995 2,021 1,398 1,899
6.01% to 7.00% .......... 30,171 5,535 17,470 355 6,260 154 397
7.01% to 8.00% .......... 987 32 32 32 32 32 827
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 143,289 73,413 34,293 8,718 9,313 14,429 3,123
========== ========== ========== ========== ========== ========== ==========
</TABLE>
Advances from the Federal Home Loan Bank of Seattle consist of the following at
December 31, 1995:
<TABLE>
<CAPTION>
Maturing in years ending December 31,
----------------------------------------------------------------------------------------
(dollars in thousands) Total 1996 1997 1998 1999 2000 2001-2009
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
4.00% to 5.00% .......... $ 5,926 3,195 1,102 601 561 321 146
5.01% to 6.00% .......... 85,508 58,245 14,734 4,599 2,980 1,857 3,093
6.01% to 7.00% .......... 29,280 4,116 5,531 12,467 353 6,259 554
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 120,714 65,556 21,367 17,667 3,894 8,437 3,793
========== ========== ========== ========== ========== ========== ==========
</TABLE>
These advances were collateralized by the Federal Home Loan Bank of Seattle
stock held by the Company, and qualifying real estate loans and investments
totaling approximately $233,661,000 and $189,580,000 at December 31, 1996 and
1995, respectively.
The weighted average interest rate on these advances was 5.67% and 5.80% at
December 31, 1996 and 1995, respectively.
<PAGE> 58
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS:
Securities sold under agreements to repurchase consist
of the following at:
<TABLE>
<CAPTION>
Book Market
Weighted value of value of
Repurchase average underlying underlying
(dollars in thousands) amount rate paid assets assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1996:
Securities sold under agreements to repurchase within:
1-30 days ..................................... $ 6,532 4.03% $ 10,162 $ 10,457
31-90 days ..................................... 1,300 5.34% 2,908 2,992
Greater than 90 days ............................ 1,959 5.34% 3,703 3,811
----------- ----------- ----------- -----------
$ 9,791 4.46% $ 16,773 $ 17,260
=========== =========== =========== ===========
December 31, 1995:
Securities sold under agreements to repurchase within:
1-30 days ..................................... $ 14,280 4.13% $ 17,741 $ 18,290
31-90 days ..................................... 6,025 5.13% 6,432 6,662
Greater than 90 days ............................ 500 5.51% 584 612
----------- ----------- ----------- -----------
$ 20,805 4.46% $ 24,757 $ 25,564
=========== =========== =========== ===========
</TABLE>
The securities underlying agreements to repurchase entered into by the Company
are for the same securities originally sold, and are held in a custody account
by a third party. For the year ended December 31, 1996 securities sold under
agreements to repurchase averaged approximately $17,000,000 and the maximum
outstanding at any month end during the year was approximately $22,000,000.
In 1996 the Company entered into the treasury tax and loan account note option
program, which provides short term funding up to $12,000,000 at federal funds
rate minus 25 basis points. The borrowings are secured with investment
securities with an amortized cost of approximately $15,400,000. At December 31,
1996 the outstanding balance under this program was approximately $5,200,000.
Other borrowed funds prior to 1996 related to Missoula Bancshares, Inc. to
acquire First Security. The debt was repaid prior to the merger with the
Company.
<PAGE> 59
9. STOCKHOLDERS' EQUITY:
For regulatory purposes, the Savings Bank is required to maintain three minimum
capital requirements. Failure to maintain the required capital can result in
regulatory action to limit the Savings Bank's operations.
Savings Bank capital components at December 31, 1996, are as follows:
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-based Capital
-------------------------- -------------------------- --------------------------
(dollars in thousands) $ % $ % $ %
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital ............................. $ 31,767 8.76% $ 31,767 8.76% $ 31,767 16.93%
Net unrealized gains on securities
available-for-sale .................. (33) -0.01% (33) -0.01% (33) -0.02%
Allowance for loan losses ................ -- -- -- -- 1,475 0.79%
----------- ----------- ----------- ----------- ----------- -----------
Regulatory capital computed .............. 31,734 8.75% 31,734 8.75% 33,209 17.70%
Minimum capital requirement .............. 5,437 1.50% 10,874 3.00% 15,007 8.00%
----------- ----------- ----------- ----------- ----------- -----------
Regulatory Capital Excess ................ $ 26,297 7.25% $ 20,860 5.75% $ 18,202 9.70%
=========== =========== =========== =========== =========== ===========
</TABLE>
Savings associations that meet or exceed their capital requirements may make
capital distributions during any one year up to an amount that would reduce its
surplus capital ratio to no less than one-half of its surplus capital ratio at
the beginning of the calendar year. Under this regulation the amount of
allowable distributions was approximately $1,150,000 as of year end.
The Federal Deposit Insurance Corporation Improvement Act generally restricts a
depository institution from making any capital distribution (including payment
of a dividend) or paying any management fee to its holding company if the
depository institution would thereafter be capitalized at less than 8% of total
risk-based capital, 4% of Tier I capital, or a 4% leverage ratio. At December
31, 1996, the Commercial Banks capital measures exceed the highest supervisory
threshold, which requires total Tier II capital of at least 10%, Tier I capital
of at least 6%, and a leverage ratio of at least 5%.
National banks may not pay dividends without the approval of the Comptroller of
the Currency if the total of all dividends declared will exceed the sum of its
net profits for the current year and the preceding two calendar years. The
amount available for dividend distribution by the National Banks as of December
31, 1996, was approximately $1,242,000.
State banks such as First Security may pay dividends up to the total of the
prior two years earnings without permission of the State regulator. The amount
available for dividend distribution by First Security as of December 31, 1996,
was approximately $3,015,000.
The Federal Reserve Board has adopted capital adequacy guidelines pursuant to
which it assesses the adequacy of capital in supervising a bank holding company.
The following table illustrates the Federal Reserve Boards capital adequacy
guidelines and the Company's compliance with those guidelines as of December 31,
1996.
<TABLE>
<CAPTION>
Tier I (Core) Capital Tier II (Total) Capital Leverage Capital
----------------------- ------------------------ -----------------------
(dollars in thousands) $ % $ % $ %
---------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
GAAP Capital ..................................... $ 51,948 $ 51,948 $ 51,948
Goodwill ......................................... (1,526) (1,526) (1,526)
Net unrealized gains on securities
available-for-sale .......................... (5) (5) (5)
Allowance for loan losses ........................ -- 3,284 --
---------- ---------- ----------
Regulatory capital computed ...................... $ 50,417 $ 53,701 $ 50,417
========== ========== ==========
Capital as % of assets ........................... 16.00% 16.86% 9.23%
Regulatory "well capitalized" requirement ........ 6.00% 10.00% 5.00%
---------- ---------- ---------
Excess over "well capitalized" requirement ....... 10.00% 6.86% 4.23%
========== ========== =========
</TABLE>
<PAGE> 60
10. FEDERAL AND STATE INCOME TAXES:
The following is a summary of consolidated income tax expense for:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
(dollars in thousands) 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal .......................................... $ 4,201 4,270 3,497
State ............................................ 916 988 836
------------ ------------ ------------
Total current tax expense ....................... 5,117 5,258 4,333
------------ ------------ ------------
Deferred:
Federal .......................................... (45) (90) 112
State ............................................ 18 (29) 22
------------ ------------ ------------
Total deferred tax expense (benefit) ........... (27) (119) 134
------------ ------------ ------------
Total income tax expense ..................... $ 5,090 5,139 4,467
============ ============ ============
</TABLE>
Federal and state income tax expense differs from that computed at the federal
statutory corporate tax rate as follows for:
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Federal statutory rate ................................ 34.0% 34.0% 34.0%
State taxes, net of federal income tax benefit ........ 4.5% 4.5% 4.5%
Non-deductible merger expenses ........................ 1.7% 0.0% 0.0%
Other, net ............................................ 0.5% 0.7% 0.8%
------------ ------------ ------------
40.7% 39.2% 39.3%
------------ ------------ ------------
</TABLE>
The tax effects of temporary differences which give rise to a significant
portion of deferred tax assets and deferred tax liabilities are as follows at:
<TABLE>
<CAPTION>
December 31,
----------------------------
(dollars in thousands) 1996 1995
------------ ------------
<S> <C> <C>
Deferred tax assets:
Allowance for losses on loans ............................................... $ 1,269 1,129
Available-for-sale securities fair value adjustment ......................... 4 0
Other ....................................................................... 86 166
------------ ------------
Total gross deferred tax assets ...................................... $ 1,359 1,295
------------ ------------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends ...................................... $ (1,058) (790)
Fixed assets, due to differences in depreciation ............................ (339) (304)
Discount on loans and investments due to prior years' sale with
concurrent purchase ..................................................... (196) (249)
Tax bad debt reserve in excess of base-year reserve ......................... (768) (930)
Available-for-sale securities fair value adjustment ......................... 0 (464)
Basis difference from acquisitions .......................................... (216) (261)
Other ....................................................................... (228) (238)
------------ ------------
Total gross deferred tax liabilities ................................ (2,805) (3,236)
------------ ------------
Net deferred tax liability .......................................... $ (1,446) (1,941)
============ ============
</TABLE>
There was no valuation allowance at December 31, 1996 and 1995 because
management believes that it is more likely than not that the company's deferred
tax assets will be realized by offsetting future taxable income from reversing
taxable temporary differences and anticipated future operating income.
<PAGE> 61
For taxable years beginning prior to January 1, 1996, savings institutions such
as the Savings Bank were allowed, if certain conditions were met, a special bad
debt deduction for income tax purposes based on a percentage of taxable income
before such deduction.
As a result of recently enacted federal legislation, savings associations are no
longer able to calculate their deduction for bad debts using the
percentage-of-taxable-income method. Instead, savings associations are required
to compute their deduction based on specific charge-offs during the taxable year
or, if the savings association or its controlled group had assets of less than
$500 million, based on actual loss experience over a period of years. This
legislation also requires savings associations to recapture into taxable income
over a six-year period their post-1987 additions to their bad debt tax reserves.
At December 31, 1996, the Savings Bank's post-1987 tax bad debt reserves were
approximately $2.6 million. The recapture may be suspended for up to two years
if, during those years, the institution satisfies a residential loan requirement
which the Savings Bank anticipates will be met.
Retained earnings at December 31, 1996 includes approximately $3,600,000 for
which no provision for Federal income tax has been made. This amount represents
the base year tax bad debt reserve which is essentially an allocation of
earnings to pre-1988 bad debt deductions for income tax purposes only. This
amount is treated as a permanent difference and deferred taxes are not
recognized unless it appears that this reserve will be reduced and thereby
result in taxable income in the foreseeable future. The Company is not currently
contemplating any changes in its business or operations which would result in a
recapture of this federal bad debt reserve into taxable income.
<PAGE> 62
11. EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined contribution retirement plan covering
substantially all employees. The Company follows the policy of funding
retirement plan contributions as accrued. The total retirement plan expense for
the years ended December 31, 1996, 1995, and 1994 was approximately $366,000,
$287,000 and $249,000 respectively. The employees of First Security will be
eligible to participate in the plan during 1997.
The Company also has an employees' savings plan. The plan allows eligible
employees to contribute up to 10% of their monthly salaries. The Company matches
an amount equal to 50% of the employee's contribution, up to 6% of the
employee's total pay. Participants are at all times fully vested in all
contributions. The Company's contribution to the savings plan for the years
ended December 31, 1996, 1995 and 1994 was approximately $106,000, $95,000, and
$85,000, respectively. Employees of First Security will be eligible to
participate in the plan in 1997.
In 1995 a Supplemental Executive Retirement Plan (SERP) was adopted which
provides retirement benefits at the savings and retirement plan levels, for
amounts that are limited by IRS regulations under those plans. The Company's
contribution to the SERP for the years ended December 31, 1996 and 1995 was
approximately $41,000 and $19,000 respectively.
In 1995 a non-funded deferred compensation plan for directors and senior
officers was established. The plan provides for the deferral of cash payments of
up to 25% of a participants salary, and for 100% of bonuses and directors fees,
at the election of the participant. The total amount deferred was approximately
$87,000, and zero for the years ending December 31, 1996 and 1995, respectively.
The participant receives an earnings credit at a one year certificate of deposit
rate, or at the total return rate on Company stock, on the amount deferred, as
elected by the participant at the time of the deferral election. The total
earnings credit for 1996 and 1995 was approximately $5,000 and zero,
respectively.
First Security Bank of Missoula had a discretionary non-contributory profit
sharing plan covering substantially all employees, with funding of contributions
as accrued. The total plan expense for the years ended December 31, 1996, 1995,
and 1994 was approximately $262,000, $235,000 and $212,000 respectively. The
plan was terminated as of December 31, 1996.
The Company has entered into employment contracts with eight senior officers
that provide benefits under certain conditions following a change in control of
the Company.
<PAGE> 63
12. EARNINGS PER SHARE:
Earnings per common share were computed by dividing net earnings by the weighted
average number of shares of common stock outstanding during the year. Previous
period amounts are restated for the effect of stock dividends. Stock options are
considered common stock equivalents, but are excluded from earnings per share
computations due to immateriality.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares ......... 4,510,300 4,468,387 4,460,830
</TABLE>
<PAGE> 64
13. STOCK OPTION PLANS:
During fiscal 1984, an Incentive Stock Option Plan was approved which provided
for the grant of options limited to 168,750 shares to certain full time
employees of the Company. In the year ended June 30, 1990, additional Stock
Option Plans were approved which provided for the grant of options limited to
29,445 shares to outside Directors and 166,860 shares to certain full time
employees of the Company. In the year ended December 31, 1994 a Stock Option
Plan was approved which provides for the grant of options to outside Directors
of the Company, limited to 50,000 shares. In the year ended December 31, 1995 a
Stock Option Plan was approved which provides for the grant of options limited
to 279,768 shares to key employees of the Company. The option price at which the
Company's common stock may be purchased upon exercise of options granted under
the plan must be at least equal to the per share market value of such stock at
the date the option is granted. The 1984 plan also contains provisions
permitting the optionee, with the approval of the Company, to surrender his or
her options for cancellation and receive cash or common stock equal to the
difference between the exercise price and the then fair market value of the
shares on the date of surrender. The fiscal 1990 and 1995 plans also contain
provisions authorizing the grant of limited stock rights, which permit the
optionee, upon a change in control of the Company, to surrender his or her
options for cancellation and receive cash or common stock equal to the
difference between the exercise price and the fair market value of the shares on
the date of the grant. All option shares are adjusted for stock splits and stock
dividends.
At December 31, 1996, total stock options available for issuance are 288,451.
Changes in stock options for the years ended December 31, 1996, 1995, and 1994,
are summarized as follows:
<TABLE>
<CAPTION>
Options Options
Outstanding Exercisable
-------------------------- --------------------------
(dollars in thousands) Shares Amount Shares Amount
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1993 ...... 143,122 $ 2,224 48,222 $ 350
Canceled ........................ (9,190) (166) (665) (4)
Granted ......................... 33,000 652 0 0
Became exercisable .............. 0 0 18,755 254
Stock dividend .................. 16,575 0 3,785 0
Exercised ....................... (40,341) (270) (40,341) (270)
----------- ----------- ----------- -----------
Balance, December 31, 1994 ...... 143,166 $ 2,440 29,756 $ 330
----------- ----------- ----------- -----------
Canceled ........................ (9,020) (131) (9,020) (131)
Granted ......................... 2,500 49 0 0
Became exercisable .............. 0 0 78,030 1,458
Stock dividend .................. 12,109 0 7,559 0
Exercised ....................... (20,278) (221) (20,278) (221)
----------- ----------- ----------- -----------
Balance, December 31, 1995 ...... 128,477 $ 2,137 86,047 $ 1,436
=========== =========== =========== ===========
Canceled ........................ (5,853) (102) (1,266) (20)
Granted ......................... 112,880 2,152 0 0
Became exercisable .............. 0 0 55,261 958
Stock dividend .................. 20,520 0 13,286 0
Exercised ....................... (36,697) (549) (36,697) (549)
----------- ----------- ----------- -----------
Balance, December 31, 1996 ...... 219,327 $ 3,638 116,631 $ 1,825
=========== =========== =========== ===========
</TABLE>
At December 31, 1996, the remaining stock options outstanding are at exercise
prices ranging from $10.24 to $24.62 per share. The options exercised during the
year ended December 31, 1996 were at prices from $7.37 to $19.09.
<PAGE> 65
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $1.75 and $2.12 on the date of grant using the Black Scholes
option-pricing model with the following assumptions: 1996 - expected dividend
yield of 2.9%, risk-free interest rate of 5.8%, volatility ratio of .024, and
expected life of 4.8 years: 1995 - expected dividend yield of 2.9%, risk-free
interest rate of 5.9%, volatility ratio .024, and expected life of 3.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's net income would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------
1996 1995
--------------- ---------------
<S> <C> <C>
Net earnings - As reported $ 7,425 $ 7,975
Pro forma 7,378 7,969
Earnings per share - As reported $ 1.65 $ 1.77
Pro forma 1.64 1.76
</TABLE>
Pro forma net earnings and earnings per share reflect only options granted in
1996 and 1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net earnings
and earnings per share amounts presented above because compensation cost is
reflected over the options vesting period of 2 years and proforma compensation
cost for options granted prior to January 1, 1995 is not considered.
In September 1993 Missoula Bancshares, Inc. granted 1,000 shares of common stock
to a senior officer to be issued on or after September 1998 at the election of
the officer, with vesting over the five year period. In conjunction with the
merger of Missoula Bancshares, Inc., the Company issued 14,930 shares which was
the vested portion of the 1,000 shares at the exchange ratio, and converted the
non-vested portion to options for 8,040 Company shares which will fully vest at
the end of September 1998. The related compensation expense, based on the fair
value of the common stock at the date of the grant, is being charged to expense
over the service period with a corresponding credit to paid-in capital.
<PAGE> 66
14 PARENT COMPANY INFORMATION (CONDENSED):
The following condensed financial information is the unconsolidated (Parent
Company Only) information for Glacier Bancorp, Inc, combined with Missoula
Bancshares Inc:
<TABLE>
<CAPTION>
Statements of Financial Condition December 31,
(dollars in thousands) ----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Assets:
Cash ................................................................... $ 1,407 674
Investments securities, available-for-sale, at market value ............ 1,742 1,698
Investments securities, held-to-maturity, at cost ...................... 97 100
Other assets ........................................................... 84 1,302
Goodwill, net .......................................................... 1,526 1,694
Investment in subsidiaries ............................................. 48,462 44,361
------------ ------------
$ 53,318 49,829
============ ============
Liabilities and Stockholders' Equity:
Dividends payable ...................................................... $ 725 488
Notes payable .......................................................... 0 1,500
Other liabilities ...................................................... 645 1,022
------------ ------------
Total liabilities .............................................. 1,370 3,010
------------ ------------
Common stock ........................................................... 46 42
Paid-in capital ........................................................ 34,571 26,938
Retained earnings ...................................................... 18,392 19,969
Treasury stock ......................................................... (1,066) (874)
Net unrealized gains on securities available-for-sale .................. 5 744
------------ ------------
Total stockholders' equity .................................... 51,948 46,819
------------ ------------
$ 53,318 49,829
============ ============
</TABLE>
<TABLE>
<CAPTION>
Statements of Operations Years ended December 31,
(dollars in thousands) --------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Dividends from subsidiaries ............................................ $ 3,893 4,259 2,650
Other income ........................................................... 266 61 60
Intercompany charges for services ...................................... 1,584 1,865 1,595
------------ ------------ ------------
Total revenues .................................................... 5,743 6,185 4,305
------------ ------------ ------------
Expenses
Employee compensation and benefits ..................................... 1,971 2,010 1,642
Goodwill amortization .................................................. 168 179 189
Other operating expenses ............................................... 989 650 531
------------ ------------ ------------
Total expenses .................................................... 3,128 2,839 2,362
------------ ------------ ------------
Earnings before income tax benefit and equity in undistributed
earnings of subsidiaries ......................................... 2,615 3,346 1,943
Income tax benefit ..................................................... (202) (264) (194)
------------ ------------ ------------
Income before equity in undistributed earnings of subsidiaries ......... 2,817 3,610 2,137
Equity in undistributed earnings of subsidiaries ....................... 4,608 4,365 4,752
------------ ------------ ------------
Net earnings .............................................................. $ 7,425 7,975 6,889
============ ============ ============
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
Statements of Cash Flows Years ended December 31,
(dollars in thousands) --------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net earnings ................................................................ $ 7,425 7,975 6,889
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Goodwill amortization ....................................................... 168 179 189
Gain on sale of investments available-for-sale .............................. (127) 0 0
Equity in undistributed earnings of subsidiaries ............................ (4,608) (4,365) (4,752)
Net increase (decrease) in other assets and other liabilities ............... 1,163 (82) (300)
------------ ------------ ------------
Net cash provided by operating activities ...................................... 4,021 3,707 2,026
------------ ------------ ------------
Investing activities
Purchases of investment securities available-for-sale ....................... (221) (1,198) (256)
Purchases of investment securities held-to-maturity ......................... 0 (100)
Proceeds from sales and maturities of securities available-for-sale ......... 198 0 0
Proceeds from maturities of securities held-to-maturity ..................... 3 0 0
Acquisition of minority interest ............................................ (114) (14) (55)
------------ ------------ ------------
Net cash used by investing activities .......................................... (134) (1,312) (311)
------------ ------------ ------------
Financing activities
Proceeds from exercise of stock options and other stock issued .............. 829 221 523
Treasury stock purchased .................................................... (192) (714) (160)
Principal reductions on notes payable ....................................... (1,500) (900) (600)
Cash dividends paid to stockholders ......................................... (2,291) (1,824) (1,642)
------------ ------------ ------------
Net cash used by financing activities .......................................... (3,154) (3,217) (1,879)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents ........................... 733 (822) (164)
Cash and cash equivalents at beginning of period ............................... 674 1,496 1,660
------------ ------------ ------------
Cash and cash equivalents at end of period ..................................... $ 1,407 674 1,496
============ ============ ============
</TABLE>
<PAGE> 68
15. UNAUDITED QUARTERLY FINANCIAL DATA:
Summarized unaudited quarterly financial data is as follows (in thousands except
per share amounts):
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
March 31, 1996 June 30, 1996 September 30, 1996 December 31, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest income ........................ $ 9,831 10,133 10,562 10,622
Interest expense ....................... 4,454 4,538 4,735 4,829
Net earnings ........................... 2,028 2,201 1,499 1,697
Earnings per share [1] ................. 0.45 0.49 0.33 0.38
Dividends per share [2] ................ 0.15 0.16 0.16 0.16
Market range high-low [1] .............. $20.45-$17.73 $22.38-$19.09 $25.25-$20.25 $25.25-$23.25
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
March 31, 1995 June 30, 1995 September 30, 1995 December 31, 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest income ........................ $ 8,599 8,915 9,542 9,796
Interest expense ....................... 3,607 3,820 4,264 4,378
Net earnings ........................... 1,810 1,939 2,114 2,112
Earnings per share [1] ................. 0.40 0.43 0.47 0.47
Dividends per share [2] ................ 0.13 0.14 0.14 0.15
Market range high-low [1] .............. $15.50-$13.64 $17.73-$14.87 $20.00-$16.14 $19.88-$16.82
</TABLE>
<TABLE>
<CAPTION>
Quarters Ended
---------------------------------------------------------------------------------
March 31, 1994 June 30, 1994 September 30, 1994 December 31, 1994
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Interest income ........................ $ 6,602 7,031 7,653 8,075
Interest expense ....................... 2,613 2,737 2,953 3,193
Net earnings ........................... 1,431 1,756 1,900 1,802
Earnings per share [1] ................. 0.32 0.39 0.42 0.40
Dividends per share [2] ................ 0.09 0.10 0.10 0.20[3]
Market range high-low [1] .............. $17.09-$14.65 $15.22-$13.15 $16.12-$14.25 $15.70-$13.43
</TABLE>
[1] Per share amounts adjusted to reflect effect of 10% Stock Dividend.
[2] Per share amounts adjusted to reflect effect of 10% Stock Dividend, not
adjusted for shares issued in merger.
[3] Extraordinary dividend was paid at $.10 per share.
<PAGE> 69
16. FAIR VALUE OF FINANCIAL INSTRUMENTS.
Financial instruments has been defined to generally mean cash or a contract that
implies an obligation to deliver cash or another financial instrument to another
entity. For purposes of the Company's Consolidated Statement of Financial
Condition, this includes the following items:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------- --------------------------
(dollars in thousands) Amount Fair Value Amount Fair Value
------------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Financial Assets:
Cash .................................................. $ 24,666 24,666 20,979 20,979
Interest bearing cash deposits ........................ 2,483 2,483 4,350 4,350
Investment securities ................................. 59,399 59,410 52,987 53,238
Mortgage-backed securities ............................ 46,106 46,076 37,868 37,888
Loans ................................................. 386,641 388,639 353,263 360,252
FHLB and Federal Reserve stock ........................ 8,926 8,926 7,635 7,635
Financial Liabilities:
Deposits .............................................. $ 321,739 322,033 291,585 291,720
Advances from the FHLB of Seattle ..................... 143,289 143,209 120,714 121,118
Repurchase agreements and other borrowed funds ........ 14,993 14,098 22,305 22,324
</TABLE>
Financial assets and financial liabilities other than securities are not traded
in active markets. The above estimates of fair value require subjective
judgments and are approximate. Changes in the following methodologies and
assumptions could significantly affect the estimates. These estimates may also
vary significantly from the amounts that could be realized in actual
transactions.
Financial Assets - The estimated fair value approximates the book value of cash
and interest bearing cash accounts. For securities, the fair value is based on
quoted market prices. The fair value of loans is estimated by discounting future
cash flows using current rates at which similar loans would be made. The fair
value of FHLB and Federal Reserve stock approximates the book value.
Financial Liabilities - The estimated fair value of demand and savings deposits
approximates the book value since rates are periodically adjusted to market
rates. Certificates of deposit fair value is estimated by discounting the future
cash flows using current rates for similar deposits. Repurchase agreements have
variable interest rates, or are short term, so fair value approximates book
value. Advances from the FHLB of Seattle fair value is estimated by discounting
future cash flows using current rates for advances with similar weighted average
maturities.
Off-balance sheet financial instruments - Commitments to extend credit and
letters of credit represent the principal categories of off-balance sheet
financial instruments. Rates for these commitments are set at time of loan
closing, so no adjustment is necessary to reflect these commitments at market
value. See Note 4 to consolidated financial statements.
<PAGE> 70
17. CONTINGENCIES:
The Company is a defendant in legal proceedings arising in the normal course of
business. In the opinion of management, the disposition of pending litigation
will not have a material effect on the Company's consolidated financial position
or results of operations.
<PAGE> 71
18. POOLING-OF-INTERESTS COMBINATION:
On December 31, 1996, the Company issued 1,145,599 shares of common stock in
exchange for all of the outstanding stock of Missoula Bancshares, Inc., parent
of First Security Bank of Missoula. This business combination has been accounted
for as a pooling-of-interests combination and, accordingly, the consolidated
financial statements for periods prior to the combination have been restated to
include the accounts and results of operations of Missoula Bancshares, Inc.
The results of operations previously reported by the separate companies and the
combined amounts presented in the accompanying consolidated financial statements
are summarized below.
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings:
Glacier Bancorp, Inc. $ 4,962 5,687 5,134
Missoula Bancshares, Inc. 2,463 2,288 1,755
----------- ----------- -----------
Combined $ 7,425 7,975 6,889
=========== =========== ===========
</TABLE>
There were no transactions between the companies prior to the combination.
<PAGE> 72
[KPMG PEAT MARWICK LLP LOGO]
Independent Auditors' Report
The Board of Directors and Stockholders
Glacier Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition
of Glacier Bancorp, Inc. and subsidiaries as of December 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. As audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Glacier Bancorp,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investments in debt and equity securities
on January 1, 1994 to adopt the provisions of the Financial Accounting
Standards Board's statement of Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Billings, Montana
January 31, 1997
<PAGE> 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Glacier Bancorp, Inc. (the "Company") is a Delaware corporation with four
financial institutions as subsidiaries, Glacier Bank, First National Bank of
Whitefish, First National Bank of Eureka, and the newly acquired First Security
Bank of Missoula. The merger of First Security Bank, completed on December 31,
1996, is accounted for using the "pooling of interests" method of accounting.
All financial information presented in this report includes the effect of First
Security Bank. The Company reported earnings of $7,425,000 for the year ended
December 31, 1996, or $1.65 per share, compared to $7,975,000, or $1.77 per
share, for the year ended December 31, 1995, and $6,889,000, or $1.53 per share
for the year ended December 31, 1994. During 1996 the FDIC SAIF fund was
recapitalized through one-time payments from thrift institutions. Glacier Bank's
after tax cost of this payment was $583,000, or $.13 per share. In addition
expenses related to the merger of First Security Bank were $563,000, or $.12 per
share. Operating earnings without the SAIF and merger expenses were $8,570,000,
or $1.90 per share, which are record earnings for the Company. This continued
improvement in net income can be attributed to an increase in earning assets,
management of net interest margin, and increased non-interest income. The
following narrative and charts focus on the significant financial changes which
have taken place over the past years and include a discussion of the Company's
financial condition, results of operations, and capital resources.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flows adequate to meet
current and future needs for credit demand, deposit withdrawals, maturing
liabilities and corporate operating expenses. This source of funds is generated
by deposits, principal and interest payments on loans, sales of loans and
securities, short and long term borrowings, and net income. In addition, all
four subsidiaries are members of the Federal Home Loan bank of Seattle. This
membership provides for established lines of credit in the form of advances
which serve as a supplemental source of funds for lending and other general
business purposes. During 1996, all four financial institutions maintained
liquidity at a level deemed sufficient to meet operating cash needs. The
liquidity was in excess of regulatory requirements.
Retention of a portion of Glacier Bancorp, Inc.'s earnings results in
stockholders' equity at December 31, 1996 of $51,948,000, or 9.5% of assets,
which compares with $46,819,000, or 9.5% of assets at December 31, 1995.
Earnings retention has kept pace with the large increase in assets, $52,928,000
or 10.7%, during 1996. The stockholders' equity ratio remains well above
required regulatory levels, and above the average of the Company's peers,
providing flexibility in the management of assets.
<PAGE> 74
FINANCIAL CONDITION
For the year ended December 31, 1996, consolidated assets increased $52,928,000,
or 107%, over the prior year The following table summarizes the Company's major
asset and liability components in percentage terms at December 31, 1996, 1995,
and 1994
<TABLE>
<CAPTION>
MAJOR BALANCE SHEET COMPONENTS AS A
PERCENTAGE OF TOTAL ASSETS
DECEMBER 31,
----------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
ASSETS:
Cash, Investments, and Mortgage-backed securities .................... 25.9% 25.1% 21.5%
Real Estate Loans .................................................... 36.4% 39.2% 44.5%
Commercial Loans ..................................................... 17.7% 16.7% 16.4%
Installment & Other Loans ............................................ 16.7% 15.8% 13.8%
Other Assets ......................................................... 3.3% 3.2% 3.8%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposit Accounts ..................................................... 59.0% 59.1% 60.8%
FHLB Advances ........................................................ 26.2% 24.5% 19.4%
Other Borrowings and Repurchase Agreements ........................... 2.7% 4.5% 8.3%
Other Liabilities .................................................... 2.6% 2.4% 2.1%
Stockholders' Equity ................................................. 9.5% 9.5% 9.4%
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Real estate loans continue to be the largest component of the Company's assets
Deposit accounts, with comparatively short terms to maturity, represent the
majority of the liabilities
EFFECT OF INFLATION AND CHANGING PRICES
Generally accepted accounting principles require the measurement of financial
position and operating results in terms of historical dollars, without
consideration for change in relative purchasing power over time due to inflation
Virtually all assets of a financial institution are monetary in nature,
therefore interest rates generally have a more significant impact on a company's
performance than does the effect of inflation
GAP ANALYSIS
The following table gives a description of our GAP position for various time
periods As of December 31, 1996, we had a positive GAP position at six months,
and a negative GAP position at twelve months The cumulative GAP as a percentage
of total assets for six months is a positive 17% which compares to a negative 7%
at December 31, 1995, and a positive GAP of 29% at December 31, 1994
The table also shows the GAP earnings sensitivity, and earnings sensitivity
ratio, along with a brief description as to how they are calculated The
traditional one dimensional view of GAP is no longer sufficient to show a bank's
ability to withstand interest rate changes Superior earnings power is also a key
factor in reducing exposure to higher interest rates For example, our GAP
earnings sensitivity ratio shows that a 1% change in interest rates would only
change income by 212% Because of our GAP position, the table illustrates how a
1% increase in rates would decrease the Company's income by approximately
$158,000 Using this analysis to join GAP information with earnings data, it
produces a better picture of our strength and ability to handle interest rate
change The methodology used to compile this GAP information is based on our mix
of assets and liabilities and the historical experience accumulated regarding
their rate sensitivity
<PAGE> 75
ESTIMATE OF RATE SENSITIVE ASSETS TO RATE SENSITIVE LIABILITIES GAP AND GAP
COVERAGE RATIOS AT DECEMBER 31, 1996:
<TABLE>
<CAPTION>
Projected maturity (in months) as of December 31, 1996
---------------------------------------------------------------
0-6 6-12 Over
(dollars in thousands) Months Months 12 Months Total
--------- ------- --------- -------
<S> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Interest Bearing Deposits ................................... $ 2,483 0 0 2,483
Investments and mortgage backed securities .................. 18,613 3,363 83,529 105,505
Loans (1):
Floating Rate .......................................... 129,192 1,963 0 131,155
Fixed Rate ............................................. 45,484 38,469 171,533 255,486
--------- ------- -------- -------
Total Rate Sensitive Assets ................................. $ 195,772 43,795 255,062 494,629
========= ======= ======== =======
RATE SENSITIVE LIABILITIES:
Deposit Accounts .......................................... 110,830 57,384 153,525 321,739
FHLB Advances ............................................. 60,520 22,100 60,669 143,289
Other Borrowings/Repurchase Agreements .................... 14,993 0 0 14,993
--------- ------- -------- -------
Total Rate Sensitive Liabilities ............................ $ 186,343 79,484 214,194 480,021
========= ======= ======== =======
Cumulative GAP .............................................. $ 9,429 (26,260)
========= =======
Cumulative GAP as a percentage of
total assets of $545,992,000 ............................ 1.73% -4.81%
========= =======
GAP Earnings Sensitivity (2) .......................................................... $ (158)
=======
GAP Earnings Sensitivity Ratio (3) ................................................... -2.12%
=======
</TABLE>
(1) Based on scheduled maturity or time before the loan can be repriced Loans
also reflect estimated amortization and prepayments
(2) GAP Earnings Sensitivity is the estimated effect on income after taxes at
40.00% of a 1% increase or decrease in interest rates (1% x ($26,260 less
tax of $10,504))
(3) GAP Earnings Sensitivity Ratio is GAP Earnings Sensitivity divided by the
estimated yearly earnings of $7,425,000. A 1% increase in interest rates
has this estimated percentage increase (decrease) effect on annual income.
<PAGE> 76
INTEREST RATE SPREAD
One way to protect against interest rate volatility is to maintain a comfortable
interest spread between yields on assets and the rates paid on interest bearing
liabilities. As shown below, our net interest margin decreased in 1996 from
4.90% to 4.67%, the result of higher interest rates on deposits and borrowings,
a greater percentage of assets funded with interest bearing liabilities, and
lower rates on earning assets. Although the interest spread, and net interest
margin are down from 1995, increased asset levels resulted in significantly
higher net interest income.
<TABLE>
<CAPTION>
December 31, [1]
-----------------------------
FOR THE YEAR ENDED: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Combined weighted average yield on loans and investments [2] ............. 8.51% 8.69% 8.01%
Combined weighted average rate paid on savings deposits and borrowings ... 4.42% 4.37% 3.66%
Net interest spread ...................................................... 4.09% 4.32% 4.35%
Net interest margin [3] .................................................. 4.67% 4.90% 4.88%
</TABLE>
[1] Weighted averages are computed without the effect of compounding daily
interest.
[2] Includes dividends received on capital stock of the Federal Home Loan
Bank.
[3] The net interest margin (net yield on average interest earning assets) is
interest income from loans and investments less interest expense from
deposits, FHLB advances, and other borrowings, divided by the total
amount of earning assets.
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
FINANCIAL CONDITION
Total assets increased $52,928,000, or 10.7% over the December 31, 1995 asset
level. Total net loans outstanding increased 9.4%, or $33,378,000 with the
largest increase occurring in the commercial classification which increased
$14,454,000, 16.9%, followed by installment loans which increased $13,384,000,
or 17.2%. Real estate loans increased $5,747,000 or 3% a result of a significant
portion of the loan production being sold. Investment securities increased
$14,650,000, or 16.1%, the result of a strategy to better utilize capital in
excess of loan growth requirements.
Total liabilities increased $47,799,000, or 10.7%, with interest bearing
deposits up $19,579,000, or 8.2%, and non-interest bearing deposits up
$10,575,000, or 19.7%. The largest increase in funding was from Federal Home
Loan Bank advances which increased $22,575,000, or 18.7%. Securities sold under
repurchase agreements and other borrowed funds were down $7,312,000, or 32.8%.
Funding sources are utilized based on the lowest cost available, which results
in changes from one accounting period to the next.
Total stockholders' equity increased $5,129,000, or 10.9%, primarily the result
of earnings retention, reduced by the change in the net unrealized gains on
securities available-for-sale of $739,000.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $41,148,000 compared to $36,852,000 for
the years ended December 31, 1996 and 1995, respectively, a $4,296,000, or 11.7%
increase. The weighted average yield on the loan and investment portfolios
decreased from 8.7% to 8.5%. This decrease in yield was offset by increased
volumes in loans and investments, resulting in the increased interest income.
Interest rates were higher at the end of 1996 than early in the year, with the
yield curve substantially steeper.
INTEREST EXPENSE - Interest expense was $18,556,000 for the year ended December
31, 1996, up from $16,069,000 in 1995, a $2,487,000, or 15.5% increase. The
increase is due to higher balances in interest bearing deposits and increased
rates over 1995, increased funding from the Federal Home Loan Bank; partially
offset by decreases in amounts outstanding in repurchase agreements and other
borrowed funds during 1996. Continued increases in interest rates could result
in higher interest expense in future periods.
NET INTEREST INCOME - Net interest income was $22,592,000 compared to
$20,783,000 in 1995, an increase of $1,809,000, or 8.7%, the net result of the
items discussed in the above paragraphs.
PROVISION FOR LOAN LOSSES - The provision for loan losses was $880,000 for 1996,
up from $581,000 for 1995, the result of higher loan balances outstanding and an
increase in loans charged off, net of recoveries, of $522,000. The allowance for
loan losses reserve balance is $3,284,000 at year end 1996, up from $3,077,000
at year end 1995, an increase of $207,000. At December 31, 1996, the
non-performing assets (non-accrual loans, accruing loans 90 days or more
overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and
repossessed personal property) totalled $1,607,000 or .29% of total assets;
compared to $563,000 or .11% of total assets at December 31, 1995.
<PAGE> 78
NON-INTEREST INCOME - Total non-interest income increased $747,000 from
$7,592,000 to $8,339,000, or 9.8%. The largest portion of the increase occurred
in service charges and other fees which were $589,000 over the prior year. The
number of customer accounts has increased substantially which has resulted in
the increased fee income.
NON-INTEREST EXPENSE - Total non-interest expense increased from $14,680,000 to
$17,536,000 an increase of $2,856,000, or 19.5%. Of this increase $947,000 was
for the FDIC SAIF insurance assessment, and $563,000 was for merger expenses,
leaving an increase from operations of $1,346,000. Compensation, employee
benefits, and related expenses increased $1,094,000, or 14.6% from 1995 the
result of the expansion of the Billings loan production office into a full
service branch, staffing of two new supermarket branches, expansion of banking
services to include Saturdays and some holidays, staffing of the new office by
First Security in Missoula, other growth related staffing additions, plus other
normal cost increases. Occupancy expense increased $159,000, or 10.4% from 1995
the result of adding the new branches, and other cost increases. Other expense
increased only 2% from 1995. The efficiency ratio (non-interest expense)/(net
interest income + non-interest income) was 57% in 1996, up from and 52% in 1995,
as compared with similar sized bank holding companies nationally which average
about 64%. Without the one-time charges for the SAIF assessment and merger
expenses, the efficiency ratio for 1996 would have remained at 52%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
FINANCIAL CONDITION
Total assets increased $67,397,000, or 15.8% over the December 31, 1994 asset
level. Total net loans outstanding increased 11.1%, or $35,361,000 with the
largest increase occurring in the consumer classification which increased
$18,976,000, or 32.2%, followed by commercial loans which increased $13,141,000,
or 18.1%. Mortgage loans increased only 2%; a result of a significant portion of
the loan production being sold. Investment securities increased $22,024,000, or
32.0%, the result of a strategy to better utilize capital in excess of loan
growth requirements.
Total liabilities increased $60,805,000, or 15.8%, with interest bearing
deposits up $27,723,000, or 13.2%, and non-interest bearing deposits up
$5,140,000, or 10.6%. The largest increase in funding was from Federal Home Loan
Bank advances which increased $38,173,000, or 46.2%. Securities sold under
repurchase agreements and other borrowed funds were down $13,827,000, or 38.3%.
Funding sources are utilized based on the lowest cost available, which results
in changes from one accounting period to the next.
Total stockholders' equity increased $6,961,000, or 17.5%, primarily the result
of earnings retention, and the adjustment for net unrealized gains on securities
available-for-sale of $1,262,000.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $36,582,000 compared to $29,361,000 for
the years ended December 31, 1995 and 1994, respectively, a $7,491,000, or 25.5%
increase. The weighted average yield on the loan and investment portfolios
increased from 8.01% to 8.69% for the year. This increase in yield, combined
with increased volumes in loans and investments, resulted in the increased
interest income.
INTEREST EXPENSE - Interest expense was $16,069,000 for the year ended December
31, 1995, up from $11,496,000 in 1994, a 39.8% increase. The increase is due to
higher balances in interest bearing deposits and increased rates over 1994,
increased funding from the Federal Home Loan Bank, and higher average amounts
outstanding in repurchase agreements during 1995.
NET INTEREST INCOME - Net interest income was $20,783,000 compared to
$17,865,000 in 1994, an increase of $2,918,000, or 16.3%, the net result of the
items discussed in the above paragraphs.
<PAGE> 79
PROVISION FOR LOAN LOSSES - The provision for loan losses was $581,000 for 1995,
up from $321,000 for 1994, the result of higher loan balances outstanding and an
increase of $147,000 in net loan losses. The allowance for loan losses reserve
balance is $3,077,000 at year end 1995, up from $2,647,000 at year end 1994, an
increase of $430,000. At December 31, 1995, the non-performing assets
(non-accrual loans, accruing loans 90 days or more overdue, real estate acquired
by foreclosure or deed-in-lieu thereof, and repossessed personal property)
totalled $563,000 or .11% of total assets; compared to $707,000 or .19% of total
assets at December 31, 1994.
NON-INTEREST INCOME - Total non-interest income increased $858,000 from
$6,734,000 to $7,592,000, or 12.7%. The largest portion of the increase occurred
in service charges and other fees which were $774,000 over the prior year. The
number of customer accounts has increased substantially which has resulted in
the increased fee income.
NON-INTEREST EXPENSE - Total non-interest expense increased from $12,922,000 to
$14,680,000 an increase of $1,758,000, or 13.6%. Compensation, employee
benefits, and related expenses increased 13.9% from 1994 the result of
establishing the full-service branch in Billings, full year operation of the
trust department, Saturday banking, and other normal increases. Occupancy
expense increased 23% from 1994 the result of adding the Billings branch,
leasing of additional space for the main office, and remodeling of other branch
offices. Other expense increased 14.7% from 1994 with advertising and
promotional expenses, pre-payment fees on higher rate FHLB advances, increased
amortization of premiums on subsidiary purchases, and other normal increases
resulting from account activity, making up the increase. The efficiency ratio
(non-interest expense)/(net interest income + non-interest income) was 52% in
1995, and 52% in 1994, as compared with similar sized bank holding companies
nationally which average about 65%.
<PAGE> 80
<TABLE>
<CAPTION>
Exhibit No. Exhibit Index
- ----------- -------------
<S> <C>
3 (a) Certificate of Incorporation (1)
3 (b) Bylaws (1)
4 Specimen stock certificate (1)
10 (a) 1989 Incentive Stock Option Plan (1)
10 (b) Employment Agreement dated March 27, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and John S. MacMillan.
10 (c) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Michael J. Blodnick.
10 (d) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Stephen J. VanHelden.
10 (e) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and Joan Holling.
10 (f) Employment Agreement dated August 31, 1996
between Glacier Bancorp, Inc., Glacier Bank FSB,
and James H. Strosahl.
10 (g) Employment Agreement between First Security Bank
and William L. Bouchee dated as of August 9,
1996. (2)
10 (h) 1994 Director Stock Option Plan (3)
10 (i) 1995 Employee Stock Option Plan (4)
10 (j) Deferred Compensation Plan (3)
10 (k) Supplemental Executive Retirement Agreement (3)
13 Annual Report to Stockholders for 1996
21 Subsidiaries of the Company - see Item 1,
"Subsidiaries."
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the identically numbered exhibit included in
the Company's Registration Statement on Form S-4 (No. 33-37025), declared
effective by the Securities and Exchange Commission on October 4, 1990.
(2) Incorporated by reference to Exhibit 10.2 of the Company's Registration
Statement on Form S-4 (No. 333-13595).
(3) Incorporated by reference to the exhibits 10(i), 10(k), and 10(h) included
in the Company's Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to Exhibit 99.1 of the Company's S-8
Registration Statement (No. 33-94648).
(b) No reports on Form 8-K were filed during the quarter ended December
31, 1996.
(c) See Item 14(a) (3) above for all exhibits filed herewith and the
Exhibit Index.
<PAGE> 1
EXHIBIT 10(b)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 27th day of March, 1996, between
Glacier Bancorp, Inc., a corporation incorporated under the laws of the State of
Delaware ("Company"), Glacier Bank FSB, a National corporation and a wholly
owned subsidiary of the Company ("Bank") (collectively, the "Employers"), and
John S. MacMillan ("Executive").
RECITALS
A. The Executive presently is the president, Chief Executive Officer
and Chairman of the Bank and of the Company.
B. The parties desire to define and set forth the current duties and
responsibilities of the Executive in all his capacities with the Company, its
subsidiaries and the Bank, provide for contract renewals, and to further induce
the Executive to continue active participation in the business of the Employers.
NOW THEREFORE, in consideration of the mutual agreements herein
contained and for other valuable consideration, the parties agree as follows:
1. Employment. The Employers herein employ the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties.
(a) The Executive is employed as President/Chief Executive Officer
and Chairman of the Bank and of the Company and his duties and
responsibilities in those capacities are those as set forth in
the document hereto annexed, entitled "President-CEO-Chairman"
and by reference made part of this agreement.
(b) During the term of employment under this agreement, Executive
will apply on a full time basis (allowing for usual vacations
and sick leave) all of his skill and experience to the
performance of his duties in this employment. The Executive
may have other business investments and participate in other
business ventures, provided such activities shall not
interfere or be inconsistent with his duties hereunder.
3. Basic Compensation. For all services rendered by the Executive under
this agreement, the Employer shall pay the Executive a base salary of
$180,000.00 per year.
4. Term. This agreement shall terminate March 27, 1997, the anniversary
date; provided however, on that anniversary date and each anniversary
thereafter the Boards of Directors of the Employers shall consider,
with appropriate corporate documentation thereof, and after taking into
account all relevant factors including Executive's performance
hereunder, renewal of the term of employment under this agreement for
an additional one year and the term of agreement shall be renewed,
unless either the Boards of Directors of the Employers do not approve
such renewal and provide written notice to the Executive of such event,
or the Executive gives written notice to the Employers not less than
thirty (30) days prior to any such anniversary date of the
- 1 -
<PAGE> 2
Executive's election not to extend the term beyond its then scheduled
expiration date.
5. Covenant not to Compete.
(a) During the term of Executive's employment and for one year
after the termination of such employment, if such employment
is terminated by Employers for cause (as defined under Section
12(b)), or by the Executive (except pursuant to the provisions
of Section 6 following a change in control), Executive will
not, without the prior written approval of the Boards of
Directors of Employers, become an officer, employee, agent,
partner or director of any business enterprise in substantial
direct competition with Employers or any subsidiary of
Employers as the business of Employers or their subsidiaries
may be constituted during the term of Executive's employment
or at the termination thereof.
(b) For the purpose of this paragraph, business enterprise with
which Executive becomes associated as an officer, employee,
agent, partner or director shall be considered in "substantial
direct competition", if such enterprise is a bank, savings and
loan association, credit union or other equivalent financial
institution operating or maintaining an office or branch in
Flathead or Lake or Lincoln or Glacier or Yellowstone
Counties, Montana.
6. Benefits Upon Termination. If the Executive's employment is terminated
subsequent to a Change in Control of the Company by (i) either of the
Employers other than for Cause, Disability, Retirement or as a result
of the Executive's death or (ii) by the Executive for any reason, then
the Employers shall, subject to the provisions of Section 7 hereof, if
applicable:
(a) pay to the Executive, in thirty-six (36) equal monthly
installments beginning with the first day of the month
following the Date of Termination, a cash amount equal to the
product determined by multiplying (i) the Executive's Annual
Compensation by (ii) the lesser of (A) the difference between
the number 65 and the Executive's age in years and fractions
thereof on the Date of Termination, and (B) the number 2.99;
and
(b) maintain and provide for a period ending at the earlier of (i)
three (3) years after the Date of Termination or (ii) the date
of the Executive's full-time employment by another employer
(provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the
Executive, the Executive's continued participation in all
group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than the Employers' Pension Plan, Profit sharing Plan
and any other retirement plan of the Employers), provided that
in the event that the Executive's participation in any plan,
program or arrangement as provided in subparagraph (b) above
is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the
Executive with benefits substantially similar to those which
the Executive was entitled to receive under such plans,
programs and arrangements immediately prior to the Date of
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<PAGE> 3
Termination.
7. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 6 hereof, either alone or together with
other payments and benefits which Executive has the right to receive
from Employers, would constitute a "parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended ("Code"),
Executive may request that the payments and benefits pursuant to
Section 6 hereof shall be reduced, in the manner determined by the
Executive.
8. Mitigation: Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or
otherwise, nor shall the amount of any such benefits be
reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of
Termination or otherwise except as specifically provided in
Section 6(b).
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the
Executive upon a termination of employment with Employers
pursuant to employee benefit plans of the Employers or
otherwise.
9. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
10. Assignability. The Employers may assign this Agreement and their rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Employers may hereafter merge
or consolidate or to which either of the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or
expressly in writing assume all obligations of the Employers hereunder
as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
11. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than
a terminable at will employment relationship between the
Employers and the Executive, and the Employers may terminate
the Executive's employment at any time, subject to providing
any payments specified herein in accordance with the terms
hereof.
(b) Nothing contained herein shall create or require the Employers
to create a trust of any kind to fund any benefits which may
be payable hereunder, and to the extent that the Executive
acquires a right to receive benefits from the Employers
hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Employers.
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<PAGE> 4
12. Definitions. For the purposes of this agreement the following words and
terms shall have the following meanings:
(a) Annual Compensation. The Executive's "Annual Compensation"
shall be deemed to mean the highest level of compensation paid
to the Executive by the Employers or any subsidiary thereof
during any of the three calendar years ending during the
calendar year in which the Date of Termination occurs,
including base salary and bonuses under any employee benefit
plans of the Employers.
(b) Cause. Termination by the Employers of the Executive's
employment for "Cause" shall mean termination because of
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any
law, rule or regulation other than traffic violations or
similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of
this paragraph, no act or failure to act on the Executive's
part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was
in the best interest of the Employers.
(c) Change in Control of the Company. "Change in Control of the
Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")
or any successor thereto; provided that, without limitation,
such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in section 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of
Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for
Disability, the date specified in the Notice of Termination,
and (ii) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(e) Disability. Termination by the Employers of the executive's
employment based on "Disability" shall mean termination
because of the Executive's failure to perform the normal and
usual duties of his employment with the Employers for one
hundred and thirty (130) consecutive business days as a result
of the Executive's incapacity due to physical or mental
illness.
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<PAGE> 5
(f) Notice of Termination. Any purported termination by the
employers for Cause, Disability or Retirement or by the
Executive for any reason shall be communicated by written
"Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated.
(g) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary
termination by the Executive in accordance with the Employers'
retirement policies, including early retirement, generally
applicable to their salaried employees.
13. Regulatory Actions. The following provisions shall be applicable to the
parties only to the extent that they are deemed to be required to be
included in severance agreements between a savings association and its
employees pursuant to Section 563.39(b) of the Regulations Applicable
to all Savings Associations, 12 C.F.R. Section 563.39(b), or any
successor thereto, and under such circumstances shall be deemed to be
controlling in the event of a conflict with any other provision of this
Agreement, including without limitation Section 3 hereof.
(a) If Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of
the Bank's affairs pursuant to notice served under Section
8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIC") 12 U.S.C. Section 1818(e)(3) and Section
1818(g)(1), the Bank's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are
dismissed, the Bank may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(b) If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section S(e)(4) or Section
8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested
rights of Executive and the Bank as of the date of termination
shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but
vested rights of Executive and the Bank as of the date of
termination shall not be affected.
(d) All obligations under this Agreement shall be terminated
pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the
extent that it is determined that continuation of the
Agreement for the continued operation of the Bank is
necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") or Resolution
Trust Corporation enters into an agreement to provide
assistance to or on behalf of the
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<PAGE> 6
Bank under the authority contained in Section 13(3) of the
FDIC (12 U.S.C. Section 1823(c)); or (ii) by the Director of
the OTS, or his/her designee, at the time the Director of
his/her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is
determined by the Director of the OTS to be in an unsafe or
unsound condition, but vested rights of Executive and the Bank
as of the date of termination shall not be affected.
14. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Company and the Bank
hereunder shall be suspended in the event that the FDIC prohibits or
limits, by regulation or order, any payment hereunder pursuant to
Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:
To the Employers: Glacier Bancorp, Inc.
202 Main Street
Kalispell, Montana 59901-4454
Attention: Michael J. Blodnick
To the Executive: John S. MacMillan
540-6th Avenue East
Kalispell, Montana 59901
16. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors
of the Employers to sign on their behalf. No waiver by any party hereto
at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
17. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Montana.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and
effect.
19. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement this 27th
day of March, 1996, signed by the officers of the Employers as authorized and
designed by the Boards of Directors.
Attest: GLACIER BANCORP, INC.
/s/ Joan L. Holling By:/s/ Michael J. Blodnick
- ----------------------- ------------------------------
Joan L. Holling Michael J. Blodnick
Assistant Secretary Executive Vice-President
Attest: GLACIER BANK, FSB
/s/ Joan L. Holling By:/s/ Michael J. Blodnick
- ----------------------- ------------------------------
Joan L. Holling Michael J. Blodnick
Assistant Secretary Executive Vice-President
/s/ John S. MacMillan
-------------------------------
John S. MacMillan
Witness:
-----------------------------------
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<PAGE> 8
PRESIDENT/CEO/CHAIRMAN
As President, 1. Oversee the operations of Glacier Bancorp, Inc. and
Glacier Bank FSB to accomplish the goals set at our annual planning
session in a concise and efficient manner. 2. Have Glacier Bancorp, Inc.
and Glacier Bank place in the top quartile in:
a) Peer group
b) A return on assets of 1%
c) A 15% return on equity.
As Chairman, report directly to the Board of Directors, the Bank and Holding
Company's highest authority. The Board directs the activities of the Bank
determining the strategic objectives and the source of all its policies.
Specific responsibilities of the board include (1) selection and supervision of
the President. 2. Establish strategic objectives and long-term goals, 3.
Determine Bank policies, 4. Provide overall direction for the Bank, 5. Monitor
short-term plans and budgets, 6. Monitor Bank performance and 7. Spokesman for
Glacier Bancorp and Glacier Bank.
RESPONSIBLE TO PRICE LOANS TO MAXIMIZE GROSS INCOME AND BE COMPETITIVE IN MARKET
AREAS.
Performance Standards:
1. The net interest margin is in the top quartile on the FHLB
12th District peer group comparison with all Montana Savings
and Loans and 12th District 250-500 sized thrifts/banks.
2. The commercial loan officer is directed to originate
profitable loans and the real estate and consumer loan
departments are directed to increase quality loan volume.
RESPONSIBLE FOR SUPERVISION OF LIABILITY MANAGEMENT.
Performance Standards:
1. Through supervising liability manager, the price of savings
and checking maintains a deposit base with a 5-10% growth and
is priced to be in the median to low quartile peer group.
2. Glacier Bank is in the lowest quartile of FHLB 12th District
peer group comparison with all Montana S&L's and $200-300
million sized thrifts.
3. Oversees liquidity investment portfolio management to maximize
yield and protect principal with concern in matching assets
and liabilities.
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<PAGE> 9
RESPONSIBLE FOR NON-INTEREST INCOME
Performance Standards:
1. Non-interest income is increased over the previous year.
2. Bank is in highest quartile in non-interest income.
RESPONSIBLE FOR SUPERVISION OF ALL MANAGERS.
Performance Standards:
1. All business and regulations are kept current and are
communicated to managers and staff within one week of receipt
of regulation.
2. A branch managers' meeting is conducted once a quarter.
3. Sets performance standards for management employees and
conducts a performance evaluation of senior officers,
department heads and branch managers annually.
4. Makes hiring or promotion decisions at management level.
RESPONSIBLE FOR MEANINGFUL MANAGEMENT REPORTS.
Performance Standards:
1. In supervising the Chief Financial Officer, the following
reporting is accomplished: a) Asset-Liability report
quarterly; b) More accurate computation of net interest spread
daily weighted average; c) 10-K's and 10'Q's are prepared and
sent out during regulation time frame.
2. Monthly operations summary is out the Friday before Board
meeting.
RESPONSIBLE FOR STOCKHOLDER RELATIONS.
Performance Standards:
1. Preparation of quarterly reporting is done on time. Annual
report is audited to report to public within 35 days of fiscal
year end. Proxy and Annual report is completed 25 days before
annual meeting.
2. Information is always current to answer any stockholders
questions.
3. Meet with security analysts from time to time and discuss
financials.
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<PAGE> 10
4. Stock information is coordinated with stock transfer agent.
5. News releases are given out within 24 hours of decisions
RESPONSIBLE FOR THE ADMINISTRATION AND SERVING AS TRUSTEE OF PROFIT SHARING AND
PENSION PLANS.
Performance Standards:
1. Administration committee meets quarterly regarding
investments.
2. Reviews investment and trustee service reports quarterly and
annually. The trustee service agents are supplied with
information as needed.
3. New regulations, as required and provided by plans' trustee,
are reviewed and put in place.
RESPONSIBLE TO BOARD OF DIRECTORS FOR PLANNING AND IMPLEMENTING BOARD
OBJECTIVES AND GOALS.
Performance Standards:
1. Analyzes and directs new projects i.e. acquisitions/ mergers;
assigns responsibilities and tasks to appropriate personnel.
2. Attends workshops/conferences regarding our industry, evaluate
Glacier Bancorp, Inc. and Glacier Bank's standing in industry,
and provides updated information to Board of Directors for
planning.
3. Subscribes to informational material to assist in forecasting
and monitoring, i.e. Sheshunoff.
RESPONSIBLE FOR PLANNING
Performance standards:
1. Coordinate the development of long-range and short-range goals
with the Board of Directors and senior management in January
each year.
2. Coordinates and approves the administration of all major bank
policies and procedures.
3. Review and approve all major physical plant additions or
alterations within the system.
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<PAGE> 11
RESPONSIBLE FOR INITIATING, DIRECTING AND DEVELOPING STRATEGIES FOR EXTERNAL
GROWTH POTENTIAL IN ACQUISITION/BRANCHING ACTIVITIES.
Performance standards:
1. Initiates strategies and reports on timely basis.
2. Uses established external relationships for assistance.
3. Arranges meeting with appropriate participants.
RESPONSIBLE FOR MANAGEMENT SUCCESSION
Performance standards:
1. Assure the selections and development of the Bank's senior
management.
2. Provide salary administration, management incentive,
department performance objectives, to insure team efforts
toward the attainment of Bank, Branch, and department goals.
RESPONSIBLE FOR COMMUNICATIONS THROUGHOUT BANK SYSTEM
Performance standards:
1. Provides leadership to Board of Directors and is liaison
between the Board and Management team in disseminating
information, establishing objectives and in appraising results
of activities of the Bank.
2. Assures that any changes in objectives, policies and plans are
effectively explained to operating personnel by means of
memos, letters, or staffing meetings.
3. Encourages free interchange of operational and personnel
information, opinions, ideas and recommendations.
RESPONSIBLE FOR MAINTAINING EXTERNAL RELATIONSHIP WITH FEDERAL, STATE, AND LOCAL
GOVERNMENTS AND WITH CUSTOMERS.
Performance standards:
1. Stays abreast of governmental issues or regulations in order
to have input in the area affecting the financial industry.
4
<PAGE> 12
RESPONSIBLE FOR REPRESENTING BANK AND PROVIDING LEADERSHIP IN KEY
COMMUNITY ACTIVITIES MAINTAINING A PROPER RESPONSIBLE CITIZEN STATURE
FOR THE BANK.
Performance standards:
1. Is involved in the development and growth of the community
through local committees.
2. Is available for committee work or directorship of civic,
social, or charitable organizations.
3. Encourages other Glacier Bancorp and Glacier Bank employees to
belong to organizations whereby appropriate networking is an
opportunity for Glacier Bancorp and Glacier Bank's growth or
goodwill.
RESPONSIBLE FOR SAFETY AND SOUNDNESS AND COMPLIANCE OF GLACIER BANCORP,
INC. AND GLACIER BANK
Performance standards:
1. Conduct assignments through internal auditor and compliance
officers, to staff members responsible for providing
information as requested by the OTS.
2. Assures internal auditor conducts routine compliance meetings.
3. Assigns specific task force committees to assure new
compliance issues such as "fair lending" are implemented.
4. Provide information and oversee policies with regards to
conflict of interest between outside business affiliations and
officers, directors and major stockholders.
5. Assures the bank(s) has a current code of ethics, insider
trading and reviews it with the Board and staff in April of
each year.
5
<PAGE> 1
Exhibit 10(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 31st day of August, 1996,
between Glacier Bancorp, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), Glacier Bank FSB, a National corporation and a
wholly owned subsidiary of the Company ("Bank") (collectively, the "Employers"),
and MICHAEL J. BLODNICK ("Executive").
RECITALS
A. The Executive presently is acting as the Executive Vice
President/Secretary of the Bank and of the Company.
B. The parties desire to define and set forth the current duties and
responsibilities of the Executive in all his capacities with the Company, its
subsidiaries and the Bank, provide for contract renewals, and to further induce
the Executive to continue active participation in the business of the Employers.
NOW THEREFORE, in consideration of the mutual agreements herein
contained and for other valuable consideration, the parties agree as follows:
1. Employment. The Employers herein employ the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties.
(a) The Executive is employed as Executive Vice
President/Secretary of the Bank and of the Company and his
duties and responsibilities in those capacities are those as
set forth in the document hereto annexed, entitled "Chief
Operations Officer " and by reference made part of this
agreement.
(b) During the term of employment under this agreement, Executive
will apply on a full time basis (allowing for usual vacations
and sick leave) all of his skill and experience to the
performance of his duties in this employment. The Executive
may have other business investments and participate in other
business ventures, provided such activities shall not
interfere or be inconsistent with his duties hereunder.
3. Basic Compensation. For all services rendered by the Executive under
this agreement, the Employer shall pay the Executive a base salary of
$150,000 per year.
4. Term. This agreement shall terminate August 31, 1997, the anniversary
date; provided however, on that anniversary date and each anniversary
thereafter the Boards of Directors of the Employers shall consider,
with appropriate corporate documentation thereof, and after taking into
account all relevant factors including Executive's performance
hereunder, renewal of the term of employment under this agreement for
an additional one year and the term of agreement shall be renewed,
unless either the Boards of Directors of the Employers do not approve
such renewal and provide written notice to the Executive of such event,
or the Executive gives written notice to the Employers not less than
thirty (30) days prior to any such anniversary date of the Executive's
election not to extend the term beyond its then scheduled expiration
date.
5. Covenant not to Compete.
(a) During the term of Executive's employment and for one year
after the termination of such employment, if such employment
is terminated by Employers for cause (as defined under Section
12(b)), or by the Executive (except pursuant to the
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<PAGE> 2
provisions of Section 6 following a change in control),
Executive will not, without the prior written approval of the
Boards of Directors of Employers, become an officer, employee,
agent, partner or director of any business enterprise in
substantial direct competition with Employers or any
subsidiary of Employers as the business of Employers or their
subsidiaries may be constituted during the term of Executive's
employment or at the termination thereof.
(b) For the purpose of this paragraph, business enterprise with
which Executive becomes associated as an officer, employee,
agent, partner or director shall be considered in "substantial
direct competition", if such enterprise is a bank, savings and
loan association, credit union or other equivalent financial
institution operating or maintaining an office or branch in
Flathead or Lake or Lincoln or Glacier or Yellowstone
Counties, Montana.
6. Benefits Upon Termination. If the Executive's employment is terminated
subsequent to a Change in Control of the Company by (i) either of the
Employers other than for Cause, Disability, Retirement or as a result
of the Executive's death or (ii) by the Executive for any reason, then
the Employers shall, subject to the provisions of Section 7 hereof, if
applicable:
(a) pay to the Executive, in thirty-six (36) equal monthly
installments beginning with the first day of the month
following the Date of Termination, a cash amount equal to the
product determined by multiplying (i) the Executive's Annual
Compensation by (ii) the lesser of (A) the difference between
the number 65 and the Executive's age in years and fractions
thereof on the Date of Termination, and (B) the number 2.99;
and
(b) maintain and provide for a period ending at the earlier of (i)
three (3) years after the Date of Termination or (ii) the date
of the Executive's full-time employment by another employer
(provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the
Executive, the Executive's continued participation in all
group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than the Employers' Pension Plan, Profit sharing Plan
and any other retirement plan of the Employers), provided that
in the event that the Executive's participation in any plan,
program or arrangement as provided in subparagraph (b) above
is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the
Executive with benefits
substantially similar to those which the Executive was
entitled to receive under such plans, programs and
arrangements immediately prior to the Date of Termination.
7. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 6 hereof, either alone or together with
other payments and benefits which Executive has the right to receive
from Employers, would constitute a "parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended ("Code"),
Executive may request that the payments and benefits pursuant to
Section 6 hereof shall be reduced, in the manner determined by the
Executive.
8. Mitigation: Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or
otherwise, nor shall the amount of any such benefits be
reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of
Termination or
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<PAGE> 3
otherwise except as specifically provided in Section 6(b).
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the
Executive upon a termination of employment with Employers
pursuant to employee benefit plans of the Employers or
otherwise.
9. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
10. Assignability. The Employers may assign this Agreement and their rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Employers may hereafter merge
or consolidate or to which either of the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or
expressly in writing assume all obligations of the Employers hereunder
as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
11. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than
a terminable at will employment relationship between the
Employers and the Executive, and the Employers may terminate
the Executive's employment at any time, subject to providing
any payments specified herein in accordance with the terms
hereof.
(b) Nothing contained herein shall create or require the Employers
to create a trust of any kind to fund any benefits which may
be payable hereunder, and to the extent that the Executive
acquires a right to receive benefits from the Employers
hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Employers.
12. Definitions. For the purposes of this agreement the following words and
terms shall have the following meanings:
(a) Annual Compensation. The Executive's "Annual Compensation"
shall be deemed to mean the highest level of compensation paid
to the Executive by the Employers or any subsidiary thereof
during any of the three calendar years ending during the
calendar year in which the Date of Termination occurs,
including base salary and bonuses under any employee benefit
plans of the Employers.
(b) Cause. Termination by the Employers of the Executive's
employment for "Cause" shall mean termination because of
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any
law, rule or regulation other than traffic violations or
similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of
this paragraph, no act or failure to act on the Executive's
part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was
in the best interest of the Employers.
(c) Change in Control of the Company. "Change in Control of the
Company" shall mean a change in control of a nature that would
be required to be reported in
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<PAGE> 4
response to Item 5(f) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as
amended ("Exchange Act") or any successor thereto; provided
that, without limitation, such a change in control shall be
deemed to have occurred if (i) any "person" (as such term is
used in section 13(d) and 14(d) of the Exchange Act) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of
the company representing 25% or more of the combined voting
power of the Company's then outstanding securities; or (ii)
during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors
of Company cease for any reason to constitute at least a
majority thereof unless the election, or the nomination for
election by stockholders, of each new director was approved by
a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of the period.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for
Disability, the date specified in the Notice of Termination,
and (ii) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(e) Disability. Termination by the Employers of the executive's
employment based on "Disability" shall mean termination
because of the Executive's failure to perform the normal and
usual duties of his employment with the Employers for
one hundred and thirty (130) consecutive business days as a
result of the Executive's incapacity due to physical or mental
illness.
(f) Notice of Termination. Any purported termination by the
employers for Cause, Disability or Retirement or by the
Executive for any reason shall be communicated by written
"Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated.
(g) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary
termination by the Executive in accordance with the Employers'
retirement policies, including early retirement, generally
applicable to their salaried employees.
13. Regulatory Actions. The following provisions shall be applicable to the
parties only to the extent that they are deemed to be required to be
included in severance agreements between a savings association and its
employees pursuant to Section 563.39(b) of the Regulations Applicable
to all Savings Associations, 12 C.F.R. Section 563.39(b), or any
successor thereto, and under such circumstances shall be deemed to be
controlling in the event of a conflict with any other provision of this
Agreement, including without limitation Section 3 hereof.
(a) If Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of
the Bank's affairs pursuant to notice served under Section
8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIC") 12 U.S.C. Section 1818(e)(3) and Section
1818(g)(1), the Bank's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are
dismissed, the Bank may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
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<PAGE> 5
(b) If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section S(e)(4) or Section
8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested
rights of Executive and the Bank as of the date of termination
shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but
vested rights of Executive and the Bank as of the date of
termination shall not be affected.
(d) All obligations under this Agreement shall be terminated
pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the
extent that it is determined that continuation of the
Agreement for the continued operation of the Bank is
necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") or Resolution
Trust Corporation enters into an agreement to provide
assistance to or on behalf of the Bank under the authority
contained in Section 13(3) of the FDIC (12 U.S.C. Section
1823(c)); or (ii) by the Director of the OTS, or his/her
designee, at the time the Director of his/her designee
approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition,
but vested rights of Executive and the Bank as of the date of
termination shall not be affected.
14. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Company and the Bank
hereunder shall be suspended in the event that the FDIC prohibits or
limits, by regulation or order, any payment hereunder pursuant to
Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:
To the Employers: Glacier Bancorp, Inc.
202 Main Street
Kalispell, Montana 59901-4454
Attention: John S. MacMillan, President
To the Executive: Michael J. Blodnick
475 Third Avenue, East North
Kalispell, Montana 59901
16. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors
of the Employers to sign on their behalf. No waiver by any party hereto
at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
17. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Montana.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not
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<PAGE> 6
affect the validity or enforceability of any other provisions of this
Agreement, which shall remain in full force and effect.
19. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement this 31st
day of August, 1996, signed by the officers of the Employers as authorized and
designed by the Boards of Directors.
Attest: GLACIER BANCORP, INC.:
/s/ Joan L. Holling By: /s/ John S. MacMillan
- ----------------------- -------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive Officer
Attest: GLACIER BANK, FSB:
/s/ Joan L. Holling By: /s/ John S. MacMillan
- ----------------------- -------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive Officer
Witness: EXECUTIVE:
/s/ Michael J. Blodnick
- ----------------------- -------------------------------
MICHAEL J. BLODNICK
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<PAGE> 7
CHIEF OPERATING OFFICER
Reports directly to President
Key Result Area: Responsible for Investments for Glacier Bancorp, Inc.
Performance Standards:
1. Coordinate all investment decisions with President.
2. Acquire interest rates by not later than 9:00 a.m. every
morning.
3. Establish with President all investment policies and
procedures and report to Board monthly all changes.
4. Set up finance committee meeting no less than once every
months to review investment policies.
5. Invest short-term liquidity to maximize return.
6. Invest the public funds to match maturities and low risk
401(k) Plan.
7. Secretary to the Asset-Liability Committee charged with
setting up monthly meetings.
Key Result Area: Responsible for Savings and Checking
Performance Standards:
1. Establish and control all policies and procedures for both
departments.
2. Establish interest rates for Glacier Bank by no later than
4:00 every Wednesday and establish rates for jumbo CDs daily.
Coordinate with President. Keep cost of funds within the
goals set by the Bank.
3. Responsible for development and implementation of all new
products and services for Glacier Bank and Glacier Bancorp.
4. Review and evaluate department head.
Key Result Area: Responsible for Marketing and Public Relations for Glacier
Bancorp, Inc.
Performance Standards:
1. Meet monthly with ad agency to approve all advertising and
review all expenses.
2. Control banks' advertising budget and make sure budget is
maintained.
3. Meet no less than once a week with ad agency to discuss
current projects and promotions.
4. Coordinate with ad agency and department heads/bank presidents
all marketing that is needed.
<PAGE> 8
Key Result Area: Responsible for Operations for Glacier Bancorp, Inc.
Performance Standards:
1. Responsible for all bank policies and procedures that pertain
to day-to-day operations.
2. Report to Board monthly on new systems and major expense
requests for bank.
3. Make sure operation costs increase no more than the limits
established by the Board of Directors.
4. Control of all major purchases and require Board approval of
all items over $1,000.00.
5. Keep current and incorporate all new procedures which will
profit the banks.
6. Control cash management for the banks and analyze the entire
cash requirements for each office weekly.
Key Result Area: Responsible for Reporting Responsibilities
Performance Standards:
1. Report to President no later than 10th of the month all
savings and check results for the previous month.
Key Result Area: Responsible for ATM Network for Glacier Bancorp, Inc.
Performance Standards:
1. Establish and control all policies and procedures regarding
the Network.
2. Design and implement all new machines added to system.
3. Responsible for establishing and promoting card base.
<PAGE> 1
Exhibit 10(d)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 31st day of August, 1996,
between Glacier Bancorp, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), Glacier Bank FSB, a National corporation and a
wholly owned subsidiary of the Company ("Bank") (collectively, the "Employers"),
and STEPHEN J. VAN HELDEN ("Executive").
RECITALS
A. The Executive presently is the Senior Vice President/Treasurer of
the Bank and of the Company.
B. The parties desire to define and set forth the current duties and
responsibilities of the Executive in all his capacities with the Company, its
subsidiaries and the Bank, provide for contract renewals, and to further induce
the Executive to continue active participation in the business of the Employers.
NOW THEREFORE, in consideration of the mutual agreements herein
contained and for other valuable consideration, the parties agree as follows:
1. Employment. The Employers herein employ the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties.
(a) The Executive is employed as Senior Vice President/Treasurer
of the Bank and of the Company and his duties and
responsibilities in those capacities are those as set forth in
the document hereto annexed, entitled "Mortgage and Commercial
Real Estate Loan Manager " and by reference made part of this
agreement.
(b) During the term of employment under this agreement, Executive
will apply on a full time basis (allowing for usual vacations
and sick leave) all of his skill and experience to the
performance of his duties in this employment. The Executive
may have other business investments and participate in other
business ventures, provided such activities shall not
interfere or be inconsistent with his duties hereunder.
3. Basic Compensation. For all services rendered by the Executive under
this agreement, the Employer shall pay the Executive a base salary of
$77,472 per year.
4. Term. This agreement shall terminate August 31, 1997, the anniversary
date; provided however, on that anniversary date and each anniversary
thereafter the Boards of Directors of the Employers shall consider,
with appropriate corporate documentation thereof, and after taking into
account all relevant factors including Executive's performance
hereunder, renewal of the term of employment under this agreement for
an additional one year and the term of agreement shall be renewed,
unless either the Boards of Directors of the Employers do not approve
such renewal and provide written notice to the Executive of such event,
or the Executive gives written notice to the
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<PAGE> 2
Employers not less than thirty (30) days prior to any such anniversary
date of the Executive's election not to extend the term beyond its then
scheduled expiration date.
5. Covenant not to Compete.
(a) During the term of Executive's employment and for one year
after the termination of such employment, if such employment
is terminated by Employers for cause (as defined under Section
12(b)), or by the Executive (except pursuant to the provisions
of Section 6 following a change in control), Executive will
not, without the prior written approval of the Boards of
Directors of Employers, become an officer, employee, agent,
partner or director of any business enterprise in substantial
direct competition with Employers or any subsidiary of
Employers as the business of Employers or their subsidiaries
may be constituted during the term of Executive's employment
or at the termination thereof.
(b) For the purpose of this paragraph, business enterprise with
which Executive becomes associated as an officer, employee,
agent, partner or director shall be considered in "substantial
direct competition", if such enterprise is a bank, savings and
loan association, credit union or other equivalent financial
institution operating or maintaining an office or branch in
Flathead or Lake or Lincoln or Glacier or Yellowstone
Counties, Montana.
6. Benefits Upon Termination. If the Executive's employment is terminated
subsequent to a Change in Control of the Company by (i) either of the
Employers other than for Cause, Disability, Retirement or as a result
of the Executive's death or (ii) by the Executive for any reason, then
the Employers shall, subject to the provisions of Section 7 hereof, if
applicable:
(a) pay to the Executive, in twenty-four (24) equal monthly
installments beginning with the first day of the month
following the Date of Termination, a cash amount equal to the
product determined by multiplying (i) the Executive's Annual
Compensation by (ii) the lesser of (A) the difference between
the number 65 and the Executive's age in years and fractions
thereof on the Date of Termination, and (B) the number 2.99;
and
(b) maintain and provide for a period ending at the earlier of (i)
three (3) years after the Date of Termination or (ii) the date
of the Executive's full-time employment by another employer
(provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the
Executive, the Executive's continued participation in all
group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than the Employers' Pension Plan, Profit sharing Plan
and any other retirement plan of the Employers), provided that
in the event that the Executive's participation in any plan,
program or arrangement as provided in subparagraph (b) above
is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the
Executive with benefits substantially similar to those which
the Executive was entitled to receive under
- 2 -
<PAGE> 3
such plans, programs and arrangements immediately prior to the
Date of Termination.
7. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 3 hereof, either alone or together with
other payments and benefits which Executive has the right to receive
from Employers, would constitute a "parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended ("Code"),
Executive may request that the payments and benefits pursuant to
Section 6 hereof shall be reduced, in the manner determined by the
Executive.
8. Mitigation: Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or
otherwise, nor shall the amount of any such benefits be
reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of
Termination or otherwise except as specifically provided in
Section 6(b).
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the
Executive upon a termination of employment with Employers
pursuant to employee benefit plans of the Employers or
otherwise.
9. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
10. Assignability. The Employers may assign this Agreement and their rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Employers may hereafter merge
or consolidate or to which either of the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or
expressly in writing assume all obligations of the Employers hereunder
as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
11. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than
a terminable at will employment relationship between the
Employers and the Executive, and the Employers may terminate
the Executive's employment at any time, subject to providing
any payments specified herein in accordance with the terms
hereof.
(b) Nothing contained herein shall create or require the Employers
to create a trust of any kind to fund any benefits which may
be payable hereunder, and to the extent that the Executive
acquires a right to receive benefits from the Employers
hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Employers.
- 3 -
<PAGE> 4
12. Definitions. For the purposes of this agreement the following words and
terms shall have the following meanings:
(a) Annual Compensation. The Executive's "Annual Compensation"
shall be deemed to mean the highest level of compensation paid
to the Executive by the Employers or any subsidiary thereof
during any of the three calendar years ending during the
calendar year in which the Date of Termination occurs,
including base salary and bonuses under any employee benefit
plans of the Employers.
(b) Cause. Termination by the Employers of the Executive's
employment for "Cause" shall mean termination because of
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any
law, rule or regulation other than traffic violations or
similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of
this paragraph, no act or failure to act on the Executive's
part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was
in the best interest of the Employers.
(c) Change in Control of the Company. "Change in Control of the
Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")
or any successor thereto; provided that, without limitation,
such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in section 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of
Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for
Disability, the date specified in the Notice of Termination,
and (ii) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(e) Disability. Termination by the Employers of the executive's
employment based on "Disability" shall mean termination
because of the Executive's failure to perform the normal and
usual duties of his employment with the Employers for one
hundred and thirty (130) consecutive business days as a result
of the Executive's incapacity due to physical or mental
illness.
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<PAGE> 5
(f) Notice of Termination. Any purported termination by the
employers for Cause, Disability or Retirement or by the
Executive for any reason shall be communicated by written
"Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated.
(g) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary
termination by the Executive in accordance with the Employers'
retirement policies, including early retirement, generally
applicable to their salaried employees.
13. Regulatory Actions. The following provisions shall be applicable to the
parties only to the extent that they are deemed to be required to be
included in severance agreements between a savings association and its
employees pursuant to Section 563.39(b) of the Regulations Applicable
to all Savings Associations, 12 C.F.R. Section 563.39(b), or any
successor thereto, and under such circumstances shall be deemed to be
controlling in the event of a conflict with any other provision of this
Agreement, including without limitation Section 3 hereof.
(a) If Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of
the Bank's affairs pursuant to notice served under Section
8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIC") 12 U.S.C. Section 1818(e)(3) and Section
1818(g)(1), the Bank's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are
dismissed, the Bank may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(b) If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section S(e) (4) or Section
8(g)(1) of the FDIA (12 U.S.C. Sections 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested
rights of Executive and the Bank as of the date of termination
shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but
vested rights of Executive and the Bank as of the date of
termination shall not be affected.
(d) All obligations under this Agreement shall be terminated
pursuant to 12 C.F.R. Section 563.39(b)(5) (except to the
extent that it is determined that continuation of the
Agreement for the continued operation of the Bank is
necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") or Resolution
Trust
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<PAGE> 6
Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in
Section 13(3) of the FDIC (12 U.S.C. Section 1823(c)); or (ii)
by the Director of the OTS, or his/her designee, at the time
the Director of his/her designee approves a supervisory merger
to resolve problems related to operation of the Bank or when
the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition, but vested rights of Executive
and the Bank as of the date of termination shall not be
affected.
14. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Company and the Bank
hereunder shall be suspended in the event that the FDIC prohibits or
limits, by regulation or order, any payment hereunder pursuant to
Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:
To the Employers: Glacier Bancorp, Inc.
202 Main Street
Kalispell, Montana 59901-4454
Attention: John S. MacMillan, President
To the Executive: Stephen J. Van Helden
171 Wilson Heights
Kalispell, Montana 59901
16. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors
of the Employers to sign on their behalf. No waiver by any party hereto
at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
17. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Montana.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and
effect.
19. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement this 31st
day of August, 1996, signed by the officers of the Employers as authorized and
designed by the Boards of Directors.
Attest: GLACIER BANCORP, INC.:
/s/ Joan L. Holling By: /s/ John S. MacMillan
- ----------------------- -------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive Officer
Attest: GLACIER BANK, FSB:
/s/ Joan L. Holling By: /s/ John S. MacMillan
- ----------------------- -------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive Officer
Witness: EXECUTIVE:
/s/ Stephen J. Van Helden
- ----------------------- -------------------------------
STEPHEN J. VAN HELDEN
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<PAGE> 8
MORTGAGE & COMMERCIAL R/E LOAN MANAGER
Major Goal #1: Supervising and directing the lending
operation of real estate loans from loan origination
through loan servicing so that it is efficient,
profitable and in compliance with GBCI, Inc. and
Glacier Bank FSB policies and all other regulations.
KRA #1: LOAN ORIGINATION
Performance Standards Achieved When:
1. Bank's overall 1-4 family loan origination goals have been achieved as
established and approved by Bank Management during January of each
year.
2. New loan programs are implemented as required to maintain the largest
share of the market and to increase the bank's portfolio with variable
rate loans.
3. Cross-selling by staff and through loan program requirements so that
70% of all loan customers have checking and savings accounts.
KRA #2: SUPERVISION
Performance Standards Achieved When:
1. Each April, KRA's are reviewed and updated establishing what an
employee needs to do to satisfactorily complete his/her
responsibilities and understand what the performance evaluation covers.
2. Responsibilities of department personnel have been delegated in order
to meet all deadlines, given authority and held accountable.
3. Approves department vacations, time sheets and recommends salary
adjustments and appropriate staffing requirements.
4. Conducts at least one staff meeting per month with all departments.
5. Encourages personal growth through continuing education.
KRA #3: QUALITY CONTROL
Performance Standards Achieved When:
1. A quality control system must be in place and monitored on a continuing
basis to insure compliance of all Bank policies and regulations; to
detect and prevent any fraudulent activities and to maintain a
portfolio of quality loans for the GBCI entities.
2. Work with internal auditor who monitors quality control. Meets with
internal auditor on pre-arranged date to discuss quality review.
Responds to auditors written comments by designated due date.
<PAGE> 9
3. All conventional loans and every seventh FHA/VA loan must be
underwritten personally in order to keep the Bank's scheduled items
under 1% and to insure that 98% of all fixed rate loans meet investor
requirements for salability. Loans over $150,000 will also require
approval of another Senior Officer of the Bank.
KRA #4: SECONDARY MARKETING
Performance Standards Achieved When:
1. A profitable market is maintained at all times for the sale of any new
fixed rate loan originated. This includes the use of forward
commitments and options.
2. A marketing spread of at least 1% is maintained on all FHA/VA loan
sales.
3. Conventional loans may never be sold on a "servicing released" basis in
order to build servicing income.
4. At least two investors are maintained for the sale of any FHA/VA loans.
5. All new loan sales programs have been analyzed and, if profitable,
implemented.
Major Goal #2: Commercial mortgage loan portfolio is high
quality, interest rate sensitive and generates
earnings consistent with the top 25% of the Bank's
peer group.
KRA #1: COMMERCIAL LOAN ORIGINATION
1. Loans are investor quality, documented to minimize the Bank's risk;
complies with Bank's commercial loan policy.
2. Processes commercial real estate loans which are originated in GBCI
entities' branch office; or work with that manager in obtaining
information necessary for loan committee review, as the situation may
dictate.
3. Chairs commercial (R/E commercial and commercial-commercial) loan
committee. Works with commercial loan department manager in
originating, reviewing and approving applications. Meets with loan
committee each Wednesday at 8:15 a.m. Classification of loans are
established at this committee meeting.
4. All loans with an aggregate balance of over $400,000 are taken before
each bank board, as well as the GBCI board of directors.
REV. 4/94
<PAGE> 1
Exhibit 10(e)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 31st day of August, 1996,
between Glacier Bancorp, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), Glacier Bank FSB, a National corporation and a
wholly owned subsidiary of the Company ("Bank") (collectively, the "Employers"),
and JOAN L. HOLLING ("Executive").
RECITALS
A. The Executive presently is the Senior Vice President and Assistant
Secretary of the Bank and of the Company.
B. The parties desire to define and set forth the current duties and
responsibilities of the Executive in all her capacities with the Company, its
subsidiaries and the Bank, provide for contract renewals, and to further induce
the Executive to continue active participation in the business of the Employers.
NOW THEREFORE, in consideration of the mutual agreements herein
contained and for other valuable consideration, the parties agree as follows:
1. Employment. The Employers herein employ the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties.
(a) The Executive is employed as Senior Vice President and
Assistant Secretary of the Bank and of the Company and hers
duties and responsibilities in those capacities are those as
set forth in the document hereto annexed, entitled
"Performance Standards - Personnel Manager" and by reference
made part of this agreement.
(b) During the term of employment under this agreement, Executive
will apply on a full time basis (allowing for usual vacations
and sick leave) all of hers skill and experience to the
performance of hers duties in this employment. The Executive
may have other business investments and participate in other
business ventures, provided such activities shall not
interfere or be inconsistent with hers duties hereunder.
3. Basic Compensation. For all services rendered by the Executive under
this agreement, the Employer shall pay the Executive a base salary of
$60,300 per year.
4. Term. This agreement shall terminate August 31, 1997, the anniversary
date; provided however, on that anniversary date and each anniversary
thereafter the Boards of Directors of the Employers shall consider,
with appropriate corporate documentation thereof, and after taking into
account all relevant factors including Executive's performance
hereunder, renewal of the term of employment under this agreement for
an additional one year and the term of agreement shall be renewed,
unless either the Boards of Directors of the Employers do not approve
such renewal and provide written notice to the Executive of such event,
or the Executive gives written notice to the
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<PAGE> 2
Employers not less than thirty (30) days prior to any such anniversary
date of the Executive's election not to extend the term beyond its then
scheduled expiration date.
5. Covenant not to Compete.
(a) During the term of Executive's employment and for one year
after the termination of such employment, if such employment
is terminated by Employers for cause (as defined under Section
12(b)), or by the Executive (except pursuant to the provisions
of Section 6 following a change in control), Executive will
not, without the prior written approval of the Boards of
Directors of Employers, become an officer, employee, agent,
partner or director of any business enterprise in substantial
direct competition with Employers or any subsidiary of
Employers as the business of Employers or their subsidiaries
may be constituted during the term of Executive's employment
or at the termination thereof.
(b) For the purpose of this paragraph, business enterprise with
which Executive becomes associated as an officer, employee,
agent, partner or director shall be considered in "substantial
direct competition", if such enterprise is a bank, savings and
loan association, credit union or other equivalent financial
institution operating or maintaining an office or branch in
Flathead or Lake or Lincoln or Glacier or Yellowstone
Counties, Montana.
6. Benefits Upon Termination. If the Executive's employment is terminated
subsequent to a Change in Control of the Company by (i) either of the
Employers other than for Cause, Disability, Retirement or as a result
of the Executive's death or (ii) by the Executive for any reason, then
the Employers shall, subject to the provisions of Section 7 hereof, if
applicable:
(a) pay to the Executive, in twenty-four (24) equal monthly
installments beginning with the first day of the month
following the Date of Termination, a cash amount equal to the
product determined by multiplying (i) the Executive's Annual
Compensation by (ii) the lesser of (A) the difference between
the number 65 and the Executive's age in years and fractions
thereof on the Date of Termination, and (B) the number 2.99;
and
(b) maintain and provide for a period ending at the earlier of (i)
three (3) years after the Date of Termination or (ii) the date
of the Executive's full-time employment by another employer
(provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the
Executive, the Executive's continued participation in all
group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than the Employers' Pension Plan, Profit sharing Plan
and any other retirement plan of the Employers), provided that
in the event that the Executive's participation in any plan,
program or arrangement as provided in subparagraph (b) above
is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the
Executive with benefits substantially similar to those which
the Executive was entitled to receive under
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<PAGE> 3
such plans, programs and arrangements immediately prior to the
Date of Termination.
7. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 6 hereof, either alone or together with
other payments and benefits which Executive has the right to receive
from Employers, would constitute a "parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended ("Code"),
Executive may request that the payments and benefits pursuant to
Section 6 hereof shall be reduced, in the manner determined by the
Executive.
8. Mitigation: Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or
otherwise, nor shall the amount of any such benefits be
reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of
Termination or otherwise except as specifically provided in
Section 6(b).
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the
Executive upon a termination of employment with Employers
pursuant to employee benefit plans of the Employers or
otherwise.
9. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
10. Assignability. The Employers may assign this Agreement and their rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Employers may hereafter merge
or consolidate or to which either of the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or
expressly in writing assume all obligations of the Employers hereunder
as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
11. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than
a terminable at will employment relationship between the
Employers and the Executive, and the Employers may terminate
the Executive's employment at any time, subject to providing
any payments specified herein in accordance with the terms
hereof.
(b) Nothing contained herein shall create or require the Employers
to create a trust of any kind to fund any benefits which may
be payable hereunder, and to the extent that the Executive
acquires a right to receive benefits from the Employers
hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Employers.
- 3 -
<PAGE> 4
12. Definitions. For the purposes of this agreement the following words and
terms shall have the following meanings:
(a) Annual Compensation. The Executive's "Annual Compensation"
shall be deemed to mean the highest level of compensation paid
to the Executive by the Employers or any subsidiary thereof
during any of the three calendar years ending during the
calendar year in which the Date of Termination occurs,
including base salary and bonuses under any employee benefit
plans of the Employers.
(b) Cause. Termination by the Employers of the Executive's
employment for "Cause" shall mean termination because of
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any
law, rule or regulation other than traffic violations or
similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of
this paragraph, no act or failure to act on the Executive's
part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was
in the best interest of the Employers.
(c) Change in Control of the Company. "Change in Control of the
Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")
or any successor thereto; provided that, without limitation,
such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in section 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of
Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for
Disability, the date specified in the Notice of Termination,
and (ii) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(e) Disability. Termination by the Employers of the executive's
employment based on "Disability" shall mean termination
because of the Executive's failure to perform the normal and
usual duties of hers employment with the Employers for one
hundred and thirty (130) consecutive business days as a result
of the Executive's incapacity due to physical or mental
illness.
- 4 -
<PAGE> 5
(f) Notice of Termination. Any purported termination by the
employers for Cause, Disability or Retirement or by the
Executive for any reason shall be communicated by written
"Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated.
(g) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary
termination by the Executive in accordance with the Employers'
retirement policies, including early retirement, generally
applicable to their salaried employees.
13. Regulatory Actions. The following provisions shall be applicable to the
parties only to the extent that they are deemed to be required to be
included in severance agreements between a savings association and its
employees pursuant to Section 563.39(b) of the Regulations Applicable
to all Savings Associations, 12 C.F.R. Section 563.39(b), or any
successor thereto, and under such circumstances shall be deemed to be
controlling in the event of a conflict with any other provision of this
Agreement, including without limitation Section 3 hereof.
(a) If Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of
the Bank's affairs pursuant to notice served under Section
8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIC") 12 U.S.C. Section 1818(e)(3) and Section
1818(g)(1), the Bank's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are
dismissed, the Bank may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(b) If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section S(e) (4) or Section
8(g)(1) of the FDIA (12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested
rights of Executive and the Bank as of the date of termination
shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but
vested rights of Executive and the Bank as of the date of
termination shall not be affected.
(d) All obligations under this Agreement shall be
terminated pursuant to 12 C.F.R. Section 563.39(b)(5) (except
to the extent that it is determined that continuation of the
Agreement for the continued operation of the Bank is
necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the time the
Federal Deposit Insurance Corporation ("FDIC") or Resolution
Trust
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<PAGE> 6
Corporation enters into an agreement to provide assistance to
or on behalf of the Bank under the authority contained in
Section 13(3) of the FDIC (12 U.S.C.Section 1823(c)); or (ii)
by the Director of the OTS, or his/her designee, at the time
the Director of his/her designee approves a supervisory merger
to resolve problems related to operation of the Bank or when
the Bank is determined by the Director of the OTS to be in an
unsafe or unsound condition, but vested rights of Executive
and the Bank as of the date of termination shall not be
affected.
14. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Company and the Bank
hereunder shall be suspended in the event that the FDIC prohibits or
limits, by regulation or order, any payment hereunder pursuant to
Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:
To the Employers: Glacier Bancorp, Inc.
202 Main Street
Kalispell, Montana 59901-4454
Attention: John S. MacMillan, President
To the Executive: Joan L. Holling
72 Scarborough Drive
Kalispell, Montana 59901
16. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors
of the Employers to sign on their behalf. No waiver by any party hereto
at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
17. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Montana.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and
effect.
19. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement this 31st
day of August, 1996, signed by the officers of the Employers as authorized and
designed by the Boards of Directors.
Attest: GLACIER BANCORP, INC.:
/s/ Michael J. Blodnick By: /s/ John S. MacMillan
- ----------------------------- --------------------------------------
Michael J. Blodnick John S. MacMillan
Executive Vice President/Secretary President/Chief Executive Officer
Attest: GLACIER BANK, FSB:
/s/ Michael J. Blodnick By: /s/ John S. MacMillan
- ----------------------------- --------------------------------------
Michael J. Blodnick John S. MacMillan
Executive Vice President/Secretary President/Chief Executive Officer
Witness: EXECUTIVE:
/s/ Joan L. Holling
- ----------------------------- --------------------------------------
JOAN L. HOLLING
- 7 -
<PAGE> 8
KRA/PERFORMANCE STANDARDS
Personnel Manager
Major Goal: To have quality employees who are well trained and best suited for
their positions in order to be the most productive for our business. Is a
Glacier Bancorp, Inc. employee providing Human Resource assistance to all
holding company entities. Reports directly to CEO and works in conjunction with
CEO/Human Resource planning.
Key Result Area: HIRING
Performance Standards: I know conditions have been met when:
1. Assists all entities under the Holding Company by referring applicants
and providing a set up packet for all new employees.
2. There are sufficient applications on hand to choose at least 5 to
screen in the Glacier Bank main office and other valley branch offices.
3. All applicants' references have been verified, and qualifications
adequately analyzed 3 days prior to interview day in Flathead Valley
offices.
4. May assist department manager with interview asking questions in a way
that manager has had sufficient response from applicant to make
evaluation within a 15 to 30 minute interview.
5. Empower supervisors and managers to do their own interviewing and
selection. Provide interview training.
6. A credit check has been run on chosen applicant prior to being hired.
7. Each interviewee has been called informing her/him that the position
was filled by the applicant whose qualifications best matched the
requirements for the position.
Key Result Area: OVERSEES EMPLOYEE FIRST-DAY ORIENTATION
Performance Standards: I know conditions have been met when:
1. Managers and Supervisors will be provided materials to conduct
orientations. On first day, new employee is given a manual and is
sufficiently advised of policies so as not to violate parking, adheres
to dress code, and other pertinent beginning information. Employee is
made familiar with manual in order to refer to needed information
regarding vacations, sick leave, benefits, overdraft policy, etc.
<PAGE> 9
2. Signed payroll instructions are given to pay clerk first day of hire.
Enrollment cards for company insurance plans are given to be signed
with instructions to return cards within 2 days.
3. Employee is aware where facilities such as rest rooms, lunch room and
coat closets are located; and existing employees have been introduced
to new employee before employee goes to new work station.
4. New employee knows who he/she should report to and go to for any help.
Employee is placed with supervisor with adequate introduction to
establish a rapport.
Key Result Area: OVERSEES FULL-COURSE ORIENTATION DAY
(IN COORDINATION WITH TRAINER)
Performance Standards: I know conditions have been met when:
1. There are no employees who have worked one month without having
attended an orientation course.
2. All new employees' questions are answered and proper emphasis placed on
priority areas in regards to policies and procedures.
3. A social atmosphere is provided whereby there is free-flowing
conversation with all new employees to learn about each other's
offices. All new employees attending orientation know fellow employees'
names, what department or branch they are from and what their general
functions are.
Key Result Area: MONITORS POLICIES REGARDING DRESS CODE, SMOKING,
OVERDRAFTS, PARKING, ETC.
Performance Standards: I know these conditions have been met when:
1. Reviews with Supervisor any employee's violating dress code, overdraft
or any other policy at the time of violation. Or when general policies
are violated, a reminder is given or the policy is re-established.
Key Result Area: KEEPS EMPLOYEE MANUAL UPDATED
Performance Standards: I know conditions have been met when:
1. Manual is reviewed once a quarter for any changes or updates. Notices
of changes are sent to each employee. For those policies needing
verification of being received by employee, a check list is made to
assure signature is obtained and verification is filed in each employee
file within two weeks of new notice.
<PAGE> 10
2. As Glacier Bancorp, Inc. Board of Directors/Management establish policy
or change, notice is given within one week to all holding company
entities.
3. Letter stating employee manual is not an employment contract is given
with each employee manual at the time of hire.
4. Code of Ethics is updated or reviewed with annual acknowledgement from
each employee and director.
Key Result Area: INSURANCE
Performance Standards: I know conditions have been met when:
1. All eligible employees are covered under our group plans with
appropriate information given to payroll clerk to properly deduct any
dependent coverage.
2. Changes and additions are made on the appropriate forms and submitted
with monthly premium checks.
3. Salary changes are submitted to Standard Insurance for long term
disability coverage as salaries change during year with a master change
list being sent by January 31.
4. Premium notices are reviewed and paid monthly with accurate accounting
per branch office with any changes submitted to payroll clerk prior to
next pay period.
5. Reviews other insurance carriers to establish the best results for the
Holding Company. Keeps informed on options such as flex plans, etc.
Key Result Area: MAINTAINS ACCURATE FILES AND RECORDS
Performance Standards: I know conditions have been met when:
1. Each personnel file of the Glacier Bank will daily reveal accurate and
current information regarding insurance coverage, withholding, pay,
addresses, etc. Goal in 1995 will be to have FNB-E & FNB-W files
reflect the same information.
2. Master insurance file can be referred to and information regarding
current policies and procedures is readily located to answer any
employee question.
3. Vacation records are kept current on a daily basis and no two people
from the same department or branch are scheduled for the same vacation
days.
<PAGE> 11
4. Master parking file for Kalispell Glacier office is current so as to be
able to assign parking by seniority.
5. Any disciplinary action or comments are clearly documented and signed
and in personnel file within 24 hours of action.
6. Index cards are kept on all employees to assure insurance enrollment,
profit-pension enrollment, evaluations and other reporting done on due
dates. Goal in 1995 is to have Human Resource record keeping
computerized.
Key Result Area: MAINTAINS KRA/PERFORMANCE STANDARDS
Performance Standards: I know conditions have been met when:
1. In the Glacier Bank, there is a job function description (KRA) for each
position clearly defining responsibilities and performance standards.
Descriptions will contain current information up to last year. New
employee will always be given updated description. Goal for 1995 will
be to have a KRA for all Glacier Holding Company entity's employees.
2. There will be a master copy to refer to or replace a lost employee's
copy.
Key Result Area: SALARY ADMINISTRATION
Performance Standards: I know conditions have been met when:
1. At year end salary review, there are adequate companies or associations
to compare to accurately judge that holding company entities remain
competitive in recruitment and keeping employees. Does a salary survey
by November 1 of each year.
2. Upon request for salary increase by a supervisor during course of year,
valid information (length of service, present pay, etc) is gathered and
presented to salary committee to grant increase or deny.
Key Result Area: EVALUATION PROCESS FOR HOLDING COMPANY & ENTITIES
Performance Standards: I know conditions have been met when:
1. Evaluation forms are distributed to each supervisor/manager by October
20 each year.
2. Interviews have been scheduled by December 1 with each
supervisor/manager to review their department with salary committee.
Manager-committee interviews will be completed by December 15.
<PAGE> 12
3. Completed and signed evaluation form will be filed in a master file or
in some cases, each employee's file by January 20.
Key Result Area: DIRECTS WORK SCHEDULES FOR EMPLOYEE ABSENCES
Performance Standards: I know conditions have been met when:
1. May assist supervisor of department with absences coverage.
2. May assist supervisor, one month in advance of absence due to vacation,
how position will be covered.
Key Result Area: DEVELOP EMPLOYEE
Performance Standards: I know conditions have been met when:
1. Encourages and advises all holding company entity managers to see that
selected employees have had the benefit of courses, seminars and films.
Adequate training has been provided by qualified personnel. Encourages
employee to take development courses, take full advantage of on-line
training and to attend seminars so that maximum employee efficiency is
utilized with a good understanding of particular programs.
2. Works in coordination with trainer.
Key Result Area: EMPLOYEE COUNSELLING & DISCIPLINE
Performance Standards: I know conditions have been met when:
1. Counsels with all holding company entity managers or assists as
follows: Obtains clear understanding of employee problem or suggestion
so can accurately restate problem back to employee. Research in order
to get back to employee with answer or on-spot reply to establish
understanding or agreement from employee. Checks back with employee two
days after counsel to assure understanding.
2. Any conflicts regarding managers or department heads are reviewed with
the CEO of Glacier Bancorp, Inc.
3. Instructs managers of holding company and subsidiaries in discipline
action. Meeting with employee and manager is conducted with written and
signed disciplinary action description in file. In event of possible
discharge, the discharge procedures outlined in employee manual are
followed to the letter.
<PAGE> 13
Key Result Area: TERMINATE EMPLOYEE
Performance Standards: I know conditions have been met when:
1. Provides assistance to subsidiary managers under Glacier Bancorp, Inc..
A termination letter is given to terminating employee at least one week
prior to last day. Letter will clearly advise employee of life &
medical insurance coverage, pension-profit funding, checking account
closure, courses and all other items necessary to be finalized before
employee leaves.
2. Provides exit interview and conducts with employee or completed form is
turned in on last day of employment whereby Glacier Bancorp, Inc. will
obtain information that will identify areas that need improvement or
confirms what is working.
Key Result Area: STOCK OPTIONS
Performance Standards: I know conditions have been met when:
1. Issues stock options to employees within one week of Board of Directors
of Glacier Bancorp, Inc. granting option to employee.
2. Supervises procedures of exercising options. When employee exercises
option, proper forms are completed and signed, letter sent to TrustCorp
directing agent to issue certificate, and money is collected from
employee and deposited through the accounting department.
3. Accurate records are kept of giving and exercising options.
Key Result Area: ADMINISTERS OF EMPLOYEE PROFIT SHARING AND PENSION
TRUSTS OF GLACIER BANCORP, INC. (APPOINTED BY BOARD OF
DIRECTORS)
Performance Standards: I know conditions have been met when:
1. Forms have been turned into our plans administrator for request of
distribution upon receipt of completed form from terminated employee.
2. Census statistics regarding eligible employees are supplied to plans
administrator quarterly.
3. At each pay period, checks are sent to Norwest Capital Management for
investment of 401-K employee contribution.
<PAGE> 14
4. Any amendments to plans are delivered to employee within one week of
receiving the amendment in this office.
5. Meets quarterly with advisory committee members to review investment of
funds and other items regarding care of plans.
Key Result Area: COMPLIANCE
Performance Standards: I know conditions have been met when:
1. AFFIRMATIVE ACTION POLICY is reviewed and updated by April each year.
Recalculation of ratios is done and included in manual. A review of
Affirmative Action results is made with the Board of Directors by
June/July each year. Manual is available to examiners.
2. EQUAL EMPLOYMENT OPPORTUNITY (EEOC) is completed by regulation
deadline. The deadline is set annually. EEOC form is made a part of
Affirmative Action Policy Manual.
3. OSHA directs the committee assuring the bank complies with regulations.
Committee meets quarterly with a review of existing or new items
needing attention.
4. AMERICANS WITH DISABILITIES ACT. Reviews of positions are made
establishing physical, mental, time requirements. Essential and
non-essential tasks are made clear before vacancies are posted.
Training of ADA is given to managers. Work with Operations Manager in
reviewing facility requirements for ADA.
5. MEDICAL/FAMILY LEAVE ACT. All employees under the Holding Company are
advised of their eligibility for leave time. A full description has
been supplied for employees reference in employee manual.
6. Code of Ethics is updated annually with verification of review by
employees, directors and officers.
7. Sexual Harassment policy is posted in each office, as well as in
Employee Manual. Is reviewed with each employee upon hire.
8. Provides the required posters to each office regarding Equal Employment
Opportunity, Job Safety & Health Protection, Employee Polygraph
Protection, Minimum Wage Rate, Workers Compensation & Rights under
Family & Medical Leave Act of 1993.
<PAGE> 15
Key Result Area: REJECTED LOAN REVIEW FOR GLACIER BANK
Performance Standards: I know conditions have been met when:
1. Serves as chairperson of committee.
2. Hold meeting each week and reports monthly to Board of Directors.
Key Result Area: ASSISTS TAKING BOARD OF DIRECTOR'S MEETING MINUTES
Performance Standards: I know conditions have been met when:
1. At Executive Vice President's direction, takes minutes, has them typed
in rough draft within one week of meeting, and ready for President and
Executive Vice President's approval no less than one week prior to next
board meeting.
<PAGE> 1
EXHIBIT 10(f)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made this 31st day of August, 1996,
between Glacier Bancorp, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), Glacier Bank FSB, a National corporation and a
wholly owned subsidiary of the Company ("Bank") (collectively, the "Employers"),
and JAMES H.
STROSAHL ("Executive").
RECITALS
A. The Executive presently is the Chief Financial Officer of the Bank
and of the Company.
B. The parties desire to define and set forth the current duties and
responsibilities of the Executive in all his capacities with the Company, its
subsidiaries and the Bank, provide for contract renewals, and to further induce
the Executive to continue active participation in the business of the Employers.
NOW THEREFORE, in consideration of the mutual agreements herein
contained and for other valuable consideration, the parties agree as follows:
1. Employment. The Employers herein employ the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set
forth.
2. Duties.
(a) The Executive is employed as Chief Financial Officer of the
Bank and of the Company and his duties and responsibilities in
those capacities are those as set forth in the document hereto
annexed, entitled "Chief Financial Officer " and by reference
made part of this agreement.
(b) During the term of employment under this agreement, Executive
will apply on a full time basis (allowing for usual vacations
and sick leave) all of his skill and experience to the
performance of his duties in this employment. The Executive
may have other business investments and participate in other
business ventures, provided such activities shall not
interfere or be inconsistent with his duties hereunder.
3. Basic Compensation. For all services rendered by the Executive under
this agreement, the Employer shall pay the Executive a base salary of
$70,000 per year.
4. Term. This agreement shall terminate August 31, 1997, the anniversary
date; provided however, on that anniversary date and each anniversary
thereafter the Boards of Directors of the Employers shall consider,
with appropriate corporate documentation thereof, and after taking into
account all relevant factors including Executive's performance
hereunder, renewal of the term of employment under this agreement for
an additional one year and the term of agreement shall be renewed,
unless either the Boards of Directors of the Employers do not approve
such renewal and provide written notice to the Executive of such event,
or the Executive gives written notice to the
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<PAGE> 2
Employers not less than thirty (30) days prior to any such anniversary
date of the Executive's election not to extend the term beyond its then
scheduled expiration date.
5. Covenant not to Compete.
(a) During the term of Executive's employment and for one year
after the termination of such employment, if such employment
is terminated by Employers for cause (as defined under Section
12(b)), or by the Executive (except pursuant to the provisions
of Section 6 following a change in control), Executive will
not, without the prior written approval of the Boards of
Directors of Employers, become an officer, employee, agent,
partner or director of any business enterprise in substantial
direct competition with Employers or any subsidiary of
Employers as the business of Employers or their subsidiaries
may be constituted during the term of Executive's employment
or at the termination thereof.
(b) For the purpose of this paragraph, business enterprise with
which Executive becomes associated as an officer, employee,
agent, partner or director shall be considered in "substantial
direct competition", if such enterprise is a bank, savings and
loan association, credit union or other equivalent financial
institution operating or maintaining an office or branch in
Flathead or Lake or Lincoln or Glacier or Yellowstone
Counties, Montana.
6. Benefits Upon Termination. If the Executive's employment is terminated
subsequent to a Change in Control of the Company by (i) either of the
Employers other than for Cause, Disability, Retirement or as a result
of the Executive's death or (ii) by the Executive for any reason, then
the Employers shall, subject to the provisions of Section 7 hereof, if
applicable:
(a) pay to the Executive, in twenty-four (24) equal monthly
installments beginning with the first day of the month
following the Date of Termination, a cash amount equal to the
product determined by multiplying (i) the Executive's Annual
Compensation by (ii) the lesser of (A) the difference between
the number 65 and the Executive's age in years and fractions
thereof on the Date of Termination, and (B) the number 2.99;
and
(b) maintain and provide for a period ending at the earlier of (i)
three (3) years after the Date of Termination or (ii) the date
of the Executive's full-time employment by another employer
(provided that the Executive is entitled under the terms of
such employment to benefits substantially similar to those
described in this subparagraph (b)), at no cost to the
Executive, the Executive's continued participation in all
group insurance, life insurance, health and accident,
disability and other employee benefit plans, programs and
arrangements in which the Executive was entitled to
participate immediately prior to the Date of Termination
(other than the Employers' Pension Plan, Profit sharing Plan
and any other retirement plan of the Employers), provided that
in the event that the Executive's participation in any plan,
program or arrangement as provided in subparagraph (b) above
is barred, or during such period any such plan, program or
arrangement is discontinued or the benefits thereunder are
materially reduced, the Employers shall arrange to provide the
Executive with benefits
- 2 -
<PAGE> 3
substantially similar to those which the Executive was
entitled to receive under such plans, programs and
arrangements immediately prior to the Date of Termination.
7. Limitation of Benefits under Certain Circumstances. If the payments and
benefits pursuant to Section 6 hereof, either alone or together with
other payments and benefits which Executive has the right to receive
from Employers, would constitute a "parachute payment" under Section
280G of the Internal Revenue Code of 1986, as amended ("Code"),
Executive may request that the payments and benefits pursuant to
Section 6 hereof shall be reduced, in the manner determined by the
Executive.
8. Mitigation: Exclusivity of Benefits.
(a) The Executive shall not be required to mitigate the amount of
any benefits hereunder by seeking other employment or
otherwise, nor shall the amount of any such benefits be
reduced by any compensation earned by the Executive as a
result of employment by another employer after the Date of
Termination or otherwise except as specifically provided in
Section 6(b).
(b) The specific arrangements referred to herein are not intended
to exclude any other benefits which may be available to the
Executive upon a termination of employment with Employers
pursuant to employee benefit plans of the Employers or
otherwise.
9. Withholding. All payments required to be made by the Employers
hereunder to the Executive shall be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as the
Employers may reasonably determine should be withheld pursuant to any
applicable law or regulation.
10. Assignability. The Employers may assign this Agreement and their rights
hereunder in whole, but not in part, to any corporation, bank or other
entity with or into which either of the Employers may hereafter merge
or consolidate or to which either of the Employers may transfer all or
substantially all of their respective assets, if in any such case said
corporation, bank or other entity shall by operation of law or
expressly in writing assume all obligations of the Employers hereunder
as fully as if it had been originally made a party hereto, but may not
otherwise assign this Agreement or its rights hereunder. The Executive
may not assign or transfer this Agreement or any rights or obligations
hereunder.
11. Nature of Employment and Obligations.
(a) Nothing contained herein shall be deemed to create other than
a terminable at will employment relationship between the
Employers and the Executive, and the Employers may terminate
the Executive's employment at any time, subject to providing
any payments specified herein in accordance with the terms
hereof.
(b) Nothing contained herein shall create or require the Employers
to create a trust of any kind to fund any benefits which may
be payable hereunder, and to the extent that the Executive
acquires a right to receive benefits from the Employers
- 3 -
<PAGE> 4
hereunder, such right shall be no greater than the right of
any unsecured general creditor of the Employers.
12. Definitions. For the purposes of this agreement the following words and
terms shall have the following meanings:
(a) Annual Compensation. The Executive's "Annual Compensation"
shall be deemed to mean the highest level of compensation paid
to the Executive by the Employers or any subsidiary thereof
during any of the three calendar years ending during the
calendar year in which the Date of Termination occurs,
including base salary and bonuses under any employee benefit
plans of the Employers.
(b) Cause. Termination by the Employers of the Executive's
employment for "Cause" shall mean termination because of
personal dishonesty, incompetence, willful misconduct, breach
of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any
law, rule or regulation other than traffic violations or
similar offenses) or final cease-and-desist order or material
breach of any provision of this Agreement. For purposes of
this paragraph, no act or failure to act on the Executive's
part shall be considered "willful" unless done, or omitted to
be done, by the Executive not in good faith and without
reasonable belief that the Executive's action or omission was
in the best interest of the Employers.
(c) Change in Control of the Company. "Change in Control of the
Company" shall mean a change in control of a nature that would
be required to be reported in response to Item 5(f) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act")
or any successor thereto; provided that, without limitation,
such a change in control shall be deemed to have occurred if
(i) any "person" (as such term is used in section 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the company
representing 25% or more of the combined voting power of the
Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of
Company cease for any reason to constitute at least a majority
thereof unless the election, or the nomination for election by
stockholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who
were directors at the beginning of the period.
(d) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated for Cause or for
Disability, the date specified in the Notice of Termination,
and (ii) if the Executive's employment is terminated for any
other reason, the date on which a Notice of Termination is
given or as specified in such Notice.
(e) Disability. Termination by the Employers of the executive's
employment based on "Disability" shall mean termination
because of the Executive's failure to perform the normal and
usual duties of his employment with the Employers for
- 4 -
<PAGE> 5
one hundred and thirty (130) consecutive business days as a
result of the Executive's incapacity due to physical or mental
illness.
(f) Notice of Termination. Any purported termination by the
employers for Cause, Disability or Retirement or by the
Executive for any reason shall be communicated by written
"Notice of Termination" to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall
mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated.
(g) Retirement. Termination by the Employers of the Executive's
employment based on "Retirement" shall mean voluntary
termination by the Executive in accordance with the Employers'
retirement policies, including early retirement, generally
applicable to their salaried employees.
13. Regulatory Actions. The following provisions shall be applicable to the
parties only to the extent that they are deemed to be required to be
included in severance agreements between a savings association and its
employees pursuant to Section 563.39(b) of the Regulations Applicable
to all Savings Associations, 12 C.F.R. Section 563.39(b), or any
successor thereto, and under such circumstances shall be deemed to be
controlling in limitation Section 3 hereof.
(a) If Executive is suspended from office and/or
temporarily prohibited from participating in the conduct of
the Bank's affairs pursuant to notice served under Section
8(e)(3) or Section 8(g)(1) of the Federal Deposit Insurance
Act ("FDIC") 12 U.S.C. Section 1818(e)(3) and Section
1818(g)(1), the Bank's obligations under this Agreement shall
be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are
dismissed, the Bank may, in its discretion: (i) pay Executive
all or part of the compensation withheld while its obligations
under this Agreement were suspended, and (ii) reinstate (in
whole or in part) any of its obligations which were suspended.
(b) If Executive is removed from office and/or permanently
prohibited from participating in the conduct of the Bank's
affairs by an order issued under Section S(e) (4) or Section
8(g)(1) of the FDIA (12 U.S.C. Section 1818(e)(4) and
(g)(1), all obligations of the Bank under this Agreement shall
terminate as of the effective date of the order, but vested
rights of Executive and the Bank as of the date of termination
shall not be affected.
(c) If the Bank is in default, as defined in Section 3(x)(1) of
the FDIA (12 U.S.C. Section 1813(x)(1)), all obligations under
this Agreement shall terminate as of the date of default, but
vested rights of Executive and the Bank as of the date of
termination shall not be affected.
(d) All obligations under this Agreement shall be
terminated pursuant to 12 C.F.R.Section 563.39(b)(5) (except
to the extent that it is determined that continuation of the
Agreement for the continued operation of the Bank is
necessary): (i) by the Director of the Office of Thrift
Supervision ("OTS"), or his/her designee, at the
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<PAGE> 6
time the Federal Deposit Insurance Corporation ("FDIC") or
Resolution Trust Corporation enters into an agreement to
provide assistance to or on behalf of the Bank under the
authority contained in Section 13(3) of the FDIC (12
U.S.C.Section 1823(c)); or (ii) by the Director of the OTS, or
his/her designee, at the time the Director of his/her designee
approves a supervisory merger to resolve problems related to
operation of the Bank or when the Bank is determined by the
Director of the OTS to be in an unsafe or unsound condition,
but vested rights of Executive and the Bank as of the date of
termination shall not be affected.
14. Regulatory Prohibition. Notwithstanding any other provision of this
Agreement to the contrary, the obligations of the Company and the Bank
hereunder shall be suspended in the event that the FDIC prohibits or
limits, by regulation or order, any payment hereunder pursuant to
Section 18(k) of the FDIA (12 U.S.C. Section 1828(k)).
15. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by
certified or registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth below:
To the Employers: Glacier Bancorp, Inc.
202 Main Street
Kalispell, Montana 59901-4454
Attention: John S. MacMillan, President
To the Executive: James H. Strosahl
1329 Creekside Drive
Kalispell, Montana 59901
16. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and such officer or
officers as may be specifically designated by the Boards of Directors
of the Employers to sign on their behalf. No waiver by any party hereto
at any time of any breach by any other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent
time.
17. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the
State of Montana.
18. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and
effect.
19. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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<PAGE> 7
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all
of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement this 31st
day of August, 1996, signed by the officers of the Employers as authorized and
designed by the Boards of Directors.
Attest: GLACIER BANCORP, INC.:
/s/ Joan L. Holling By: /s/ John S. MacMillan
- --------------------------- -----------------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive Officer
Attest: GLACIER BANK, FSB:
/s/ Joan L. Holling By:/s/ John S. MacMillan
- --------------------------- -----------------------------------------
Joan L. Holling John S. MacMillan
Assistant Secretary President/Chief Executive officer
Witness: EXECUTIVE:
/s/ James H. Strosahl
- --------------------------- -----------------------------------------
JAMES H. STROSAHL
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<PAGE> 8
JOB TITLE: CHIEF FINANCIAL OFFICER
Reports to: President/CEO
FLSA Status: Exempt
GENERAL SUMMARY
Has broad responsibility for the company's fiscal operating results. Prepares,
presents, and interprets financial reports to management, directors,
shareholders, and governmental agencies. Counsels management on fiscal control
and profitability. Develops and prescribes adequate financial procedures to
provide the basis for management decisions and control.
JOB REQUIREMENTS
Communication/Effort
Business related communication with the CEO/President and Board of
Directors.
Skill Required
Specialized proficiency applied to complex tasks and problems that
require knowledge of numerous approaches and principles.
Responsibility
Must know procedures and handling assigned projects, ensuring that they
are carried out successfully and goals are achieved.
Scope
A broad functional activity or several specialized activities.
Impact
Basic contribution is to make decisions which contribute indirectly to
the full range of bank costs and/or income and /or resources
utilization. Erroneous decisions may result in failure to achieve
objectives important to major goals.
KEY RESULTS AREA: Publicly Held Company Requirements
Performance Standards
1. Responsible for all public held reporting requirements, such
as 10Q and 10K. Oversee the preparation and submission of the
required reports within the prescribed due dates.
2. Responsible for identifing and maintaining SEC and Federal
requirements for publicly held companies.
<PAGE> 9
KEY RESULTS AREA: Forecast Financials For Strategic Planning
Performance Standards
1. Responsible for the development of budgeting and compilation
of financials for the purpose of strategic planning during the
annual Board retreat.
2. Participate on the investment committee for the purpose of
asset/liability management.
3. Responsible for monitoring quarterly GAP ratios for
asset/liability gap and interest margin analysis.
KEY RESULTS AREA: Tax Planning And Preparation
Performance Standards
1. Responsible for timely completion of company's tax return.
2. Responsible for formulating annual tax planning with
management, outside independent audit firm and the company's
tax firm.
3. Responsible for the timely submission of quarterly tax
deposits.
KEY RESULTS AREA: Regulatory Agency Reporting
Performance Standards
1. Oversees the preparation and timely submission of regulatory
reports to the Federal Reserve Bank, Office of Thrift
Supervision, Federal Deposit Insurance Corporation and the
Office of the Comptroller of Currency.
2. Oversees the preparation and timely submission of payroll
reporting to the proper agencies.
KEY RESULTS AREA: Annual Independent Audit
Performance Standards
1. Coordinate and assure accurate and timely preparation of
worksheets for the independent audit.
2. Responsible for the preparation of the annual statement and
footnotes for the annual report.
3. Responsible for coordinating schedules for the annual report
with the advertising agency and printers.
<PAGE> 10
KEY RESULTS AREA: Controllers Department
Performance Standards
1. Oversees controllers department for timely and accurate
reporting of monthly financials for board reports, branch
profitability and other reporting as necessary.
2. Oversees controllers department for monthly accruals and
recording of income and expense items.
3. Oversees maintenance of chart of accounts for properly
recording accounts of the company.
KEY RESULTS AREA: Responsible For GLACIER BANCORP,INC. Investments
Performance Standards
1. Coordinate all investment decisions with President.
2. Acquire interest rates by no later than 9:00 a.m. every
morning.
3. Establish with President all investment policies/procedures
and report to Board monthly all changes.
4. Set up finance committee meeting no less than once every month
to review investment policies.
5. Secretary to the Asset-Liability Committee charged with
setting up monthly meetings.
<PAGE> 1
TABLE OF CONTENTS
<TABLE>
<S> <C>
Five Year Summary 1
Management's Message
to Stockholders 2
Consolidated Financial Statements 6
Notes to Consolidated
Financial Statements 10
Independent Auditor's Report 29
Management's Discussion
and Analysis 30
Board of Directors 36
Subsidiary Information 37
</TABLE>
CORPORATE PROFILE
Glacier Bancorp, Inc. (the Company) is a multi-bank, thrift holding company,
headquartered in Kalispell, Montana and operating four principal subsidiaries:
Glacier Bank (wholly owned), with nine offices in northwestern Montana, two
offices in Billings, in south central Montana, and one office in Hamilton, in
southwestern Montana; First Security Bank of Missoula (wholly owned), with three
offices in western Montana; First National Bank of Whitefish, (94% ownership) in
northwestern Montana; and First National Bank of Eureka, (93% ownership) also in
northwestern Montana. The four subsidiaries offer a full range of retail and
commercial banking services. The deposit accounts are insured by the Federal
Deposit Insurance Corporation (FDIC) and all four subsidiaries are members of
the Federal Home Loan Bank of Seattle. The Company also operates a wholly owned
subsidiary Community First, Inc. which offers full service brokerage services
through INVEST Financial Services, an unrelated brokerage firm.
STOCK TRANSFER AGENT AND REGISTRAR
TrustCorp
P. O. Box 2309
Great Falls, MT 59403
STOCK LISTING
Glacier Bancorp, Inc. Common Stock trades
over-the-counter on the NASDAQ National
Market System under the symbol GBCI.
Cover Photo by: Doug Dye
Grinnell Lake
Glacier National Park, Montana
CORPORATE INFORMATION
HOME OFFICE
202 Main Street
Kalispell, MT 59901-4454
(406) 756-4200
CORPORATE OFFICERS
John S. MacMillan
President/CEO
Chairman of the Board
Michael J. Blodnick
EVP/COO/Secretary
Stephen J. Van Helden
SVP/Treasurer
Joan Holling
SVP/Assistant Secretary
James H. Strosahl
SVP/CFO
Martin E. Gilman
SVP/Installment Loan Manager
Robert A. Nystuen
SVP/Sales and Marketing
Thomas E. Anderson
VP/Controller
Dennis S. Beams
VP/Commercial Loan Manager
ACCOUNTANTS
KPMG Peat Marwick LLP
P. O. Box 7108
Billings, MT 59103
LEGAL COUNSEL
Hash, O'Brien & Bartlett
136 First Avenue West
Kalispell, MT 59901-4442
FORM 10-K
The Company's Annual Report of Form 10-K is available on written request at no
charge to beneficial owners of the Company's stock. Requests should be directed
to:
John S. MacMillan, President/CEO
Glacier Bancorp, Inc.
P. O. Box 27
Kalispell, MT 59903-0027
1
<PAGE> 2
MANAGEMENT'S MESSAGE TO STOCKHOLDERS
December 31, 1996
[PICTURE OF JOHN S. MACMILLAN]
I am pleased to report Glacier Bancorp's operating earnings increased 7.30% to a
record $8,570,000, or $1.90 per share, up from $7,975,000, or $1.77 per share,
in 1995. Reported Net Income was $7,425,000, or $1.65 per share, which reflects
a one-time charge of $583,000, or $.13 per share, to recapitalize the Savings
Association Insurance Fund (SAIF), and expenses related to the merger of First
Security Bank, which totaled $563,000, or $.12 per share. All information in the
accompanying financial statements includes the amounts from the First Security
Bank of Missoula (Missoula Bancshares) merger which was completed on December
31, 1996.
We achieved a Return on Beginning Equity of 18.30% and a Return on Assets of
1.66%, without the SAIF and merger expenses. The returns including the SAIF and
merger expenses were 15.86% and 1.43% respectively.
With the combination of assets of First Security and our other subsidiaries,
your Company now has Total Assets of $545,992,000, or an increase of 10.70%
over the 1995 year end.
ACCOMPLISHMENTS OF 1996
1996 was a very busy year for your
Company.
February - we opened a new state-of-
the-art 8-lane drive-up in Kalispell.
April - we again announced a 10% stock dividend which was paid in May.
June - the Dividend Reinvestment Plan was introduced and has been growing at a
steady pace. We hope more shareholders will take advantage of this program to
acquire additional shares of Glacier Bancorp at a reduced cost.
July - we increased our cash dividend by 10%. We also opened our first
full-service supermarket office in a large Buttreys Store located in the Heights
area of Billings.
August - we announced the agreement to acquire First Security Bank of
Missoula.
December - we opened our second supermarket office in Hamilton's Super 1
Supermarket. We began construction of a free-standing office in Thompson Falls.
The merger with First Security Bank was completed and First Security also opened
a full-service office on the northwest side of Missoula.
The Small Business Administration announced First Security Bank was Montana's
leading SBA lender for number of loans made in 1996.
We are working hard to grow the Company by acquiring banks and by opening new
offices. This rapid growth has put a strain on operations expenses and earnings,
and our efficiency ratio is somewhat higher due to the expansion. It takes
2
<PAGE> 3
approximately 18 months to grow these offices to a break-even point. When these
opportunities presented themselves to us, we felt it prudent to take advantage
of them. In the long run, this growth will give us a larger presence in the
areas we feel have great growth potential. The supermarket offices are a low
cost means to gather new business and continue growth. We believe this strategy
will increase long term shareholder value.
We have had solid growth in deposits and loans, with total growth in deposits
of $30.1 million, an increase of 10.30%. We are excited about the non-interest
bearing deposit growth of $10.6 million, or 19.70%. This type of deposit is, of
course, low cost and very desirable by all banking institutions. After loan loss
reserves, we grew our loans by 9.45%. Commercial loans grew 16.88% and
installment loans grew 17.10%. Our funding and loan mix is moving to a better
diversification of low cost funding and more profitable loans. The chart below
illustrates the current mix.
Deposit Mix
<TABLE>
<S> <C>
Large CD's 7%
CD's 24%
NOW 18%
Repos 3%
DDA 19%
MMDA 17%
Savings 12%
Loan Mix
Consumer 23%
Mortgage 52%
Commercial 25%
</TABLE>
Glacier Bancorp's compounded annual growth rate on earnings per share from
March 31, 1985, to December 31, 1996, was 12.94%. The compounded growth rate in
dividends during this period was 23.17%. The compounded annual total return
since going public on March 31, 1984, to December 31, 1996, was 25.29%. A
shareholder who acquired 100 shares of Glacier Bancorp stock on March 31, 1984,
for $800 saw their investment grow to $12,894 on December 31, 1996 (including
stock splits and stock dividends). In addition, they would have received $2,075
in cash dividends. We still rate Standard & Poor's highest ranking of A+ on our
common stock and continue to be one of the few financial institutions in the
country who hold this ranking. This is mainly due to our long term ability to
continue to grow our earnings and dividends.
The merger with First Security Bank went very well. We have been able to adopt
some of the operating strategies which have served them well for many years.
First Security's seasoned lenders and Board of Directors bring a wealth of
experience to the Glacier Bancorp organization. William L. Bouchee, President
and CEO of First Security Bank, and Allen J. Fetscher, Chairman of the Board of
First Security, have become Directors of Glacier Bancorp. We look forward to
their vast experience in making a contribution in the coming years.
1997 GOALS AND OBJECTIVES
We will consolidate the Glacier Bank branch office in Whitefish into the First
National Bank of Whitefish in March with the bank name changed to Glacier
National
Bank.
Construction of the Thompson Falls
office will be completed for opening in
April.
3
<PAGE> 4
We have recently announced plans to open a Helena office, in one of Montana's
largest supermarkets, in June of this year.
A study of a new computer solution for the Company is underway. First Security
has an in-house system and Glacier Bancorp out-sources this function. It makes
sense to use a common system that has the technology we will need to meet the
challenges in the years ahead.
We are revising our employee incentive plan for selling bank products to
increase effectiveness.
Glacier Bancorp continues to look for acquisitions which fit our strategies
and geographic area. At the same time, we continue to look for low cost
facilities to continue our growth.
Even with the substantial growth, our capital ratios are on the high end
compared to peer group banks and regulatory requirements.
The provision for loan losses was $880,000 for 1996, up from $581,000 in 1995.
This is higher due to loan growth and increases in loan losses in the consumer
loan portfolio. Non-performing loans were .29% of assets compared to .11% of
assets at December 31, 1995. Reserve for loan losses is more than two times our
non-performing loans.
We continue to work diligently to grow the Company profitably and increase
shareholder value for our owners. We continue to do this with our dedicated,
hard-working employee group and a focused Board of Directors. We would like to
thank our customers and the communities in which we work, and you, our
shareholders, for your continued confidence and support.
Sincerely,
/s/ John S. MacMillan
- ------------------------------------
John S. MacMillan
President, Chief Executive Officer
and Chairman of the Board
4
<PAGE> 5
SUMMARY OF OPERATIONS AND SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------
(dollars in thousands, except per share data) 1996 1995 1994 1993 1992
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Financial Condition:
Total assets .............................................. $ 545,992 493,064 425,667 363,032 323,060
Investment securities ..................................... 59,399 52,987 38,407 36,040 34,358
Mortgage-backed securities ................................ 46,106 37,868 30,424 22,789 34,666
Loans receivable .......................................... 389,925 356,340 320,549 268,687 225,370
Allowance for loan losses ................................. (3,284) (3,077) (2,647) (2,330) (2,267)
Deposits .................................................. 321,739 291,585 258,722 247,615 233,814
Advances .................................................. 143,289 120,714 82,541 54,732 36,797
Other borrowed money/repurchase
agreements ........................................... 14,993 22,305 35,452 17,988 14,870
Stockholders' equity ...................................... 51,948 46,819 39,858 34,772 30,173
Equity per common share* .................................. 11.47 10.40 8.81 7.75 6.81
Equity as a percentage of total assets .................... 9.51% 9.50% 9.36% 9.58% 9.34%
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
(dollars in thousands, except per share data) 1996 1995 1994 1993 1992
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Interest income ........................................... $ 41,148 36,852 29,361 26,434 23,166
Interest expense .......................................... 18,556 16,069 11,496 10,713 10,541
--------- ------- ------- ------- -------
Net interest income ..................................... 22,592 20,783 17,865 15,721 12,625
Provision for loan losses ................................. 880 581 321 239 518
Non-interest income ....................................... 8,339 7,592 6,734 7,416 4,800
Non-interest expense ...................................... 17,536 14,680 12,922 11,826 8,959
--------- ------- ------- ------- -------
Earnings before income taxes ............................ 12,515 13,114 11,356 11,072 7,948
Income taxes .............................................. 5,090 5,139 4,467 4,249 2,935
--------- ------- ------- ------- -------
Net earnings ............................................ 7,425 7,975 6,889 6,823 5,013
--------- ------- ------- ------- -------
Net earnings per common share* .......................... 1.65 1.77 1.53 1.53 1.15
Dividends declared per share* ........................... 0.63 0.56 0.49 0.42 0.36
========= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Ratios:
Net earnings as a percent of:
Average assets ............................................ 1.43% 1.74% 1.75% 1.96% 1.80%
Beginning stockholders' equity ............................ 15.86% 20.01% 19.81% 22.61% 19.57%
Net interest margin at end of period ...................... 4.67% 4.90% 4.88% 4.88% 4.86%
Allowance for loan losses as a percent of loans .......... 0.84% 0.86% 0.83% 0.87% 1.01%
Allowance for loan losses as a percent of
nonperforming assets ................................. 204% 547% 375% 227% 87%
======== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
At and for the years ended December 31,
-----------------------------------------------------------------
(dollars in thousands) 1996 1995 1994 1993 1992
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Other Data:
Loans originated and purchased ............................ $ 266,044 224,064 225,003 226,418 173,116
Loans serviced for others ................................. 115,437 103,756 84,080 79,823 90,677
Number of full time equivalent employees .................. 249 227 206 207 214
Number of offices ......................................... 17 14 14 14 14
Number of shareholders of record .......................... 758 739 792 826 783
</TABLE>
* revised for stock splits and dividends
<PAGE> 1
[KPMG PEAT MARWICK LLP LETTERHEAD]
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
Glacier Bancorp, Inc.:
We consent to incorporation by reference in the registration statement
(No.33-94648) on Form S-8 of our report dated January 31, 1997 relating to the
consolidated statements of financial condition of Glacier Bancorp, Inc. and
subsidiaries as of December 31, 1996 and 1995 and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1996, which report appears in
the December 31, 1996 annual report on Form 10-K of Glacier Bancorp, Inc.
As discussed in the notes to the consolidated financial statements, the Company
changed its method of accounting for investments in debt and equity securities
on January 1, 1994 to adopt the provisions of the Financial Accounting Standards
Board's Statement of Financial Accounting Standard No. 115, "Accounting for
Certain Investments in Debt and Equity Securities".
KPMG PEAT MARWICK LLP
Billings, Montana
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF FINANCIAL CONDITION DECEMBER 31, 1996 CONSOLIDATED STATEMENTS OF
OPERATIONS DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ANNUAL REPORT FORM 10-K DECEMBER 31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,666
<INT-BEARING-DEPOSITS> 1,483
<FED-FUNDS-SOLD> 1,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 85,050
<INVESTMENTS-CARRYING> 20,455
<INVESTMENTS-MARKET> 20,436
<LOANS> 389,925
<ALLOWANCE> 3,284
<TOTAL-ASSETS> 545,992
<DEPOSITS> 321,739
<SHORT-TERM> 88,406
<LIABILITIES-OTHER> 14,023
<LONG-TERM> 69,876
0
0
<COMMON> 46
<OTHER-SE> 51,902
<TOTAL-LIABILITIES-AND-EQUITY> 545,992
<INTEREST-LOAN> 33,344
<INTEREST-INVEST> 7,804
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 41,148
<INTEREST-DEPOSIT> 10,272
<INTEREST-EXPENSE> 18,556
<INTEREST-INCOME-NET> 22,592
<LOAN-LOSSES> 880
<SECURITIES-GAINS> 121
<EXPENSE-OTHER> 17,536
<INCOME-PRETAX> 12,515
<INCOME-PRE-EXTRAORDINARY> 7,425
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,425
<EPS-PRIMARY> 1.65
<EPS-DILUTED> 1.65
<YIELD-ACTUAL> 4.67
<LOANS-NON> 374
<LOANS-PAST> 878
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,077
<CHARGE-OFFS> 816
<RECOVERIES> 143
<ALLOWANCE-CLOSE> 3,284
<ALLOWANCE-DOMESTIC> 3,284
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
