<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
December 31, 1996
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-18911 81-0468393
----------------------- -------------------------------
(Commission File Number) IRS Employer Identification No.
P. O. Box 27
202 Main Street
Kalispell, MT 59903-0027
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (406) 756-4200
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA, FINANCIAL INFORMATION, AND EXHIBITS
(a) Financial Statements
(b) Pro forma Financial Information: Not Applicable
(c) Exhibits:
(2) Plan and Agreement of Merger dated August 9, 1996 *
(10) Stock Option Agreement dated August 9, 1996 *
(99) Press Release issued by Glacier, dated
December 31, 1996**
* Previously filed as part of the S-4 Registration Statement (No.
333-13595)
** Previously filed as part of the Current Report on Form 8-K filed
January 9, 1997
2
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: March 14, 1997
GLACIER BANCORP, INC.
By: /s/ Michael J. Blodnick
--------------------------------------
Michael J. Blodnick
Executive Vice President/Chief
Operating Officer
3
<PAGE> 4
[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> 5
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> 6
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> 7
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> 8
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> 9
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> 10
(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> 11
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> 12
(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> 13
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> 14
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> 15
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> 16
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> 17
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> 18
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> 19
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> 20
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> 21
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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> 29
<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> 30
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> 31
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> 32
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> 33
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.
