<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-90701
PROXY STATEMENT PROSPECTUS OF
OF MOUNTAIN WEST BANK GLACIER BANCORP, INC.
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
Dear Mountain West Bank Stockholders:
The boards of directors of Mountain West Bank and Glacier Bancorp, Inc.
have agreed on a merger of Mountain West Bank and a to-be-formed bank subsidiary
of Glacier. When the merger occurs, Glacier will own Mountain West Bank.
In the merger, Mountain West Bank stockholders will receive shares of
Glacier common stock in exchange for their shares of Mountain West Bank common
stock. If the merger is completed, Mountain West Bank stockholders will receive
1.18 shares of Glacier common stock for each share of Mountain West Bank common
stock that they own. The last reported sales price for Glacier common stock on
December 13, 1999 was $17.00. We expect the merger to be A TAX-FREE
TRANSACTION FOR MOUNTAIN WEST BANK STOCKHOLDERS, except for the receipt by
Mountain West Bank stockholders of cash instead of fractional shares of Glacier
common stock, and cash received by any dissenting stockholder. After completion
of the merger, Mountain West Bank stockholders will own approximately 8% of
Glacier's outstanding common stock.
Your board of directors believes that the terms of the merger are fair
and in the best interest of Mountain West Bank and its stockholders. In reaching
this decision, the board considered numerous factors including the fact that the
shares of Glacier are listed on NASDAQ and that Glacier has agreed to provide
Mountain West Bank sufficient capital for its planned expansion activities.
Glacier also intends to allow Mountain West Bank to operate as a separately
chartered state bank. Mountain West Bank will not change its name or composition
of its management or board. This arrangement will allow the Mountain West Bank
to continue to deliver high quality banking services to its customers which are
a result of timely, local decision making. Other factors considered by the board
are discussed in the attached Prospectus/Proxy Statement.
THE MERGER CANNOT BE COMPLETED UNLESS YOU APPROVE IT. We will hold a
special stockholders' meeting to vote on the merger proposal. Whether or not you
plan to attend the special meeting, please take the time to vote by completing
and mailing the enclosed form of proxy. THE MOUNTAIN WEST BANK SPECIAL
STOCKHOLDERS' MEETING WILL BE HELD ON JANUARY 19, 2000, AT 10:00 A.M. LOCAL
TIME, AT 414 West Appleway, Coeur d'Alene, Idaho.
On behalf of the Mountain West Bank board of directors, I recommend
that you vote FOR approval of the merger.
Jon W. Hippler
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED BY GLACIER OR DETERMINED IF
THIS PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF GLACIER COMMON STOCK TO BE
ISSUED IN THE MERGER ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF
A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
BANK INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
--------------------------------
This proxy statement/prospectus is dated December 17, 1999, and is first being
mailed to Mountain West Bank stockholders on December 17, 1999.
<PAGE> 2
MOUNTAIN WEST BANK
P.O. BOX 1059
125 IRONWOOD DRIVE
COEUR D'ALENE, IDAHO 83816
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD JANUARY 19, 2000
TO THE STOCKHOLDERS OF MOUNTAIN WEST BANK:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of
Mountain West Bank will be held on January 19, 2000, at 10:00 a.m. local time,
at 414 West Appleway, Coeur d'Alene, Idaho.
The special meeting is for the following purposes:
1. MERGER AGREEMENT. To consider and vote upon a proposal to approve the
Plan and Agreement of Merger, dated as of September 9, 1999, between
Mountain West Bank, Glacier Bancorp, Inc. and New Mountain West Bank, a
subsidiary of Glacier to be formed, under the terms of which Mountain
West Bank will merge with New Mountain West Bank, as more fully
described in the accompanying proxy statement/prospectus. The merger
agreement is attached as Appendix A to the proxy statement/prospectus
which accompanies this notice.
2. OTHER MATTERS. To act upon any other matters as may properly come
before the special meeting, or any postponement or adjournment of it.
Only holders of record of Mountain West Bank common stock, at 5:00 p.m.
on December 1, 1999 the record date for the special meeting, are entitled to
notice of, and to vote at, the special meeting or any adjournments or
postponements of it. The affirmative vote of the holders of two-thirds or more
of the outstanding shares of Mountain West Bank common stock is required for
approval of the merger agreement. As of December 1, 1999, there were
715,472 shares of Mountain West Bank common stock outstanding.
Mountain West Bank stockholders desiring to do so may dissent from the
merger and obtain payment for their shares in accordance with the provisions of
the Idaho Code, Section 26.909, a copy of which is included in the proxy
statement/prospectus. See "THE MERGER - Dissenters' Rights of Appraisal" and
Appendix B.
All stockholders are cordially invited to attend the special meeting
personally. Whether or not you are able to do so, it is important that you
complete, sign, date, and promptly return the accompanying proxy in the enclosed
postage-paid envelope in order to vote your shares of Mountain West Bank common
stock. Stockholders may revoke proxies previously submitted by completing a
later-dated proxy, by written revocation delivered to Mountain West Bank's
Secretary at or before the special meeting, or by appearing and voting at the
special meeting in person. Attendance at the special meeting will not of itself
revoke a previously submitted proxy.
By Order of the Board of Directors,
Kim Jacklin,
Secretary
Coeur d'Alene, Idaho
December 17, 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN, AND WHETHER
OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING. APPROVAL OF THE MERGER REQUIRES
THE AFFIRMATIVE VOTE OF HOLDERS OF TWO-THIRDS OF THE OUTSTANDING SHARES OF
MOUNTAIN WEST BANK COMMON STOCK. IN ORDER TO ENSURE THAT THE REQUISITE VOTES ARE
OBTAINED AND A QUORUM IS ATTAINED, WE URGE YOU TO SIGN, DATE, AND RETURN THE
ENCLOSED PROXY FORM.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES IMPORTANT BUSINESS AND
FINANCIAL INFORMATION ABOUT GLACIER FROM DOCUMENTS THAT ARE NOT INCLUDED IN OR
DELIVERED WITH THIS DOCUMENT. YOU CAN OBTAIN DOCUMENTS INCORPORATED BY REFERENCE
INTO THIS PROXY STATEMENT/PROSPECTUS BY REQUESTING THEM IN WRITING OR BY
TELEPHONE FROM GLACIER AT THE FOLLOWING ADDRESS:
GLACIER BANCORP, INC.
49 Commons Loop
Kalispell, Montana
59901
ATTN: James H. Strosahl, Corporate Secretary
Telephone: (406) 756-4263
You will not be charged for these documents that you request. If you
would like to request documents, please do so by January 11, 2000, in order
to receive them before the Mountain West Bank special stockholders' meeting.
See "WHERE YOU CAN FIND MORE INFORMATION" and "INFORMATION INCORPORATED
BY REFERENCE."
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................................1
Share Information and Market Prices..............................................4
EQUIVALENT PER COMMON SHARE DATA........................................................5
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA..............................6
MOUNTAIN WEST BANK SPECIAL STOCKHOLDERS' MEETING.......................................11
Date, Time, Place...............................................................11
Purpose.........................................................................11
Record Date; Shares Outstanding and Entitled to Vote............................11
Vote Required...................................................................11
Voting, Solicitation, and Revocation of Proxies.................................12
BACKGROUND OF AND REASONS FOR THE MERGER...............................................12
Background of the Merger........................................................12
Reasons For The Merger - Mountain West Bank.....................................13
Opinion of Mountain West Bank Financial Advisor.................................14
Recommendation of the Mountain West Bank Board..................................16
THE MERGER.............................................................................17
Basic Terms of the Merger.......................................................17
Cash for Fractional Shares......................................................17
Federal Income Tax Consequences of the Merger...................................17
Dissenters' Rights of Appraisal.................................................20
Exchange of Stock Certificates..................................................20
Conditions to the Merger; Regulatory Approvals..................................20
Amendment or Termination of the Merger Agreement................................21
Conduct Pending the Merger......................................................22
Mountain West Bank Management and Operations After the Merger...................23
Employee Benefit Plans..........................................................23
Interests of Certain Persons in the Merger......................................23
Accounting Treatment of the Merger..............................................25
Stock Resales by Mountain West Bank Affiliates..................................25
STOCK PRICE AND DIVIDEND INFORMATION...................................................26
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS......................................28
INFORMATION CONCERNING GLACIER.........................................................35
General.........................................................................35
Year 2000 Issues................................................................36
INFORMATION CONCERNING MOUNTAIN WEST BANK..............................................38
Business........................................................................38
Competition.....................................................................38
Facilities......................................................................39
</TABLE>
i
<PAGE> 5
<TABLE>
<S> <C>
Compensation Information........................................................39
Employees.......................................................................39
Legal Proceedings...............................................................39
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS.......................40
MOUNTAIN WEST BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................41
SUPERVISION AND REGULATION.............................................................57
DESCRIPTION OF GLACIER'S CAPITAL STOCK.................................................62
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF GLACIER AND MOUNTAIN WEST BANK
COMMON STOCK....................................................................63
CERTAIN LEGAL MATTERS..................................................................69
EXPERTS................................................................................69
WHERE YOU CAN FIND MORE INFORMATION....................................................69
INFORMATION INCORPORATED BY REFERENCE..................................................69
OTHER MATTERS..........................................................................70
STOCKHOLDER PROPOSALS..................................................................71
MOUNTAIN WEST BANK FINANCIAL STATEMENTS................................................71
Appendix A - Plan and Agreement of Merger
Appendix B - Idaho Statutes Regarding Dissenter's Rights
Appendix C - Opinion of Financial Advisor to Mountain West Bank
</TABLE>
ii
<PAGE> 6
SUMMARY
This Summary highlights selected information from this document and may
not contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents we have
referred you to. See "WHERE YOU CAN FIND MORE INFORMATION."
THE MERGER
We propose a merger in which Mountain West Bank will merge with a
newly-formed subsidiary of Glacier Bancorp, Inc. Following the merger, Mountain
West Bank will be owned by Glacier. We expect to complete the merger by as early
as January, 2000. See "THE MERGER - Basic Terms of the Merger."
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS DOCUMENT AS APPENDIX A.
PLEASE READ THE MERGER AGREEMENT. IT IS THE DOCUMENT THAT GOVERNS THE MERGER.
YOU WILL RECEIVE SHARES OF GLACIER STOCK IN THE MERGER
You will receive shares of Glacier common stock in the merger, and you
will become a Glacier stockholder unless you dissent from the merger. If the
merger is completed, you will receive 1.18 shares of Glacier common stock for
each share of Mountain West Bank common stock that you own. Cash will be paid
for fractional shares. See "THE MERGER - Basic Terms of the Merger."
THE MERGER WILL BE GENERALLY TAX-FREE TO YOU
The merger generally will be tax-free to you for federal income tax
purposes, except for the receipt of cash instead of fractional shares of Glacier
common stock and cash received by any dissenting Mountain West Bank stockholder.
A summary of the material federal tax consequences of the merger is set forth at
"THE MERGER - Federal Income Tax Consequences of the Merger."
MOUNTAIN WEST BANK HAS OBTAINED A FINANCIAL ADVISOR'S OPINION
Columbia Financial Advisors, Inc. has rendered an opinion dated
December 15, 1999 to the Mountain West Bank board of directors that, as of such
date, the consideration to be received by Mountain West Bank stockholders is
fair, from a financial point of view. A copy of the opinion delivered by CFAI is
attached to this document as APPENDIX C and a description of its analysis is
contained in this document. For a more detailed description of the fairness
opinion, see BACKGROUND OF AND REASONS FOR "THE MERGER - Opinion of Mountain
West Bank Financial Advisor."
THE MOUNTAIN WEST BANK SPECIAL STOCKHOLDERS' MEETING
We have scheduled a special shareholders meeting, in order to consider
and vote on the merger. The meeting will be held on January 19, 2000 at 10:00
a.m. local time, at 414 West Appleway, Coeur d'Alene, Idaho. The merger must be
approved by the owners of two-thirds (2/3) of all of the Mountain West Bank
common stock outstanding on December 1, 1999, which is the record date for the
Mountain West Bank special meeting. See "MOUNTAIN WEST BANK SPECIAL
STOCKHOLDERS' MEETING."
1
<PAGE> 7
WE RECOMMEND THAT YOU APPROVE THE MERGER
The Mountain West Bank board of directors believes that the merger is
fair to you and in your best interests, and unanimously recommends that you vote
FOR the proposal to approve the merger.
WHY THE PARTIES ARE PROPOSING THE MERGER
Glacier and Mountain West Bank believe that the merger will benefit
both companies, and will allow Mountain West Bank to better serve its customers.
Because of Glacier's financial and technology resources, Mountain West Bank will
be able to offer additional products and services, while maintaining continuity
of services to its current customers. Glacier common stock is actively traded on
the NASDAQ National Market, and Mountain West Bank stockholders may expect to
benefit from the increased liquidity in owning Glacier common stock. For a more
complete discussion of the reasons that the boards of directors of Glacier and
Mountain West Bank approved the merger, see "BACKGROUND OF AND REASONS FOR THE
MERGER."
MOUNTAIN WEST BANK MANAGEMENT AND OPERATIONS AFTER THE MERGER
After the merger, the executive officers of Mountain West Bank will
remain unchanged. The Mountain West Bank board of directors will also remain
unchanged, except that Michael Blodnick, President and CEO of Glacier, will join
the board. See "THE MERGER - Mountain West Bank Management and Operations After
the Merger."
Mountain West Bank will be a subsidiary of Glacier after the merger,
but it will operate independently. The merger agreement provides that, unless
there is a change in control of Glacier, Mountain West Bank will retain the name
"Mountain West Bank" for at least three years following the merger. The merger
agreement also provides that, assuming that Glacier remains "well capitalized"
under applicable banking regulations, Glacier will, within two years of the
closing of the merger and at Mountain West Bank's request, provide sufficient
capital for Mountain West Bank to expand by two branches and to construct a
permanent branch building in Boise, Idaho.
YOU CAN DISSENT FROM THE MERGER
You are entitled to dissent from the merger if you vote against the
merger and follow other procedures, and if the merger occurs. If you properly
dissent, you will have the right to obtain payment of the fair value of your
Mountain West Bank common stock in cash, as provided by Idaho law.
If you fail to follow exactly the procedures specified under the
applicable Idaho law in a timely manner, you will lose your right to dissent. If
you wish to dissent, you should carefully read "THE MERGER - Dissenter's Rights
of Appraisal" and the copy of the applicable Idaho statute, which is attached to
this document as APPENDIX B.
THE PARTIES TO THE MERGER
GLACIER. Glacier is a Delaware corporation and a registered bank
holding company. Glacier's principal business is conducted through six Montana -
chartered bank subsidiaries:
o Glacier Bank
o Glacier Bank of Whitefish
o Glacier Bank of Eureka
o First Security Bank of Missoula
o Valley Bank of Helena
o Big Sky Western Bank
2
<PAGE> 8
At September 30, 1999, Glacier's bank subsidiaries had facilities in 16
communities in Montana, operating 20 full service banking offices. At September
30, 1999, Glacier had consolidated deposits of approximately $503 million and
consolidated assets of approximately $835 million. Glacier is headquartered in
Kalispell, Montana, and its executive offices are at 49 Commons Loop, Kalispell,
Montana 59901. Its telephone number is (406) 756-4200.
Glacier was incorporated on March 24, 1998, and is the successor
corporation of another company (also named "Glacier Bancorp, Inc.") that was
formed in 1990. Glacier merged with the prior corporation in July, 1998.
Additional information concerning Glacier and its business is included in the
documents that are incorporated by reference into this prospectus/proxy
statement. See "INFORMATION INCORPORATED BY REFERENCE" and "WHERE YOU CAN FIND
MORE INFORMATION."
MOUNTAIN WEST BANK. Mountain West Bank was originally formed as a
federal savings bank having received its federal charter in September of 1993.
Mountain West Bank converted to an Idaho state bank on June 30, 1999. Mountain
West Bank is a member of the FDIC. Mountain West Bank engages in a general
commercial banking business in Coeur d'Alene, Hayden, Post Falls and Boise,
Idaho. At September 30, 1999, Mountain West Bank had deposits of approximately
$74 million and assets of approximately $83 million.
The headquarters for Mountain West Bank is located at 125 Ironwood Dr.,
Coeur d'Alene, ID 83814, and its telephone number is (208) 765-0284. For
additional information about Mountain West Bank and its business, see
"INFORMATION CONCERNING MOUNTAIN WEST BANK."
MOUNTAIN WEST BANK HAS GRANTED GLACIER AN OPTION
To induce Glacier to enter into the merger agreement, Mountain West
Bank granted Glacier an option to purchase authorized but unissued shares of
Mountain West Bank. Glacier may exercise this option on the occurrence of
certain events. If Glacier was to exercise this option, it would acquire a
number of shares equal to 19.9% of the outstanding shares, including shares
reserved for issuance pursuant to unexercised stock options, of Mountain West
Bank common stock, at $21.00 per share. See "THE MERGER - Mountain West Bank
Stock Option Agreement."
THERE ARE CONDITIONS TO THE CLOSING OF THE MERGER
To complete the merger, Glacier and Mountain West Bank must satisfy a
number of conditions in addition to approval by Mountain West Bank stockholders.
These conditions include:
o the merger must not be prohibited by law or injunction;
o Glacier and Mountain West Bank must receive all necessary approvals
of governmental authorities; and
o Mountain West Bank must receive an updated opinion from CFAI that as
of the effective date of the merger, the consideration to be
received by the Mountain West Bank stockholders is fair from a
financial point of view.
The merger agreement allows Glacier or Mountain West Bank to waive some
of the conditions to closing. For a more complete discussion of the conditions
to the completion of the merger, see "THE MERGER - Conditions to the Merger;
Regulatory Approvals."
3
<PAGE> 9
THE MERGER AGREEMENT CAN BE AMENDED OR TERMINATED
The merger agreement may be amended at any time prior to the closing if
both the Glacier and Mountain West Bank boards of directors approve.
Additionally, Glacier may change the method by which it acquires Mountain West
Bank. However, no such change may change the amount or kind of consideration
that Mountain West Bank stockholders will receive, or change the tax treatment
of the merger to Mountain West Bank stockholders.
The merger agreement may be terminated and the merger abandoned at any
time, even after approval by Mountain West Bank's stockholders, if both the
Glacier and Mountain West Bank boards of directors agree to do so. Also, in
certain circumstances either Glacier's or Mountain West Bank's board of
directors may terminate the merger agreement, without the other board's consent.
For a description of the various circumstances under which the merger agreement
may be terminated, see "THE MERGER - Amendment or Termination of the Merger
Agreement."
SOME OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT ARE DIFFERENT FROM
OR IN ADDITION TO THEIR INTEREST AS STOCKHOLDERS
Certain members of Mountain West Bank's management have interests in
the merger that are different from, or in addition to, their interests as
Mountain West Bank stockholders. These interests exist because of employment
agreements that they have entered into with Mountain West Bank, and because of
indemnification provisions in the merger agreement. See "THE MERGER - Interests
of Certain Persons in the Merger."
SHARE INFORMATION AND MARKET PRICES
Glacier's common stock is quoted on the Nasdaq National Market under
the symbol "GBCI." Mountain West Bank common stock is not listed or quoted on
any exchange or market system. See "STOCK PRICE AND DIVIDEND INFORMATION."
The following table sets forth the last reported sale price per share
of Glacier common stock, as reported on Nasdaq, and of Mountain West Bank common
stock, in addition to the equivalent per share price for Mountain West Bank
common stock, on September 9, 1999, (the last full trading day prior to the
public announcement of the execution of the merger agreement) and on
December 13, 1999, the most recent date for which it was practicable to
obtain market price data prior to the printing of this proxy
statement/prospectus. Holders of Mountain West Bank common stock are urged to
obtain current market quotations for shares of Glacier common stock.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
PRICE PER SHARE: September 9, 1999 December 13, 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Glacier Common Stock $18.625 $17.00
- -------------------------------------------------------------------------------------
Mountain West Bank Common Stock(1) $21.00 $20.00
- -------------------------------------------------------------------------------------
Mountain West Bank Equivalent Pro Forma(2) $21.977 $20.06
- -------------------------------------------------------------------------------------
</TABLE>
(1) There are no publicly available quotations of Mountain West Bank common
stock, and the market prices per share as of September 9, 1999 and
December 13, 1999, respectively, quoted above, represent prices known to
Mountain West Bank's management to have been paid in the last transaction
prior to such dates.
(2) Giving effect for the merger and computed by multiplying the closing price
per share of Glacier common stock by an exchange ratio of 1.18.
4
<PAGE> 10
EQUIVALENT PER COMMON SHARE DATA
The following table shows certain per common share data of Glacier and
Mountain West Bank common stock on a historical basis and on a pro forma basis
giving effect to the merger using the pooling of interests method of accounting.
For a description of the pooling-of-interests method of accounting with respect
to the merger see "THE MERGER - Accounting Treatment of the Merger." The pro
forma combined financial data are not necessarily indicative of actual or future
operating results or the financial position that would have occurred had the
merger become effective prior to the period indicated or that will occur upon
completion of the merger. You should read this data in conjunction with the
financial statements and other financial data included elsewhere in this proxy
statement/prospectus or incorporated by reference. See "THE MERGER - Basic Terms
of the Merger."
<TABLE>
<CAPTION>
Glacier Mountain West Bank
Pro Forma
Combined Pro Forma
Historical Corporation Historical Equivalent(4)
<S> <C> <C> <C> <C>
Book value per share(1)
September 30, 1999 $8.25 $8.21 $9.12 $9.69
December 31, 1998 $8.22 $8.17 $8.94 $9.64
December 31, 1997 $7.38 $7.27 $6.88 $8.58
December 31, 1996 $6.52 $6.44 $6.27 $7.60
Basic earnings per share(2)
9 months ended September 30, 1999 $0.95 $0.90 $0.37 $1.07
12 months ended December 31, 1998 $1.17 $1.14 $0.77 $1.35
12 months ended December 31, 1997 $1.13 $1.09 $0.57 $1.29
12 months ended December 31, 1996 $0.94 $0.91 $0.67 $1.08
Diluted earnings per share(3)
9 months ended September 30, 1999 $0.94 $0.89 $0.35 $1.05
12 months ended December 31, 1998 $1.15 $1.11 $0.74 $1.31
12 months ended December 31, 1997 $1.11 $1.07 $0.56 $1.27
12 months ended December 31, 1996 $0.92 $0.90 $0.66 $1.07
Cash dividends declared per share
9 months ended September 30, 1999 $0.44 $0.40 $0.00 $0.48
12 months ended December 31, 1998 $0.52 $0.46 $0.00 $0.55
12 months ended December 31, 1997 $0.43 $0.40 $0.00 $0.48
12 months ended December 31, 1996 $0.35 $0.32 $0.00 $0.38
</TABLE>
- ---------------
(1) Book value per share is calculated by dividing the total actual historical
and pro forma equity as of the date indicated by the actual historical and
pro forma number of shares outstanding as of the same date.
(2) Earnings per share is calculated by dividing total actual historical and
pro forma net income for the periods ended by the actual historical and pro
forma weighted average number of shares of common stock for the period
indicated.
(3) Diluted earnings per share includes the net increase in shares if
outstanding in-the-money stock options were exercised using the treasury
stock method.
(4) Pro forma equivalent per share data for Mountain West Bank is calculated by
multiplying the pro forma combined corporation per share data by the merger
exchange ratio of 1.18.
5
<PAGE> 11
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
The tables on the following pages set forth, for the respective
periods, specified, selected historical consolidated financial data for Glacier
and Mountain West Bank, and selected unaudited pro forma combined financial data
giving effect to the merger on a pooling-of-interests basis. The pro forma
combined financial data are presented as though the merger had been consummated
at the beginning of the period set forth; however, such data is not necessarily
indicative of actual or future operating results or the financial position that
would have occurred or will occur upon the consummation of the merger. The data
has been derived in part from, and should be read in conjunction with, the
consolidated financial statements and notes and other financial information with
respect to Glacier and Mountain West Bank set forth elsewhere in this
prospectus/joint proxy statement or incorporated by reference, and such data are
qualified in their entirety by reference thereto.
All adjustments that the respective managements of Glacier and Mountain
West Bank believe to be necessary for a fair presentation of the data have been
included. The September 30, 1999 and 1998 ratios have been annualized where
necessary. Dollar amounts are in thousands, except per share data.
Glacier has a fiscal year that ends on December 31 of each year.
Mountain West Bank's fiscal year ends on March 31 of each year. The following
pro forma selected financial information combines the historical financial
information of Glacier with the financial information of Mountain West Bank as
if Mountain West Bank's fiscal year ended on December 31 of each period
presented, except for the table entitled "Historical Fiscal Year Data".
6
<PAGE> 12
PRO FORMA GLACIER BANCORP, INC. AND MOUNTAIN WEST BANK (UNAUDITED)
The following table presents unaudited information concerning certain
financial information and ratios on a pro forma basis giving effect to the
proposed merger on a pooling-of-interests accounting basis. The pro forma
combined information are presented as if the merger had been consummated at the
beginning of each period presented. Any adjustments necessary to prepare this
information have been of a normal recurring nature.
The following is qualified in its entirety by reference to more
detailed financial information and financial statements presented elsewhere in
this prospectus/proxy statement. Dollar amounts are in thousands, except per
share data.
<TABLE>
<CAPTION>
----------------------------------------------------------
Nine Months Ended Year ended December 31,
September 30, ----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ..................... $ 46,723 43,731 58,486 55,324 50,294 44,269 34,483
Interest expense .................... 19,703 19,250 25,415 24,817 22,565 19,210 13,551
----------- ---------- ---------- --------- --------- --------- ---------
Net interest income ............... 27,020 24,481 33,071 30,507 27,729 25,059 20,932
Provision for loan losses ........... 1,246 1,236 1,734 1,027 1,023 643 410
----------- ---------- ---------- --------- --------- --------- ---------
Net interest income after
provision for loan losses ....... 25,774 23,245 31,337 29,480 26,706 24,416 20,522
Non-interest income ................. 9,670 9,965 13,396 10,972 10,320 9,002 8,238
Non-interest expense ................ 21,063 19,518 26,591 23,730 22,735 18,817 16,658
----------- ---------- ---------- --------- --------- --------- ---------
Earnings before income taxes ...... 14,381 13,692 18,142 16,722 14,291 14,601 12,102
Income taxes ........................ 5,058 5,118 6,698 6,170 5,597 5,688 4,854
----------- ---------- ---------- --------- --------- --------- ---------
Net earnings ...................... 9,323 8,574 11,444 10,552 8,694 8,913 7,248
=========== ========== ========== ========= ========= ========= =========
PER SHARE DATA (1):
Basic earnings per common shares .... 0.90 0.85 1.14 1.09 0.91 0.93 0.76
Diluted earnings per common share ... 0.89 0.83 1.11 1.07 0.90 N/A N/A
Dividends declared per share ........ 0.40 0.29 0.46 0.40 0.32 0.21 0.18
Period end book value ............... 8.21 8.08 8.17 7.27 6.44 5.78 4.86
Average common shares outstanding ... 10,348,470 10,060,852 10,111,883 9,781,013 9,574,541 9,617,102 9,515,590
SUMMARY OF FINANCIAL CONDITION:
Total assets ........................ $ 918,140 775,826 785,135 740,891 679,055 595,547 509,588
Investment securities ............... 205,060 109,392 117,074 129,371 126,147 112,505 89,360
Loans receivable, net ............... 619,695 556,480 571,654 528,142 477,498 418,573 371,297
Total deposits ...................... 578,507 533,199 544,110 481,121 433,994 376,357 330,193
Total borrowed funds ................ 245,482 148,440 153,373 178,408 167,158 149,992 122,033
Stockholders' equity ................ 85,260 82,583 84,098 71,493 61,680 55,647 46,805
FINANCIAL RATIOS:
Return on:
Average assets .................... 1.37% 1.49% 1.49% 1.48% 1.36% 1.62% 1.55%
Average stockholders' equity(2) ... 14.68% 14.84% 14.71% 15.85% 14.82% 17.40% 16.32%
Equity as a percentage of total
assets ............................ 9.29% 10.64% 10.71% 9.65% 9.08% 9.34% 9.18%
Dividend payout ratio ............... 44.60% 34.37% 40.15% 37.96% 34.89% 22.92% 23.88%
Efficiency ratio .................... 57.41% 56.66% 57.23% 57.21% 59.75% 55.25% 57.11%
Net loans to total assets ........... 67.49% 71.73% 72.81% 71.28% 70.32% 70.28% 72.86%
Net interest margin on average
earning assets (tax equivalent) ... 4.67% 4.67% 4.80% 4.74% 4.75% 4.96% 4.88%
Nonperforming assets to total
assets ............................ 0.29% 0.45% 0.38% 0.23% 0.32% 0.18% 0.22%
Allowance for loan losses to total
loans ............................. 1.04% 0.90% 0.98% 0.87% 0.85% 0.90% 0.92%
Allowance for loan losses
to nonperforming assets ........... 247% 145% 188% 268% 191% 347% 307%
</TABLE>
(1) Revised for stock splits and dividends. Includes shares to be issued to
Mountain West Bank.
(2) Ratios for the nine months ended September 30, 1999 and 1998 have been
annualized.
(3) The efficiency ratio is non-interest expense divided by the sum of net
interest income and non-interest income.
7
<PAGE> 13
GLACIER BANCORP, INC.
The following table presents unaudited information concerning certain
financial information and ratios for Glacier Bancorp, Inc. Dollars are in
thousands, except per share data.
<TABLE>
<CAPTION>
---------------------------------------------------------
Nine Months Ended Year ended December 31,
September 30, ---------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income ........................ 42,499 40,301 53,678 51,686 47,697 42,358 33,557
Interest expense ....................... 18,248 17,881 23,550 23,296 21,426 18,346 13,200
--------- --------- --------- --------- --------- --------- ---------
Net interest income .................. 24,251 22,420 30,128 28,390 26,271 24,012 20,357
Provision for loan losses .............. 1,090 1,094 1,532 889 949 611 318
--------- --------- --------- --------- --------- --------- ---------
Net interest income after
provision for loan losses .......... 23,161 21,326 28,596 27,501 25,322 23,401 20,039
Non-interest income .................... 8,301 9,034 12,002 10,135 9,825 8,860 8,111
Non-interest expense ................... 17,492 17,337 23,285 21,427 21,158 17,733 15,735
Earnings before income taxes ......... 13,970 13,023 17,313 16,209 13,989 14,528 12,415
Income taxes ........................... 4,910 4,879 6,398 5,973 5,662 5,688 4,854
--------- --------- --------- --------- --------- --------- ---------
Net earnings ......................... 9,060 8,144 10,915 10,236 8,327 8,840 7,561
========= ========= ========= ========= ========= ========= =========
PER SHARE DATA (1):
Basic earnings per common shares ....... 0.95 0.88 1.17 1.13 0.94 0.98 0.85
Diluted earnings per common share ...... 0.94 0.86 1.15 1.11 0.92 0.98 N/A
Dividends declared per share ........... 0.44 0.33 0.52 0.43 0.35 0.31 0.20
Period end book value .................. 8.25 8.13 8.22 7.38 6.52 5.85 4.88
Average common shares outstanding ...... 9,512,180 9,260,444 9,304,101 9,130,762 8,924,290 8,966,851 8,865,339
SUMMARY OF FINANCIAL CONDITION:
Total assets ........................... 835,256 704,400 706,027 681,433 637,710 566,043 489,403
Investment securities .................. 188,726 100,187 105,486 122,749 122,866 109,200 86,795
Loans receivable, net .................. 565,794 507,670 518,208 486,220 447,169 398,084 355,947
Total deposits ......................... 502,781 471,290 475,844 428,446 398,511 350,942 313,643
Total borrowed funds ................... 245,482 147,440 152,373 175,908 165,358 149,427 121,553
Stockholders' equity ................... 78,735 76,375 77,810 67,702 58,225 52,503 43,870
FINANCIAL RATIOS:
Return on:
Average assets ....................... 1.53% 1.56% 1.59% 1.55% 1.38% 1.69% 1.67%
Average stockholders' equity (2) ..... 15.43% 15.07% 15.00% 16.26% 15.04% 18.35% 18.32%
Equity as a percentage of total
assets ............................... 9.43% 10.84% 11.02% 9.94% 9.13% 9.28% 8.96%
Dividend payout ratio .................. 46.32% 37.50% 44.44% 38.39% 36.89% 31.48% 22.89%
Efficiency ratio ....................... 53.74% 55.12% 65.01% 55.62% 58.62% 53.95% 55.27%
Net loans to total assets .............. 67.74% 72.07% 73.40% 71.35% 70.12% 70.33% 72.73%
Net interest margin on average
earning assets (tax equivalent) ...... 4.63% 4.64% 4.79% 4.72% 4.76% 4.97% 4.90%
Nonperforming assets to total assets ... 0.28% 0.47% 0.40% 0.24% 0.34% 0.19% 0.23%
Allowance for loan losses to total
loans ................................ 1.03% 0.91% 0.98% 0.87% 0.86% 0.91% 0.93%
Allowance for loan losses
to nonperforming assets .............. 250% 139% 184% 264% 181% 334% 297%
</TABLE>
(1) Revised for stock splits and dividends.
(2) Ratios for the nine months ended September 30, 1999 and 1998 have been
annualized.
(3) The efficiency ratio is non-interest expense divided by the sum of net
interest income and non-interest income.
8
<PAGE> 14
MOUNTAIN WEST BANK - HISTORICAL YEAR FISCAL DATA
The following table presents unaudited information concerning certain
financial information and ratios for Mountain West Bank. The information is
qualified in its entirety by reference to more detailed financial information
and financial statements presented elsewhere in this Prospectus/Proxy Statement.
Dollar amounts are in thousands, except per share data.
<TABLE>
<CAPTION>
--------------------------------------------------
Six Months Ended Year ended March 31,
September 30, --------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income .................... $ 2,887 2,392 5,107 3,926 2,784 2,049 1,228
Interest expense ................... 969 938 1,920 1,629 1,213 939 472
-------- ------- ------- ------- ------- -------- --------
Net interest income .............. 1,918 1,454 3,187 2,297 1,571 1,110 756
Provision for loan losses .......... 120 107 203 163 68 41 84
-------- ------- ------- ------- ------- -------- --------
Net interest income after
provision for loan losses ...... 1,798 1,347 2,984 2,134 1,503 1,069 672
Non-interest income ................ 867 672 1,637 922 596 208 94
Non-interest expense ............... 2,359 1,548 3,885 2,282 1,869 1,221 912
-------- ------- ------- ------- ------- -------- --------
Earnings before income taxes ..... 306 471 736 774 230 56 (146)
Income taxes ....................... 118 185 276 273 78 (165) 0
-------- ------- ------- ------- ------- -------- --------
Net earnings ..................... 188 286 460 501 152 221 (146)
======== ======= ======= ======= ======= ======== ========
PER SHARE DATA (1):
Basic earnings per common shares ... 0.26 0.41 0.65 0.88 0.27 0.40 -0.26
Diluted earnings per common share .. 0.25 0.39 0.62 0.86 0.27 0.40 -0.26
Dividends declared per share ....... 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Period end book value .............. 9.12 8.83 8.99 8.32 6.17 5.92 5.46
Average common shares outstanding .. 711,168 701,963 702,956 568,320 551,060 551,060 551,060
SUMMARY OF FINANCIAL CONDITION:
Total assets ....................... $ 82,884 71,426 80,867 67,135 43,870 33,111 22,567
Investment securities .............. 16,961 9,205 14,204 7,045 3,686 3,423 3,195
Loans receivable, net .............. 53,820 48,810 52,980 39,762 31,527 23,578 16,464
Total deposits ..................... 74,003 61,909 70,659 57,741 37,823 27,377 19,319
Total borrowed funds ............... 0 1,000 1,000 2,000 2,000 2,000 0
Stockholders' equity ............... 6,525 6,208 6,336 5,836 3,399 3,260 3,010
FINANCIAL RATIOS:
Return on:
Average assets ................... 0.46% 0.83% 0.61% 0.93% 0.39% 0.79% -0.80%
Average stockholders' equity ..... 5.85% 9.50% 7.56% 12.89% 4.56% 7.05% -4.72%
Equity as a percentage of total
assets ........................... 7.87% 8.69% 7.84% 8.69% 7.75% 9.85% 13.34%
Dividend payout ratio .............. 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Efficiency ratio ................... 84.70% 72.81% 80.53% 70.89% 86.25% 92.64% 107.29%
Net loans to total assets .......... 64.93% 68.34% 65.51% 59.23% 71.86% 71.21% 72.96%
Net interest margin on average
earning assets (tax equivalent) .. 5.33% 4.84% 4.89% 4.86% 4.78% 4.55% 4.84%
Nonperforming assets to total
assets ........................... 0.33% 0.23% 0.26% 0.61% 0.00% 0.00% 0.00%
Allowance for loan losses to total
loan ............................. 1.11% 0.89% 1.00% 0.93% 0.69% 0.64% 0.66%
Allowance for loan losses
to nonperforming assets .......... 223% 265% 255% 92% N/M N/M N/M
</TABLE>
10
<PAGE> 15
MOUNTAIN WEST BANK SPECIAL STOCKHOLDERS' MEETING
DATE, TIME, PLACE
The Mountain West Bank special meeting of stockholders will be held on
January 19, 2000, at 10:00 a.m. local time, at 414 West Appleway, Coeur
de'Alene, Idaho.
As described below under "Vote Required," approval of the merger
agreement requires the affirmative vote of at least two-thirds of the
outstanding shares of Mountain West Bank common stock. If there are not
sufficient votes represented at the special meeting, either in person or by
proxy, to approve the merger agreement, or if a quorum is not present, the
bylaws of Mountain West Bank allow for an adjournment or postponement of the
meeting in order to permit further solicitation of proxies by Mountain West
Bank. The persons appointed as proxies on the form accompanying this document
are authorized to vote to approve such adjournment or postponement, unless the
proxy appointing them instructs them to vote against approval of the merger
agreement.
PURPOSE
At the special meeting, Mountain West shareholders will:
o consider and vote on a proposal to approve the merger, and
o act upon other matters, if any, that may properly come before the
meeting.
RECORD DATE; SHARES OUTSTANDING AND ENTITLED TO VOTE
The Mountain West Bank board of directors has fixed 5:00 p.m. on
December 1, 1999 as the record date for determining the holders of shares of
Mountain West Bank common stock entitled to notice of and to vote at the special
meeting. At the close of business on the Mountain West Bank record date, there
were 715,472 shares of Mountain West Bank common stock issued and outstanding
held by approximately 316 holders of record. Holders of record of Mountain West
Bank common stock on the record date are entitled to one vote per share, and are
also entitled to exercise dissenters' rights if certain procedures are followed.
See "THE MERGER - Dissenters' Rights of Appraisal" and APPENDIX B.
Each director and executive officer of Mountain West Bank has agreed to
vote all Mountain West Bank shares held or controlled by him or her in favor of
approval of the merger. A total of 114,808 outstanding shares, or approximately
16.05% of the outstanding shares of Mountain West Bank common stock, are covered
by this voting agreement. See "THE MERGER - Voting Agreement."
VOTE REQUIRED
The affirmative vote of TWO-THIRDS of all shares of Mountain West Bank
common stock outstanding on the record date is required to approve the merger.
At least fifty percent (50%) of the outstanding shares of Mountain West Bank
common stock must be present, either in person or by proxy, in order to
constitute a quorum for the meeting. For this purpose, abstentions and broker
nonvotes (that is, proxies from brokers or nominees, indicating that such person
has not received instructions from the beneficial owners or other persons
entitled to vote shares as to a matter with respect to which the broker or
nominees do not have discretionary power to vote) are counted in determining the
shares present at a meeting.
For voting purposes, however, only shares actually voted FOR the
approval of the merger agreement, and neither abstentions nor broker nonvotes,
will be counted as favorable votes in determining whether the merger
11
<PAGE> 16
agreement is approved by the holders of Mountain West Bank common stock. AS A
RESULT, ABSTENTIONS AND BROKER NONVOTES WILL HAVE THE SAME EFFECT AS VOTES
AGAINST APPROVAL OF THE MERGER AGREEMENT.
VOTING, SOLICITATION, AND REVOCATION OF PROXIES
If the enclosed proxy is duly executed and received in time for the
special meeting, it will be voted in accordance with the instructions given. If
no instruction is given, it is the intention of the persons named in the proxy
to vote the shares represented by the proxy FOR THE APPROVAL OF THE MERGER AND
IN THE PROXY'S DISCRETION ON ANY OTHER MATTER COMING BEFORE THE MEETING. Any
proxy given by a stockholder may be revoked before its exercise by:
o written notice to the Secretary of Mountain West Bank;
o a subsequently dated proxy; or
o in open meeting before the stockholder vote is taken.
Mountain West Bank is soliciting the proxy for the special meeting on
behalf of the Mountain West Bank board of directors. Mountain West Bank will
bear the cost of solicitation of proxies from its stockholders. In addition to
using the mails, Mountain West Bank may solicit proxies by personal interview,
telephone, and facsimile. Banks, brokerage houses, other institutions, nominees,
and fiduciaries will be requested to forward their proxy soliciting material to
their principals and obtain authorization for the execution of proxies. Mountain
West Bank does not expect to pay any compensation for the solicitation of
proxies. However, Mountain West Bank will, upon request, pay the standard
charges and expenses of banks, brokerage houses, other institutions, nominees,
and fiduciaries for forwarding proxy materials to and obtaining proxies from
their principals.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
In March of 1999, the President of Mountain West Bank, Jon Hippler, was
contacted by Michael Blodnick, CEO of Glacier, to determine if there might be an
interest on the part of Mountain West Bank to discuss a merger or similar
transaction with Glacier. Mr. Hippler has known Mr. Blodnick for 16 years and
thinks highly of him and the Glacier organization.
Mr. Hippler and Charles Nipp, Chairman of the Board, agreed to meet
with Mr. Blodnick and Mr. Bill Bouchee of Glacier. The meeting took place on
April 10, 1999, in St. Regis, Montana.
As a result of the meeting, Chairman Nipp and President Hippler agreed
that the Mountain West Bank board should have an opportunity to discuss the
possibility of the merger to determine if the board would like to pursue
discussions. An informal, social gathering of directors was held on May 4, 1999,
at the Clark House in Hayden Lake, Idaho. Mr. Blodnick, Mr. Bouchee, and Fred
Flanders were invited to the gathering to talk about the Glacier philosophy of
community banking and the focus of Glacier's business plan. Mr. Bouchee and Mr.
Flanders shared their insights as presidents of subsidiary banks of the holding
company. Discussed extensively
12
<PAGE> 17
was Glacier's philosophy of buying small community banks in good markets and
allowing the bank to operate as independently chartered banks with their
existing board and management.
The Mountain West Bank board meeting was held on May 19, 1999. The
board discussed the fact that although the board had not been contemplating a
sale of the Bank, the inquiry from Glacier was worth pursuing further for
several reasons. The board found the Glacier philosophy of allowing their
subsidiary banks to operate as independently chartered banks with existing
board and management very appealing. Also, Mr. Hippler had spent considerable
time with Glacier's management analyzing Glacier's business plan and the board
positively assessed the advantages of Glacier's planned expansion into Idaho and
Eastern Washington. Additionally, at a February 1999 planning session, the
Mountain West Bank board of directors had approved additional expansion in the
Boise area. This plan also recognized the need to raise additional capital in
order to fund that expansion. In the past, Mountain West Bank had raised needed
capital by the sale of its common stock to the public. The sales were made
primarily by President Jon Hippler. The last offering by Mountain West Bank was
completed in February of 1998. The board was concerned about the amount of
management time another offering might take and whether Mr. Hippler and the
other officers would be able to devote the time necessary to complete a
successful capital raising campaign while at the same time performing their
other day to day duties at the Bank. During the discussions between Glacier and
Mountain West Bank, Glacier had agreed to make capital available for the
planned expansion and growth of Mountain West Bank.
Finally, the board also discussed the advantages to shareholders of
holding a more liquid, cash dividend paying stock compared to Mountain West Bank
shares. The board also became aware of pending changes to accounting rules for
merger and acquisition transactions (elimination of pooling-of-interests
accounting treatment) which possibly could have a negative impact on the value
of shares of community banks such as Mountain West Bank. The board discussed the
possible future value of Mountain West Bank stock assuming successful execution
of its business plan compared to the potential value of Glacier stock received
in a merger. As a result of the meeting, a majority of the board believed that
the Glacier proposal provided a unique opportunity for Mountain West Bank and
voted to form a committee consisting of directors Nipp, Hippler, Steve Meyer,
and Jim English to pursue negotiations with Glacier.
On June 4, 1999, the committee traveled to Kalispell, Montana, to meet
with Messrs. Blodnick, Bouchee, Flanders, and Glacier CFO Jim Strosahl. The
discussions focused on relative values for the two organizations and pricing
issues of a potential merger agreement as well as other structural issues of any
such agreement. It was agreed at the meeting that any potential deal would have
to be priced off of Mountain West Bank's estimated earnings for year 2000 as
opposed to its historical earnings. Such an approach was required due to the
fact that Mountain West Bank's earnings had been reduced in the current period
because of its Boise expansion and a recent computer conversion. At the
conclusion of the meeting, Mr. Hippler agreed to furnish to Mr. Strosahl an
estimate of the fiscal year 2000 earnings for Mountain West Bank, which would
form the basis for Glacier to make a pricing proposal to the board of Mountain
West Bank.
The board did not consider soliciting additional offers for Mountain
West Bank based on the following considerations:
The board believed that the Glacier offer was distinctive because
of Glacier's established track record of operating their subsidiary
banks as independently chartered banks with existing board and
management;
The Glacier offer would be reviewed by an independent, qualified
financial advisor as to the fairness of the offer to the Mountain
West Bank shareholders; and
The long, established track record of Glacier's earnings, asset
quality and dividend payments as well as the growth in the value of
the Glacier stock.
The Glacier proposal was made at the June 18, 1999, regular board
meeting of Mountain West Bank. At this meeting, a majority of the board directed
the committee to negotiate a merger agreement with Glacier. On July 29, 1999,
the committee flew to Boise with Messrs. Blodnick and Bouchee to familiarize
Glacier with the Boise marketplace, and to further discuss the pricing and
structural issues of potential merger.
On August 16, 1999, a meeting was held in Coeur d'Alene, Idaho, to
finalize negotiations. Present at the meeting were Messrs. Hippler, Nipp,
Blodnick and Strosahl. Also present were attorneys for Glacier and Mountain West
Bank and a representative from CFAI.
On September 1, 1999, Mountain West Bank held a regular board meeting
to consider the proposed merger agreement. A representative from CFAI and the
attorneys for Mountain West Bank attended the meeting to make presentations on
their respective work and to answer questions. The Mountain West Bank Board then
scheduled a special meeting for September 8, 1999, to take an actual vote on the
agreement, thus giving the directors additional time to consider the proposal.
On September 8, 1999, the directors of Mountain West Bank met and approved the
merger agreement by a unanimous vote and then executed the documents. On
September 9, 1999, the Glacier board met and approved and executed the merger
agreement.
REASONS FOR THE MERGER - MOUNTAIN WEST BANK
The Mountain West Bank board of directors believes that the terms of
the merger agreement are fair and in the best interests of Mountain West Bank
and its stockholders. In reaching a decision on the merger agreement, the
Mountain West Bank board considered numerous factors taken as a whole, none of
which were accorded any particular or relative weight. The board of directors
also consulted with legal, tax, accounting and financial advisors, as well as
Mountain West Bank senior management. The factors considered included:
o the fairness opinion of CFAI with respect to the merger agreement;
o the federal tax treatment to Mountain West Bank stockholders of the
proposed transaction which provides for tax deferred treatment of
the exchange of stock contemplated by the merger agreement;
13
<PAGE> 18
o Glacier stock is listed on NASDAQ NMS and this would provide greater
liquidity for the shareholders;
o the possibility of cash dividends;
o the stock of Glacier has a track record of profitable growth;
o the undertaking by Glacier to make capital available for planned
expansion and growth;
o the merger will provide Mountain West Bank with larger loan limits
and opportunities as a "participation partner";
o the undertaking by Glacier that Mountain West Bank will retain its
name;
o the undertaking by Glacier that there will be no computer conversion
for at least two years;
o the merger will provide additional employee benefits (i.e. funded
pension plan, stock options);
o Mountain West Bank would be relieved of most of the responsibility
for SEC reporting activities and Glacier will be able to help with
other back office tasks;
o the increased financial and technology resources of Glacier;
Pursuant to a resolution adopted at a meeting on September 8, 1999, the
Mountain West Bank board of directors determined that the merger agreement is in
the best interests of Mountain West Bank and its stockholders, and unanimously
ratified and approved the merger agreement.
OPINION OF MOUNTAIN WEST BANK FINANCIAL ADVISOR
CFAI has delivered a written opinion to the Mountain West Bank to the
effect that, as of the date of this proxy statement/prospectus, the
consideration to be received by Mountain West Bank common stockholders pursuant
to the terms of the merger agreement is fair to such stockholders from a
financial point of view. Each share of Mountain West Bank will be exchanged for
1.18 shares (or $20.17 per share of Mountain West Bank based on the average
closing price for Glacier from November 19, 1999 through December 3, 1999) of
Glacier; this exchange ratio has been determined by Mountain West Bank and
GBCI through negotiations. The CFAI opinion is directed only to the fairness,
from a financial point of view, of the consideration to be received and does not
constitute a recommendation to any Mountain West Bank stockholder as to how such
stockholder should vote at the Mountain West Bank Special Meeting.
Mountain West Bank retained CFAI as its exclusive financial advisor
pursuant to an engagement letter dated August 4, 1999 in connection with the
merger. CFAI is a regionally recognized investment banking firm that is
regularly engaged in the valuation of businesses and securities in connection
with mergers and acquisitions. The Mountain West Board selected CFAI to act as
Mountain West Bank's exclusive financial advisor based on CFAI's experience in
mergers and acquisitions and in securities valuation generally.
On September 8, 1999, CFAI issued its opinion to the Mountain West Bank
that, in its opinion as investment bankers, the terms of the merger as provided
in the merger agreement are fair, from a financial view point, to Mountain West
Bank and its stockholders. THE FULL TEXT OF THE CFAI OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED, AND LIMITS ON ITS REVIEW, IS ATTACHED
TO THIS DOCUMENT AS APPENDIX C. THE SUMMARY OF THE CFAI OPINION IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. MOUNTAIN WEST BANK STOCKHOLDERS ARE URGED TO READ THE ENTIRE
CFAI OPINION.
14
<PAGE> 19
In rendering its opinion to Mountain West Bank, CFAI reviewed, among
other things, historical financial data of Mountain West Bank, certain internal
financial data and assumptions of Mountain West Bank prepared for financial
planning and budgeting purposes furnished by the management of Mountain West
Bank and, to the extent publicly available, the financial terms of certain
change of control transactions involving Northwest community banks. CFAI
discussed with Mountain West Bank's management the financial condition, current
operating results, and business outlook for Mountain West Bank. CFAI also
reviewed certain publicly available information concerning Glacier and certain
financial and securities data of Glacier and companies deemed similar to
Glacier. CFAI discussed with Glacier's management the financial condition,
current operating results, and business outlook for Glacier and Glacier's plans
relating to Mountain West Bank. In rendering its opinion, CFAI relied, without
independent verification, on the accuracy and completeness of all financial and
other information reviewed by it and did not attempt to verify or to make any
independent evaluation or appraisal of the assets of Mountain West Bank or
Glacier nor was it furnished any such appraisals. Mountain West Bank did not
impose any limitations on the scope of the CFAI investigation in arriving at its
opinion. CFAI analyzed the total purchase price on a cash equivalent fair market
value basis using standard evaluation techniques (as discussed below) including
comparable sales multiples, net present value analysis, and net asset value
based on certain assumption of projected growth, earnings and dividends and a
range of discount rates from 16% to 18%.
NET ASSET VALUE is the value of the net equity of a bank, including
every kind of property and value. This approach normally assumes the liquidation
on the date of appraisal with the recognition of the investment securities gains
or losses, real estate appreciation or depreciation, adjustments to the loan
loss reserve, discounts to the loan portfolio and changes in the net value of
other assets. As such, it is not the best evaluation approach when valuing a
going concern because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
market prices and yields (which is often of limited accuracy due to the lack of
readily available data), it still results in a liquidation value. In addition,
since this approach fails to account for the values attributable to the going
concern such as the interrelationship among Mountain West Bank's assets and
liabilities, customer relations, market presence, image and reputation, staff
expertise and depth, little weight is given by CFAI to the net asset value
approach to valuation.
MARKET VALUE is generally defined as the price, established on an
"arms-length" basis, at which knowledgeable, unrelated buyers and sellers would
agree. The "hypothetical" market value for a small bank with a thin market for
its common stock is normally determined by comparison to the average price to
stockholders equity, price to earnings, and price to total assets, adjusting for
significant differences in financial performance criteria and for any lack of
marketability or liquidity of the buyer. The market value in connection with the
evaluation of control of a bank is determined by the previous sales of small
banks in the state or region. In valuing a business enterprise, when sufficient
comparable trade data are available, the market value approach deserves greater
weighting than the net asset value approach and similar weight as the investment
value approach as discussed below.
CFAI maintains a comprehensive data base concerning prices paid for
banking institutions in the Northwest, particularly Idaho, Montana, Eastern
Washington, and Eastern Oregon banking institutions, during 1988 through 1999.
This data base provides comparable pricing and financial performance data for
banking institutions sold or acquired. Organized by different peer groups, these
data present medians of financial performance and purchase price levels, thereby
facilitating a valid comparative purchase price analysis. In analyzing the
transaction value of Mountain West Bank, CFAI has considered the market approach
and has evaluated price to stockholders equity and price to earnings multiples
and the price to total assets percentage for transactions involving banking
organizations with total assets less than $150 million that sold for 100% common
stock from January 1993 to June 1999.
COMPARABLE SALES MULTIPLES. CFAI analyzed merger price to stockholders'
equity and merger price to earnings for the proposed Glacier-Mountain West Bank
merger with reference to comparable bank mergers from the CFAI database. For the
purposes of this analysis, two samples from the database were used. Sample A was
consisted of Northwest banking institutions with
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assets of below $150 million which sold between January 1, 1993 through June 30,
1999 and Sample B was Northwest banking institutions with total assets of below
$150 million which sold between January 1, 1997 and June 30, 1999. The merger
price to stockholders' equity median multiple for Sample A is 2.49 times and
for Sample B is 2.18 times. The Mountain West Bank merger price to
stockholders' equity ratios were calculated for September 30, 1999 and the
ratio was 2.34 times. Stockholders' equity for Mountain West Bank was estimated
as of December 31, 1999 and the merger price to stockholder's equity ratio for
December 31, 1999 was 2.29 times.
The calculated merger price to earnings multiples for Sample A is 18.91
times and for Sample B 15.94 times. The Mountain West Bank ratio of merger
price to earnings was calculated for the twelve month period preceding
September 30, 1999, and the ratio was 42.23 times. Mountain West Bank earnings
for December 31, 1999 were estimated (6 months actual and 6 months estimated)
and the ratio of the merger price to earnings for December 31, 1999 was
calculated to be 26.27 times.
Based on these analyses, CFAI concluded that the proposed transaction
compared favorably as to price with other bank mergers.
TRANSACTION VALUE AS A PERCENTAGE OF TOTAL ASSETS. CFAI calculated the
percentage of total assets which the transaction represents as a price level
indicator. The transaction value as a percentage of total assets facilitates a
truer price level comparison with comparable banking organizations, regardless
of the differing levels of stockholders equity and earnings. In this instance, a
transaction value of the ten day average closing price from November 19, 1999
through December 3, 1999 of $20.17 per Mountain West Bank share results in a
transaction value as a percentage of total assets of 18.43%. The median price as
a percentage of total assets for a sample of Northwest banking institutions with
assets of below $150 million which sold between January 1, 1993 through June 30,
1999 and a sample of Northwest banking institutions with total assets of below
$150 million which sold between January 1, 1997 and June 30, 1999 is 20.7% and
22.4%, respectively.
INVESTMENT VALUE is sometimes referred to as the income or earnings
value. One investment value method frequently used estimates the present value
of an institution's future earnings or cash flow which is discussed below.
NET PRESENT VALUE ANALYSIS. The investment or earnings value of any
banking organization's stock is an estimate of the present value of future
benefits, usually earnings, dividends, or cash flow, which will accrue to the
stock. An earnings value is calculated using an annual future earning stream
over a period of time of not less than five years and the residual or terminal
value of the earnings stream after five years, using Mountain West Bank's
estimates of future growth and an appropriate capitalization or discount rate.
CFAI's calculations were based on an analysis of the banking industry, Mountain
West Bank's earnings estimates for 2000-2004, historical levels of growth and
earnings, and the competitive situation in Mountain West Bank's market area.
Using discount rates of 16% and 18%, acceptable discount rates considering the
risk-return relationship most investors would demand for an investment of this
type as of the valuation date, the "Net Present Value of Future Earnings"
provided a range of $26.52 to $31.72 per share.
When the net asset value, market value and investment value approaches
are subjectively weighed, using the appraiser's experience and judgment, it is
CFAI's opinion that the proposed transaction is fair, from a financial point of
view to the Mountain West Bank stockholders.
Pursuant to the terms of the engagement letter, Mountain West Bank has
agreed to pay CFAI a fee of $30,000 for this fairness opinion. In addition,
Mountain West Bank has agreed to indemnify CFAI against certain liabilities.
In the past five years, CFAI has served Glacier in several capacities
unrelated to the proposed transaction between Glacier and Mountain West Bank.
Past financial advisory engagements include the purchase of two Butte, Montana
branches with approximately $73 million in deposits from Washington Mutual, Inc.
and valuations of potential merger partners. In addition, CFAI has served as
financial advisor to Missoula Bancshares, Inc., HUB Financial Corp., and Valley
Bank of Helena in their mergers with Glacier.
RECOMMENDATION OF THE MOUNTAIN WEST BANK BOARD
The Mountain West Bank board of directors unanimously recommends that
its stockholders vote for approval of the merger agreement.
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THE MERGER
The following is a brief description of the material aspects of the
merger. There are other aspects of the merger that are not discussed below, but
that are contained in the merger agreement. You are being asked to approve the
merger in accordance with the terms of the merger agreement, and you are urged
to read the merger agreement carefully. The merger agreement is attached to this
prospectus/proxy statement as APPENDIX A.
BASIC TERMS OF THE MERGER
The merger agreement provides for the merger of Mountain West Bank into
a newly formed subsidiary of Glacier, called New Mountain West Bank. After the
merger, Mountain West Bank will be owned by Glacier, as a subsidiary.
In the merger, each Mountain West Bank stockholder, except stockholders
who exercise their dissenter's rights, will receive shares of Glacier common
stock and will become Glacier stockholders. Mountain West Bank stockholders will
receive 1.18 shares of Glacier common stock for each share of Mountain West Bank
common stock that they own, rounded to two decimals. Glacier will not issue
fractional shares of its common stock, but will pay cash equal to $20.00 per
share for such fractional shares, as described below.
EXAMPLE
If you own 575 shares of Mountain West Bank common stock, and
the merger becomes effective, you will be entitled to receive
678.5 shares of Glacier common stock. Because Glacier will not
issue fractional shares, you would receive 678 shares of
Glacier common stock and would receive cash, in this case
$10.00, for the fractional share.
If, prior to the merger, Glacier's or Mountain West bank's common
stock increases or decreases due to a recapitalization, stock dividend, stock
split or similar change in capitalization, an appropriate adjustment will be
made to the 1.18 exchange ratio.
Subject to the conditions set forth in the merger agreement, the merger
will occur within 30 days after all conditions have been satisfied or waived,
and all necessary approvals have been obtained, but not earlier than January 17,
2000 unless the parties otherwise agree. Glacier and Mountain West Bank
anticipate that the merger will occur as early as the end of January, 2000.
Either Glacier or Mountain West Bank may terminate the merger agreement if the
merger has not occurred by March 31, 2000.
DO NOT SEND IN YOUR CERTIFICATES NOW. YOU WILL RECEIVE WRITTEN
INSTRUCTIONS AND THE REQUIRED LETTER OF TRANSMITTAL AFTER THE MERGER IS
EFFECTIVE.
CASH FOR FRACTIONAL SHARES
Glacier will not issue certificates for fractional shares of Glacier
common stock that would otherwise be issuable. Each Mountain West Bank
stockholder who is otherwise entitled to receive a fractional share, will
receive cash in lieu of such fractional share, in an amount equal to the product
of such fraction multiplied by $20.00. Mountain West Bank stockholders will have
no other rights with respect to such fractional shares.
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a discussion of the material federal income tax
consequences of the merger that are generally applicable to Mountain West Bank
stockholders. This discussion is based upon the opinion of Graham & Dunn P.C.,
special counsel to Glacier, and on current provisions of the Internal Revenue
Code of 1986, current regulations under the Code (including final, temporary or
proposed), and current administrative rulings and court decisions as of the date
hereof. The foregoing are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences described below. The
following discussion is intended only as a
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summary of the material federal income tax consequences of the merger and does
not purport to be a complete analysis or listing of all of the potential tax
effects relevant to a decision on whether to vote in favor of approval of the
merger agreement.
The merger is expected to qualify as a reorganization under Section
368(a) of the Code. As parties to the merger, neither Glacier nor Mountain West
Bank will recognize gain or loss as a result of the merger. With respect to
Mountain West Bank stockholders, and subject to the qualifications contained
elsewhere in this discussion:
o Holders of Mountain West Bank common stock will recognize no gain or
loss on the receipt of Glacier common stock, but will recognize gain
or loss with respect to the receipt of cash in lieu of fractional
shares (see "--Cash for Fractional Shares").
o The tax basis of the Glacier common stock received in the merger
will be the same as the tax basis of the Mountain West Bank common
stock for which it is exchanged, less any basis attributable to
fractional shares for which cash is received.
o The holding period of Glacier common stock received in the merger
will include the holding period of the Mountain West Bank common
stock for which it is exchanged, assuming the shares of Mountain
West Bank common stock are capital assets in the hands of the holder
at the closing of the merger.
o Where cash is received in exchange for the surrender of Mountain
West Bank common stock, the cash will be treated as a distribution
in redemption of the Mountain West Bank common stock, subject to the
provisions and limitations of the Code.
Graham & Dunn P.C. has delivered an opinion to the foregoing effect to
Glacier. The opinion has been filed as an exhibit to the registration statement
of which this proxy statement/prospectus is a part. The foregoing is only a
summary of the tax consequences of the merger as described in the opinion. The
opinion is based on assumptions, representations made by officers of Glacier and
Mountain West Bank to Graham & Dunn P.C., and contains qualifications
appropriate to the subject matter.
Closing of the merger is conditioned on Glacier's and Mountain West
Bank's receipt of an opinion of Graham & Dunn, to the effect that if the merger
is consummated in accordance with the terms set forth in the merger agreement,
the merger will constitute a reorganization within the meaning of Section 368(a)
of the Code, and that no gain or loss will be recognized by Mountain West Bank
stockholders who receive shares of Glacier common stock in exchange for their
shares of Mountain West Bank common stock (except for cash received in lieu of
fractional shares).
An opinion of counsel only represents counsel's best legal judgment,
and has no binding effect or official status of any kind, and no assurance can
be given that contrary positions may not be taken by the Internal Revenue
Service or a court considering the issues. Neither Mountain West Bank nor
Glacier has requested or will request a ruling from the IRS with regard to the
federal income tax consequences of the merger.
THE FOREGOING IS A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO MOUNTAIN WEST BANK STOCKHOLDERS, WITHOUT REGARD TO
THE PARTICULAR FACTS AND CIRCUMSTANCES OF EACH STOCKHOLDER'S TAX SITUATION AND
STATUS. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO A PARTICULAR STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER THE
CODE, SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS, AND STOCKHOLDERS WHO ACQUIRED MOUNTAIN
WEST BANK COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS
COMPENSATION. IN ADDITION, THERE MAY BE RELEVANT STATE, LOCAL OR OTHER TAX
CONSEQUENCES, NONE
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OF WHICH IS DESCRIBED ABOVE. BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY
VARY DEPENDING ON THE PARTICULAR CIRCUMSTANCES OF EACH STOCKHOLDER, EACH
MOUNTAIN WEST BANK STOCKHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
REGARDING SUCH STOCKHOLDER'S SPECIFIC TAX SITUATION AND STATUS, INCLUDING THE
SPECIFIC APPLICATION OF STATE, LOCAL AND FOREIGN LAWS TO SUCH STOCKHOLDER AND
THE POSSIBLE EFFECT OF CHANGE IN FEDERAL AND OTHER TAX LAWS.
MOUNTAIN WEST BANK STOCK OPTION AGREEMENT
To induce Glacier to enter into the merger agreement, Mountain West
Bank has granted a stock purchase option to Glacier, by agreement dated as of
September 9, 1999. The agreement gives Glacier the option to purchase authorized
but unissued shares of Mountain West common stock which, if purchased and
issued, would constitute 19.9% of the outstanding Mountain West Bank common
stock, at $21.00 per share. The option price of $21.00 per share is the
estimated fair market value of Mountain West Bank common stock at June 30, 1999.
Glacier's option to purchase Mountain West Bank common stock
effectively makes acquisition of Mountain West Bank by a party other than
Glacier more expensive, and therefore less likely, as there would be more shares
of Mountain West Bank common stock outstanding.
Glacier may not exercise the option unless certain "triggering events"
as defined in the option agreement occur. These triggering events include, among
other things:
o Mountain West Bank or the Mountain West Bank board of directors
enters into an agreement under which another person or entity would
(i) merge, consolidate with, or acquire 51% or more of the assets or
liabilities of Mountain West Bank, or (ii) acquire more than 15% of
Mountain West Bank's voting shares;
o Any person or entity acquires, subject to additional criteria
described in the option agreement, the beneficial ownership or the
right to acquire beneficial ownership of Mountain West Bank
securities which, when totaled with other Mountain West Bank
securities owned by such person or entity, represents 25% or more of
Mountain West Bank's voting shares; or
o The failure of Mountain West Bank's shareholders to approve the
merger, after any person or entity announces its proposal to (i)
acquire 51% or more of Mountain West Bank's assets; (ii) acquire 25%
or more of Mountain West Bank's voting shares; or (iii) change the
composition of Mountain West Bank's board of directors.
Glacier, or a transferee as permitted under the option agreement, may
only exercise the option, following a triggering event, after it obtains all
necessary regulatory approvals. Also, Glacier or its transferee may not exercise
the option if, at the time of exercise, Glacier is failing in any material
respect to perform or observe its obligations under the merger agreement.
VOTING AGREEMENT
The directors and executive officers of Mountain West Bank have entered
into a Shareholder Agreement, dated as of September 9, 1999. In the agreement,
each director and executive officer agrees to vote the shares of Mountain West
Bank common stock that he or she owns or controls in favor of the merger. The
persons who have entered into this agreement are entitled to vote a total of
114,808 outstanding shares of Mountain West common stock, which is approximately
16.05% of the total shares outstanding.
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DISSENTERS' RIGHTS OF APPRAISAL
Under Idaho law (IC Section 26-909), you may exercise "dissenters'
rights" and receive the fair value of your shares in cash, if certain procedures
are followed. To exercise these rights, you must vote against the merger
agreement. You may vote any or all of your shares against the merger. However,
if you vote less than all of your shares against the merger, you may only
exercise your dissenter's rights as to those shares that were voted against the
merger. You must also make written demand to Mountain West Bank within thirty
(30) days after the effective date of the merger, accompanied by the surrender
of the stock certificates. It is anticipated that the effective date of the
merger will be within a week following the special stockholders' meeting.
Stockholders will not be notified of the effective date. The written demand
should be sent to the following address:
Mountain West Bank
125 Ironwood Dr.
P.O. Box 1059
Coeur d'Alene, ID 83816-1059
The value of your shares will be determined, as of the date of the
stockholders' meeting by appraisers, one selected by the vote of the owners of
2/3rds of the shares involved at a meeting called by the Idaho Director of
Finance on ten (10) days' notice, one by the board of directors of Mountain
West Bank, and the third by the two appraisers so chosen. The valuation agreed
upon by any 2 appraisers shall govern.
The failure of a Mountain West Bank stockholder to comply strictly
with the Idaho statutory requirements will result in a loss of dissenters'
rights. A copy of the relevant statutory provisions is attached as Appendix B.
You should refer to this appendix for a complete statement concerning
dissenters' rights and the foregoing summary of such rights is qualified in its
entirety by reference to that appendix.
THE FAILURE OF A MOUNTAIN WEST BANK STOCKHOLDER TO COMPLY STRICTLY WITH
THE IDAHO STATUTORY REQUIREMENTS WILL RESULT IN A LOSS OF DISSENTERS' RIGHTS. A
COPY OF THE RELEVANT STATUTORY PROVISIONS IS ATTACHED AS APPENDIX B. YOU SHOULD
REFER TO THIS APPENDIX FOR A COMPLETE STATEMENT CONCERNING DISSENTERS' RIGHTS
AND THE FOREGOING SUMMARY OF SUCH RIGHTS IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THAT APPENDIX.
EXCHANGE OF STOCK CERTIFICATES
On and after the merger effective date, certificates representing
Mountain West Bank common stock will be deemed to represent only the right to
receive Glacier common stock or cash for fractional shares, as provided in the
merger agreement. Upon surrender of certificates that, before the merger
effective date, represented shares of Mountain West Bank common stock, together
with a properly executed transmittal letter form and any other required
documents, the holder surrendering the certificates will be entitled to receive
certificates representing the number of shares of Glacier common stock, and
cash, if any, to which he or she is entitled in accordance with the terms of the
merger agreement.
All Glacier common stock issued to Mountain West Bank stockholders
under the merger agreement will be deemed issued as of the merger effective
date. No distributions or dividends paid on shares of Glacier common stock after
closing of the merger will be paid to Mountain West Bank stockholders who are
entitled under the merger agreement to receive Glacier common stock, until such
stockholders have surrendered the certificates formerly representing shares of
Mountain West Bank common stock. At that time, any accumulated dividends and
distributions since the merger effective date, without interest, will be paid.
CONDITIONS TO THE MERGER; REGULATORY APPROVALS
Consummation of the merger is subject to various conditions. No
assurance can be provided as to whether these conditions will be satisfied or
waived by the appropriate party. Accordingly, there can be no assurance that the
merger will be completed.
Under Idaho law, approval of the merger requires the affirmative vote
of two-thirds of the holders of all outstanding shares of Mountain West Bank
common stock. In addition, the Federal Reserve Board must approve the merger.
Applications for prior approval by the FDIC and the Federal Reserve Board have
been filed. Although no assurance can be given, the parties expect to receive
these approvals in due course.
Certain conditions must be satisfied or events must occur before the
parties will be obligated to complete the merger. Each party's obligations under
the merger agreement are conditioned on satisfaction by the other parties of
conditions applicable to them. Some of these conditions are as follows:
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o Mountain West Bank's receipt of an opinion from Graham & Dunn P.C.
to the effect that, among other things, the merger will qualify as a
tax-free reorganization under Section 368(a)(1)(A) of the Code;
o Glacier's and Mountain West Bank's receipt of opinions from Lukins &
Annis, P.S. and Graham & Dunn P.C., respectively, to the effect
that, among other things, Mountain West Bank and Glacier have the
corporate power and authority, and have taken all necessary
corporate action, to execute, deliver and perform the merger
agreement; and
o Glacier's receipt of a letter from KPMG LLP, to the effect that they
concur with management's understanding that the merger will qualify
for "pooling of interests" accounting treatment if it is consummated
in accordance with the merger agreement.
o Glacier's receipt of an updated fairness opinion of CFAI (to be
delivered by Mountain West Bank, at its expense), dated immediately
prior to closing, to the effect that the financial terms of the
merger are financially fair to Mountain West Bank's stockholders.
Additionally, Glacier may terminate the merger if certain conditions
applicable to Mountain West Bank are not satisfied or waived. Those conditions
are discussed below under "- Amendment or Termination of the Merger Agreement."
Either Glacier or Mountain West Bank may waive any of the other party's
conditions, except those that are required by law (such as receipt of regulatory
and Mountain West Bank stockholder approval). Either Glacier or Mountain West
Bank may also grant extended time to the other party to complete an obligation
or condition.
AMENDMENT OR TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be amended or supplemented at any time by
written agreement of the parties, whether before or after the Mountain West Bank
special meeting. To the extent permitted under applicable law, the parties may
make any amendment or supplement without further approval of Mountain West
Bank's stockholders. However, any amendments which would reduce the amount or
change the form of consideration Mountain West Bank's stockholders will receive
in the merger transaction or affect the tax treatment of the merger would
require further Mountain West Bank stockholder approval.
The merger agreement contains several provisions entitling either
Mountain West Bank or Glacier to terminate the merger agreement under certain
circumstances. The following briefly describes these provisions:
Lapse of Time. If the merger has not closed by March 31, 2000, then at
any time after that date, the board of directors of either Glacier or Mountain
West Bank may terminate the merger agreement, as long as the party terminating
has not caused the delay in closing by breaching its obligations under the
merger agreement.
Mutual Consent. The parties may terminate the merger agreement at any
time before closing, whether before or after approval by Mountain West Bank's
stockholders, by mutual consent.
Impracticability. The parties may terminate the merger agreement if the
party seeking termination, through its board of directors, has determined that
the transaction has become inadvisable or impracticable by reason of litigation
by the federal government or governments of Idaho or Montana to restrain or
invalidate the merger.
Mountain West Bank's Conditions Not Met. Glacier may terminate the
merger agreement if, by March 31, 2000, any of Mountain West Bank's conditions
to closing are not met. Among such conditions are:
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o Mountain West Bank's Tangible Equity Capital, determined in
accordance with generally accepted accounting principles, must be at
least $6.3 million;
o Mountain West Bank's deposits, excluding certain deposits and
certificates of deposit, must be at least $69 million;
o there must have been no event that causes a Material Adverse Effect,
as defined in the merger agreement, with respect to Mountain West
Bank;
o Mountain West Bank's financial condition must meet the criteria set
forth in the merger agreement; and
o the aggregate amount of cash to be paid by Glacier, for fractional
shares and to holders of dissenting shares of Mountain West Bank
common stock, must not exceed 10% of the merger purchase price.
Glacier's Conditions Not Met. Mountain West Bank may terminate the
merger agreement if, by March 31, 2000, any of Glacier's conditions to closing
are not met. Among such conditions are:
o there must have been no event that causes a Material Adverse Effect,
as defined in the merger agreement, with respect to Glacier; and
o Glacier must have complied with all terms, covenants and conditions
of the merger agreement.
Termination Fees. If Mountain West Bank terminates the merger agreement
under certain circumstances, or Glacier terminates the merger agreement under
certain circumstances due to Mountain West Bank's failure to comply with or
satisfy certain conditions to closing, Mountain West Bank will pay Glacier a
termination fee of $200,000. If Glacier terminates the merger agreement under
certain circumstances, or Mountain West Bank terminates the merger agreement
under certain circumstances due to Glacier's failure to comply with or satisfy
certain conditions to closing, Glacier will pay Mountain West Bank a termination
fee of $100,000.
Allocation of Costs Upon Termination. If the merger agreement is
terminated, Glacier and Mountain West Bank will each pay their own out-of-pocket
expenses incurred in connection with the transaction and, except for any
applicable termination or break-up fees, will have no other liability to the
other party.
CONDUCT PENDING THE MERGER
The merger agreement provides that, until the merger is effective,
Mountain West Bank will conduct its business only in the ordinary and usual
course, and use all reasonable efforts to preserve its present business
organization, retain the services of its present management, and preserve the
goodwill of all parties with whom it has business dealings. The merger agreement
also provides that, unless Glacier otherwise consents in writing, Mountain West
Bank will refrain from engaging in various activities such as:
o effecting any stock split or other recapitalization;
o declaring or paying dividends or other distributions;
o acquiring or disposing of assets or making with respect to assets
material commitments outside the ordinary course of business;
o with certain exceptions, soliciting or accepting deposit accounts of
a different type than previously accepted by Mountain West Bank, or
incurring any indebtedness in excess of $25,000;
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o acquiring real property without conducting an environmental
evaluation;
o with certain exceptions, entering into or terminating any contracts
with a term of more than one year or that require Mountain West Bank
to pay or owe more than $25,000;
o selling investment securities if the aggregate gain realized would
exceed $60,000, or transferring investment securities between
portfolios;
o amending or materially changing its policies or procedures;
o with certain exceptions, making capital expenditures in excess of
$10,000 per project or $25,000 in the aggregate; and
o entering into transactions or incurring any expenses that are not in
the ordinary course of business.
MOUNTAIN WEST BANK MANAGEMENT AND OPERATIONS AFTER THE MERGER
Following the merger the Mountain West Bank board of directors will
consist of Mountain West Bank's current directors, plus Michael Blodnick, who is
the President and Chief Executive Officer of Glacier. Mountain West Bank's
executive officers will remain unchanged following the merger.
Although Mountain West Bank will be a wholly-owned subsidiary of
Glacier after the merger, it will operate independently. In the merger
agreement, Glacier and Mountain West Bank have agreed that:
o Mountain West Bank will retain its current name for at least three
years following the merger;
o Assuming that Glacier remains "well-capitalized" under applicable
banking regulations, Glacier will, within two years of the closing
of the merger, and at Mountain West Bank's request, provide
sufficient capital for Mountain West Bank to expand by two branches
and to construct a permanent branch building in Boise, Idaho.
EMPLOYEE BENEFIT PLANS
The merger agreement confirms Glacier's intention to allow Mountain
West Bank's employees who continue as employees of Mountain West Bank after the
merger to participate in certain Glacier employee benefit plans. Mountain West
Bank's employee benefit plans will be terminated as soon as practical after the
merger, and employee interests in those plans will be transferred or merged into
Glacier's employee benefit plans.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Mountain West Bank's board of directors and
management may be deemed to have interests in the merger, in addition to their
interests as stockholders of Mountain West Bank generally. The Mountain West
Bank board of directors was aware of these factors and considered them, among
other things, in approving the merger agreement.
Jon Hippler Employment Agreement. Glacier has ratified an employment
agreement between Mountain West Bank and Jon W. Hippler, the President and Chief
Executive Officer of Mountain West Bank. The employment agreement is for a term
of three years, beginning on the merger effective date. Mr. Hippler's initial
annual salary will be $125,000. Subsequent salary adjustments will be subject to
Mountain West Bank's annual review of his compensation and performance. The
agreement also provides for incentive compensation, as determined by the board
of directors of Mountain West Bank and subject to ratification by Glacier's
board of
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directors. The amount of any such incentive compensation, which would be based
on Mr. Hippler's performance of his duties and the safety, soundness and
profitability of Mountain West Bank, will be determined by the board of
directors.
The agreement provides that Glacier will use its best efforts to
nominate and recommend Mr. Hippler for election to Glacier's board of directors.
If Mountain West Bank terminates the employment agreement without cause
(as defined in the agreement), or if Mr. Hippler terminates the agreement for
good reason (as defined in the agreement), Mr. Hippler will be entitled to
severance payments consisting of the compensation and other benefits to the end
of the term of the employment agreement, to which he would have been entitled if
his employment had not been terminated. If Mr. Hippler's employment is
terminated in certain circumstances tied to a change in control of Mountain West
Bank, Mr. Hippler will be entitled to a one-time payment equal to the amount of
his annual salary at the time of termination, and the continuation of other
employee benefits for one year following termination. Mr. Hippler is prohibited
from competing with Mountain West Bank in Kootenai, Ada or Canyon counties in
Idaho, or in any other counties in which Mountain West Bank or Glacier may have
a presence, for a period equal to the longer of three years from the effective
date of the merger or two years from termination of employment (or one year from
termination, if Glacier does not offer comparable employment at the end of the
three year term of the agreement).
Employment Agreement for Other Officers. Prior to consummation of the
merger, it is anticipated that Mountain West Bank will enter into 3-year
employment agreements with four senior officers. The name, title and proposed
annual salary of each such officer is as follows: Ronn Rich, Senior Vice
President and Chief Financial Officer, $70,000; Diane Reed, Senior Vice
President - Residential Lending, $125,000; Paula Smyly, Senior Vice President
and Chief Credit Officer, $80,000; and Robert Beck, Vice President and Manager,
$50,000 plus commissions. The executives will also be entitled to incentive
compensation and other standard benefits.
If Mountain West Bank terminates any of the employment agreements for
Messrs. Rich and Beck, Ms. Smyly and Ms. Reed without cause (as defined in the
agreement), or if the officer terminates the agreement for good reason (as
defined in the agreement), such executive will be entitled to severance payments
consisting of the compensation and other benefits to the end of the term of the
employment agreement, to which he or she would have been entitled if his or her
employment had not been terminated. Each executive is prohibited from competing
with Mountain West Bank in Kootenai, Ada or Canyon counties in Idaho, or in any
other counties in which Mountain West Bank or Glacier may have a presence, for a
period equal to the lesser of three years from the effective date of the merger
or two years from the officer's termination of employment.
Indemnification of Directors and Officers. The merger agreement
provides that Glacier will, for three years following the effective date of the
merger, indemnify the present and former officers of Mountain West Bank against
liabilities that may arise in the future, incurred in connection with claims or
actions pertaining to matters that existed or occurred prior to the effective
date of the merger. The scope of this indemnification will be to the same extent
that such persons would have been entitled to indemnification under Idaho law or
the articles of incorporation or bylaws of Mountain West Bank.
Director Noncompetition Agreements. All members of Mountain West Bank's
board of directors have entered into noncompetition agreements with Glacier.
Except under certain limited circumstances, the noncompetition agreements
prohibit directors of Mountain West Bank from competing with Glacier and/or
Mountain West Bank in Kootenai, Ada and Canyon counties during the term
beginning upon consummation of the merger and ending the later of (1) three
years after closing of the merger or (2) one year after the director's service
as a director of Mountain West is terminated if the director resigns or refuses
to stand for reelection. If a director is removed without good cause or is not
reelected as a director of Mountain West Bank, the term of the noncompetition
agreement will be no more than be one year.
24
<PAGE> 29
ACCOUNTING TREATMENT OF THE MERGER
Glacier and Mountain West Bank anticipate that the merger will be
accounted for as a "pooling of interests" for accounting purposes. Under this
method of accounting, assets and liabilities of Mountain West Bank and Glacier
are carried forward at their previously recorded amounts, and operating results
of Mountain West Bank and Glacier will represent the combined results for
periods before and after the merger. No recognition of goodwill arising from the
merger is required of any party to the merger.
The merger agreement provides that Glacier's receipt of a letter from
KPMG LLP, to the effect that they concur with management's understanding that
the merger will qualify as a "pooling of interests" if consummated in accordance
with the merger agreement, is a condition to the closing of the merger.
STOCK RESALES BY MOUNTAIN WEST BANK AFFILIATES
The Glacier common stock to be issued in the merger will be
transferable free of restrictions under the 1933 Act, except for shares received
by persons, including directors and executive officers of Mountain West Bank,
who may be deemed to be "affiliates" of Mountain West Bank, as that term is used
in (i) paragraphs (c) and (d) of Rule 145 under the 1933 Act and/or (ii)
Accounting Series Releases 130 and 135, as amended, of the SEC. Affiliates may
not sell their shares of Glacier common stock acquired in the merger, except (a)
pursuant to an effective registration statement under the 1933 Act covering
those shares, (b) in compliance with Rule 145, or (c) in accordance with an
opinion of counsel reasonably satisfactory to Glacier, under other applicable
exemptions from the registration requirements of the 1933 Act. Glacier will
obtain customary agreements with all Mountain West Bank directors, officers, and
affiliates of Mountain West Bank, under which such persons will represent that
they will not dispose of their shares of Glacier received in the merger or the
shares of capital stock of Mountain West Bank or Glacier held by them before the
merger, except in compliance with the 1933 Act and the rules and regulations
promulgated under the 1933 Act. This prospectus/proxy statement does not cover
any resales of the Glacier common stock received by affiliates of Mountain West
Bank.
25
<PAGE> 30
STOCK PRICE AND DIVIDEND INFORMATION
GLACIER. Glacier common stock is quoted on the Nasdaq National Market
under the symbol "GBCI." The following table sets forth for the periods
indicated:
o the high and low sale prices for Glacier common stock as reported on
the Nasdaq National Market, and
o dividends per share on Glacier common stock.
The per share information has been adjusted retroactively to reflect
the 10% stock dividend paid in May 1999.
<TABLE>
<CAPTION>
CASH
HIGH LOW DIVIDENDS DECLARED
---- --- ------------------
<S> <C> <C> <C>
1997
First quarter.................................. $13.64 $12.81 $0.09
Second quarter................................. $17.36 $12.60 $0.10
Third quarter.................................. $16.12 $14.46 $0.10
Fourth quarter................................. $20.66 $15.40 $0.14
1998
First quarter.................................. $24.38 $19.21 $0.10
Second quarter................................. $23.55 $21.90 $0.11
Third quarter.................................. $23.97 $20.72 $0.12
Fourth quarter................................. $20.57 $17.16 $0.19
1999
First quarter.................................. $21.82 $17.05 $0.14
Second quarter................................. $24.38 $17.27 $0.15
Third quarter.................................. $23.88 $15.25 $0.15
Fourth quarter (through December 13, 1999)..... $18.75 $14.88 $ --
</TABLE>
At September 30, 1999, there were approximately 960 holders of record
of Glacier common stock.
MOUNTAIN WEST BANK. No broker makes a market in Mountain West Bank
common stock, and trading has not otherwise been extensive. The trades that have
occurred cannot be characterized as amounting to an established public trading
market. Mountain West Bank common stock is traded by individuals on a personal
basis and is not listed on any exchange or traded on the over-the-counter
market, and the prices reported reflect only the transactions known to
management of Mountain West Bank. Due to the limited information available, the
following data may not accurately reflect the actual market value of Mountain
West Bank common stock. The following data includes trades between individual
investors, as reported to Mountain West Bank by its transfer agent, Davidson
Trust Co.
26
<PAGE> 31
<TABLE>
<CAPTION>
No. of Shares No. of
Reported as Traded Transactions High Low
------------------ ------------ ---- ---
<S> <C> <C> <C> <C>
1997............................... 17,781 17 $12.75 $12.75
1998(1)............................ 249,246 48 $20.00 $13.00
1999 (through 12/13/99)............ 28,002 16 $23.00 $20.00
</TABLE>
- -----------------
(1) Mountain West Bank issued 150,000 shares of common stock in February 1998
at $13.00 per share.
Mountain West Bank did not declare or pay a cash dividend in the period
covered by the table above.
At September 30, 1999, there were approximately 319 holders of record
of Mountain West Bank common stock.
27
<PAGE> 32
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements give
effect to the merger of Glacier and Mountain West Bank on a pooling-of-interests
basis. The unaudited pro forma combined statements of income assume the merger
was consummated as of the beginning of the first period presented.
These unaudited pro forma combined financial statements should be read
in conjunction with the historical financial statements and the related notes
thereto to Glacier and Mountain West Bank included in this prospectus/proxy
statement or incorporated by reference.
The unaudited pro forma statements of income are not necessarily
indicative of operating results which would have been achieved had the merger
been consummated as of the beginning of the first period presented and should
not be construed as representative of future operations.
28
<PAGE> 33
PRO FORMA COMBINED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain Adjustments West Pro Forma
(amounts in thousands) Glacier West (Note 1) Combined
- ---------------------- --------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
Assets
Cash on hand and in banks ......................... $ 29,944 3,638 33,582
Federal funds sold ................................ 278 0 278
Interest bearing cash deposits .................... 4,800 3,795 8,595
--------- ------- ------ --------
Cash and cash equivalents .................... 35,022 7,433 0 42,455
Investments
Investment securities, held-to-maturity ...... 0 765 765
Investment securities, available-for-sale .... 188,726 15,569 204,295
--------- ------- ------ --------
Total Investments ........................ 188,726 16,334 0 205,060
Loans receivable .................................. 571,690 54,554 626,244
Allowance for losses .............................. (5,896) (653) (6,549)
--------- ------- ------ --------
Total Loans, net ......................... 565,794 53,901 0 619,695
Premises and equipment, net ....................... 19,090 3,339 22,429
Real estate and other assets owned ................ 183 0 183
Federal Home Loan Bank of Seattle stock, at cost .. 13,997 627 14,624
Federal Reserve stock, at cost .................... 1,431 0 1,431
Accrued interest receivable ....................... 4,871 479 5,350
Goodwill, net ..................................... 2,432 0 2,432
Other assets ...................................... 3,710 771 4,481
--------- ------- ------ --------
Total assets ............................. $ 835,256 82,884 0 918,140
========= ======= ====== ========
Liabilities and stockholders' equity
Deposits - non-interest bearing ................... $ 118,876 18,066 136,942
Deposits - interest bearing ....................... 383,905 57,660 441,565
Advances from Federal Home Loan Bank of
Seattle ......................................... 193,942 0 193,942
Securities sold under agreements to repurchase .... 43,771 0 43,771
Other borrowed funds .............................. 7,769 0 7,769
Accrued interest payable .......................... 2,992 45 3,037
Current income taxes .............................. 178 118 296
Other liabilities ................................. 4,781 470 5,251
Minority interest ................................. 307 0 307
--------- ------- ------ --------
Total liabilities ........................ 756,521 76,359 0 832,880
Common stock, $.01 par value per share(1) ......... 95 1,789 (1,780) 104
Paid-in capital ................................... 80,859 4,413 1,780 87,052
Retained earnings - substantially restricted ...... 1,420 464 1,884
Accumulated other comprehensive earnings .......... (3,639) (141) (3,780)
--------- ------- ------ --------
Total stockholders' equity ................... 78,735 6,525 0 85,260
--------- ------- ------ --------
Total liabilities and stockholders'
equity ............................... $ 835,256 82,884 0 918,140
========= ======= ====== ========
</TABLE>
Note 1 - Restates capital accounts to reflect $.01 per share stock value
29
<PAGE> 34
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain West Pro forma
(amounts in thousands, except per share data) Glacier West Combined
- --------------------------------------------- ------- -------- ----------------
<S> <C> <C> <C>
Interest income
Loans ............................................. $34,513 3,396 37,909
Investments and interest bearing deposits ......... 7,986 829 8,815
------- ------ ------
Total interest income ............................. 42,499 4,224 46,723
Interest expense
Deposits .......................................... 10,274 1,421 11,695
Borrowings ........................................ 7,974 35 8,009
------- ------ ------
Total interest expense ............................ 18,248 1,455 19,703
Net interest income ............................... 24,251 2,769 27,020
Provision for loan losses ........................... 1,090 156 1,246
------- ------ ------
Net interest income after provision for loan
losses .......................................... 23,161 2,613 25,774
Non-interest income
Fees and service charges .......................... 6,463 824 7,287
Gains on sales of loans ........................... 960 578 1,538
Net gains on sales of investments ................. 4 17 21
Other income ...................................... 874 (51) 823
------- ------ ------
Total non-interest income ......................... 8,301 1,369 9,670
Non-interest expense
Employee compensation and benefits ................ 9,167 1,464 10,631
Occupancy & equipment ............................. 2,348 708 3,056
Other expense ..................................... 5,941 1,399 7,340
Minority interest ................................. 36 0 36
------- ------ ------
Total non-interest expense ........................ 17,492 3,571 21,063
Earnings before income taxes ........................ 13,970 411 14,381
Federal and state income tax expense ................ 4,910 148 5,058
------- ------ ------
Net earnings ...................................... $ 9,060 263 9,323
======= ====== ======
Average common shares outstanding(1) ................ 9,512 709 10,348
Basic net earnings per share of common stock(1) ..... $ 0.95 0.37 0.90
Diluted net earnings per share of common stock(1) ... $ 0.94 0.35 0.89
</TABLE>
(1) Adjusted for stock splits and stock dividends
30
<PAGE> 35
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain West Pro forma
(amounts in thousands, except per share data) Glacier West Combined
- --------------------------------------------- ------- -------- ----------------
<S> <C> <C> <C>
Interest income
Loans ............................................. $34,038 2,785 36,823
Investments and interest bearing deposits ......... 6,263 646 6,909
------- ----- ------
Total interest income ............................. 40,301 3,430 43,731
Interest expense
Deposits .......................................... 11,079 1,322 12,401
Borrowings ........................................ 6,802 47 6,849
------- ----- ------
Total interest expense ............................ 17,881 1,369 19,250
Net interest income ............................... 22,420 2,061 24,481
Provision for loan losses ........................... 1,094 142 1,236
------- ----- ------
Net interest income after provision for loan
losses .......................................... 21,326 1,919 23,245
Non-interest income
Fees and service charges .......................... 6,428 450 6,878
Gains on sales of loans ........................... 1,117 471 1,588
Net gains on sales of investments ................. 14 9 23
Other income ...................................... 1,475 1 1,476
------- ----- ------
Total non-interest income ......................... 9,034 931 9,965
Non-interest expense
Employee compensation and benefits ................ 8,882 984 9,866
Occupancy & equipment ............................. 2,039 398 2,437
Other expense ..................................... 6,284 799 7,083
Minority interest ................................. 132 0 132
------- ----- ------
Total non-interest expense ........................ 17,337 2,181 19,518
Earnings before income taxes ........................ 13,023 669 13,692
Federal and state income tax expense ................ 4,879 239 5,118
------- ----- ------
Net earnings ...................................... $ 8,144 430 8,574
======= ===== ======
Average common shares outstanding(1) ................ 9,260 678 10,061
Basic net earnings per share of common stock(1) ..... $ 0.88 0.63 0.85
Diluted net earnings per share of common stock(1) ... $ 0.86 0.61 0.83
</TABLE>
(1) Adjusted for stock splits and stock dividends
31
<PAGE> 36
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain West Pro forma
(amounts in thousands, except per share data) Glacier West Combined
- --------------------------------------------- ------- -------- ----------------
<S> <C> <C> <C>
Interest income
Loans ............................................. $53,678 3,915 57,593
Investments and interest bearing deposits ......... 894 894
------- ----- ------
Total interest income ............................. 53,678 4,808 58,486
Interest expense
Deposits .......................................... 14,710 1,802 16,512
Borrowings ........................................ 8,840 63 8,903
------- ----- ------
Total interest expense ............................ 23,550 1,865 25,415
Net interest income ............................... 30,128 2,943 33,071
Provision for loan losses ........................... 1,532 202 1,734
------- ----- ------
Net interest income after provision for loan
losses .......................................... 28,596 2,741 31,337
Non-interest income
Fees and service charges .......................... 8,688 672 9,360
Gains on sales of loans ........................... 1,521 712 2,233
Net gains on sales of investments ................. 45 9 54
Other income ...................................... 1,748 1 1,749
------- ----- ------
Total non-interest income ......................... 12,002 1,394 13,396
Non-interest expense
Employee compensation and benefits ................ 11,740 1,528 13,268
Occupancy & equipment ............................. 2,870 582 3,452
Other expense ..................................... 8,530 1,196 9,726
Minority interest ................................. 145 0 145
------- ----- ------
Total non-interest expense ........................ 23,285 3,306 26,591
Earnings before income taxes ........................ 17,313 829 18,142
Federal and state income tax expense ................ 6,398 300 6,698
------- ----- ------
Net earnings ...................................... $10,915 529 11,444
======= ===== ======
Average common shares outstanding(1) ................ 9,304 685 10,112
Basic net earnings per share of common stock(1) ..... $ 1.17 0.77 1.14
Diluted net earnings per share of common stock(1) ... $ 1.15 0.74 1.11
</TABLE>
(1) Adjusted for stock splits and stock dividends
32
<PAGE> 37
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain West Pro forma
(amounts in thousands, except per share data) Glacier West Combined
- --------------------------------------------- ------- -------- ----------------
<S> <C> <C> <C>
Interest income
Loans ............................................. $42,412 3,190 45,602
Investments and interest bearing deposits ......... 9,274 448 9,722
------- ------ ------
Total interest income ............................. 51,686 3,638 55,324
Interest expense
Deposits .......................................... 13,911 1,445 15,356
Borrowings ........................................ 9,385 76 9,461
------- ------ ------
Total interest expense ............................ 23,296 1,521 24,817
Net interest income ............................... 28,390 2,117 30,507
Provision for loan losses ........................... 889 138 1,027
------- ------ ------
Net interest income after provision for loan
losses .......................................... 27,501 1,979 29,480
Non-interest income
Fees and service charges .......................... 7,954 343 8,297
Gains on sales of loans ........................... 968 499 1,467
Net gains on sales of investments ................. 197 0 197
Other income ...................................... 1,016 (5) 1,011
------- ------ ------
Total non-interest income ......................... 10,135 837 10,972
Non-interest expense
Employee compensation and benefits ................ 11,233 1,015 12,248
Occupancy & equipment ............................. 2,482 610 3,092
Other expense ..................................... 7,504 678 8,182
Minority interest ................................. 208 0 208
------- ------ ------
Total non-interest expense ........................ 21,427 2,303 23,730
Earnings before income taxes ........................ 16,209 513 16,722
Federal and state income tax expense ................ 5,973 197 6,170
------- ------ ------
Net earnings ...................................... $10,236 316 10,552
======= ====== ======
Average common shares outstanding(1) ................ 9,144 551 9,795
Basic net earnings per share of common stock(1) ..... $ 1.13 0.57 1.09
Diluted net earnings per share of common stock(1) ... $ 1.11 0.56 1.07
</TABLE>
(1) Adjusted for stock splits and stock dividends
33
<PAGE> 38
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Glacier/Mountain
Mountain West Pro forma
(amounts in thousands, except per share data) Glacier West Combined
- --------------------------------------------- ------- -------- ----------------
<S> <C> <C> <C>
Interest income
Loans ............................................. $38,863 2,328 41,191
Investments and interest bearing deposits ......... 8,834 269 9,103
------- ------ ------
Total interest income ............................. 47,697 2,597 50,294
Interest expense
Deposits .......................................... 12,650 1,036 13,686
Borrowings ........................................ 8,776 103 8,879
------- ------ ------
Total interest expense ............................ 21,426 1,139 22,565
Net interest income ............................... 26,271 1,458 27,729
Provision for loan losses ........................... 949 74 1,023
------- ------ ------
Net interest income after provision for loan
losses .......................................... 25,322 1,384 26,706
Non-interest income
Fees and service charges .......................... 7,424 156 7,580
Net gains on sales of loans ....................... 944 329 1,273
Net gains on sales of investments ................. 102 9 111
Other income ...................................... 1,355 1 1,356
------- ------ ------
Total non-interest income ......................... 9,825 495 10,320
Non-interest expense
Employee compensation and benefits ................ 10,279 773 11,052
Occupancy & equipment ............................. 2,161 281 2,442
Other expense ..................................... 8,527 522 9,049
Minority interest ................................. 191 0 191
------- ------ ------
Total non-interest expense ........................ 21,158 1,577 22,735
Earnings before income taxes ........................ 13,989 302 14,291
Federal and state income tax expense ................ 5,662 (65) 5,597
------- ------ ------
Net earnings ...................................... $ 8,327 367 8,694
======= ====== ======
Average common shares outstanding(1) ................ 8,924 551 9,575
Basic net earnings per share of common stock(1) ..... $ 0.94 0.67 0.91
Diluted net earnings per share of common stock(1) ... $ 0.92 0.66 0.90
</TABLE>
(1) Adjusted for stock splits and stock dividends
34
<PAGE> 39
INFORMATION CONCERNING GLACIER
GENERAL
Glacier is a corporation organized under Delaware law, and a registered
bank holding company. Glacier's principal office is located in Kalispell,
Montana, and it presently has six bank subsidiaries. Glacier has long-standing
roots in northwest Montana dating back to 1955, and owns:
o all of the outstanding common stock of Glacier Bank, First Security
Bank of Missoula, Valley Bank of Helena, and Big Sky Western Bank;
o approximately 94% of the outstanding common stock of Glacier Bank of
Whitefish; and
o approximately 98% of the outstanding common stock of Glacier Bank of
Eureka.
Glacier offers a broad range of community banking services throughout
its 26 banking offices located primarily in western Montana and Billings,
Montana. The business of the Glacier subsidiary banks consists primarily of
attracting deposit accounts from the general public and originating commercial,
residential, and installment loans. The Glacier subsidiary banks' principal
sources of income are interest on loans, loan origination fees, and interest and
dividends on investment securities, while principal expenses consist of interest
on savings deposits, FHLB advances, and repurchase agreements, as well as
general and administrative expenses.
Glacier's expansion plans include internally-generated growth from
strategically-located existing branches, some selected new branch expansion and
expansion into other areas of Montana and Idaho. In addition to limited de novo
branching, Glacier's management strategy has also been to pursue attractive
alliance opportunities with other well-run community banks such as the proposed
transaction with Mountain West Bank, as well as other financial service related
companies. Glacier has continued to invest significantly in management and other
resources to support its expansion.
Glacier was incorporated on March 24, 1998. It is the successor
corporation of another company, also named "Glacier Bancorp, Inc." that was
formed in 1990. That corporation is referred to in this discussion as "Original
Glacier." Glacier merged with Original Glacier on July 8, 1998. In early 1998,
Original Glacier discovered certain technical issues associated with its capital
stock, including the existence of fewer authorized shares than Original Glacier
had previously believed were available. Because these issues created uncertainty
about the validity of certain outstanding shares of Original Glacier common
stock, Original Glacier completed the merger with Glacier. This transaction was
designed to cure the concerns regarding Original Glacier's common stock.
As of October 31, 1999, the executive officers and directors of
Glacier beneficially owned, as a group, 1,597,282 shares of Glacier common
stock, or 16.73% of all outstanding Glacier shares. Beneficial ownership
includes shares of Glacier common stock with respect to which the person has or
shares voting or investment power, and also includes shares which the person
has the right to acquire within 60 days, in the case by the exercise of stock
options.
Historical information regarding Glacier in this prospectus/proxy
statement that refers to a date prior to July 8, 1998, and information regarding
Glacier that is incorporated by reference to certain filings with the SEC, as
described in "INFORMATION INCORPORATED BY REFERENCE," is information regarding
Original Glacier.
Financial and other information regarding Glacier, including
information relating to Glacier's directors and executive officers, is set forth
in the 1998 10-K, 1999 10-Qs, the 1999 Annual Meeting Proxy Statement and the
Forms 8-K filed by Glacier (or Original Glacier) and incorporated by reference
into this prospectus/proxy statement. See "INFORMATION INCORPORATED BY
REFERENCE" and "WHERE YOU CAN FIND INFORMATION."
35
<PAGE> 40
YEAR 2000 ISSUES
The century date change for the year 2000 is a serious issue that may
impact virtually every organization, including Glacier. Many software programs
are not able to recognize the year 2000, since most programs and systems were
designed to store calendar years in the 1900s by assuming the "19" and storing
only the last two digits of the year. The problem is especially important to
financial institutions since many transactions, such as interest accruals and
payments, are date sensitive, and because Glacier and its subsidiary banks
interact with numerous customers, vendors and third party service providers who
must also address the year 2000 issue. The problem is not limited to computer
systems. Year 2000 issues will also potentially affect every system that has an
embedded microchip, such as automated teller machines, elevators and vaults.
Glacier's State of Readiness
Glacier and its subsidiary banks are committed to addressing these Year
2000 issues in a prompt and responsible manner, and they have dedicated the
resources to do so. Management has completed an assessment of its automated
systems and has implemented a program consistent with applicable regulatory
guidelines, to complete all steps necessary to resolve identified issues.
Glacier's compliance program has several phases, including (1) project
management; (2) assessment; (3) testing; and (4) remediation and implementation.
Project Management. Glacier has formed a Year 2000 compliance committee
consisting of senior management and departmental representatives. The committee
has met regularly since October 1997. A Year 2000 compliance plan was developed
and regular meetings have been held to discuss the process, assign tasks,
determine priorities and monitor progress. The committee regularly reports to
Glacier's Board.
Assessment. All of Glacier's and its subsidiary banks' computer
equipment and mission-critical software programs have been identified. This
phase is essentially complete. Glacier's primary software vendors were also
assessed during this phase, and vendors who provide mission-critical software
have been contacted. Glacier has obtained written certification from providers
of material services that such providers are, or will be, Year 2000 compliant.
Based upon its ongoing assessment of the readiness of its vendors, suppliers and
service providers, Glacier has developed contingency plans addressing the most
reasonably likely worst case scenarios. Glacier will continue to monitor and
work with these vendors. Glacier has also identified, and are working with, the
subsidiary banks' significant borrowers and funds providers to assess the extent
to which they may be affected by Year 2000 issues.
Testing. Updating and testing of Glacier's and its subsidiary banks'
automated systems has been completed. Glacier tested its primary software
systems, its computer equipment, interfaces and contingency plans. The tests
revealed no significant Year 2000 related problems.
Remediation and implementation. This phase of Glacier's year 2000
compliance program has been completed. Utilizing information gained in the
assessment and testing phases, Glacier has replaced or upgraded any hardware,
software applications, or automated systems that were determined not to be
fully year 2000 compliant.
Estimated Costs to Address Glacier's Year 2000 Issues
The total financial effect that Year 2000 issues will have on Glacier
cannot be predicted with any certainty at this time. In fact, in spite of all
efforts being made to rectify these problems, the success of Glacier's efforts
will not be known until the year 2000 actually arrives. However, based on its
assessment to date, Glacier does not believe that expenses related to meeting
Year 2000 challenges will have a material effect on the operations or
consolidated financial condition of Glacier. Year 2000 challenges facing vendors
of mission-critical software and systems, and facing Glacier's customers, could
have a material effect on the operations or consolidated financial condition of
Glacier, to the extent such parties are materially affected by such challenges.
Risks Related to Year 2000 Issues
The year 2000 poses certain risks to Glacier and its subsidiary banks
and their operations. Some of these risks are present because Glacier purchases
technology and information systems applications from other parties
36
<PAGE> 41
who face Year 2000 challenges. Other risks are inherent in the business of
banking or are risks faced by many companies. Although it is impossible to
identify all possible risks that Glacier may face moving into the millennium,
management has identified the following significant potential risks:
Commercial banks may experience a contraction in their deposit base, if
a significant amount of deposited funds are withdrawn by customers prior to the
year 2000, and interest rates may increase as the millennium approaches. This
potential deposit contraction could make it necessary for Glacier to change its
sources of funding and could impact future earnings. Glacier established a
contingency plan for addressing this situation, should it arise, into its asset
and liability management policies. The plan includes maintaining the ability to
borrow funds from the Federal Home Loan Bank of Seattle and the Federal Reserve
Bank of Minneapolis. Significant demand for funds from other banks could reduce
the amount of funds available for Glacier to borrow. If insufficient funds are
available from these sources, Glacier may also sell investment securities or
other liquid assets to meet liquidity needs.
Glacier lends significant amounts to businesses in its marketing area.
If these businesses are adversely affected by Year 2000 problems, their ability
to repay loans could be impaired. This increased credit risk could adversely
affect Glacier's financial performance. During the assessment phase of Glacier's
Year 2000 program, each of Glacier's subsidiary banks' substantial borrowers
were identified, and Glacier is working with such borrowers to ascertain their
levels of exposure to Year 2000 problems. To the extent that Glacier is unable
to assure itself of the Year 2000 readiness of such borrowers, it intends to
apply additional risk assessment criteria to the indebtedness of such borrowers
and make any necessary related adjustments to Glacier's provision for loan
losses.
Glacier and its subsidiary banks, like those of many other companies,
can be adversely affected by the Year 2000 triggered failures of other companies
upon whom Glacier and its subsidiary banks depend for the functioning of their
automated systems. Accordingly, Glacier's and its subsidiary banks' operations
could be materially affected, if the operations of mission-critical third party
service providers are adversely affected. As described above, Glacier has
identified its mission-critical vendors and is monitoring their Year 2000
compliance programs.
Glacier's Contingency Plans
Glacier has developed specific contingency plans related to the Year
2000 issues facing it. As Glacier and its subsidiary banks continue to monitor
the readiness of vendors, service providers and substantial borrowers,
appropriate contingency plans have been developed that address the most
reasonably likely "worst case" scenarios. Glacier has tested its contingency
plans and believes they are adequate to implement Glacier's strategies for
maintaining services during events such as those described in "Risks" above.
Certain circumstances may occur for which there are no completely satisfactory
contingency plans, and there can be no assurance that Glacier's contingency
plans will be effective.
FORWARD LOOKING STATEMENTS
The discussion above regarding to the century date change for the year
2000 includes certain "forward looking statements" concerning the future
operations of Glacier. Glacier desires to take advantage of the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 as they apply
to forward looking statements. This statement is for the express purpose of
availing Glacier of the protections of such safe harbor with respect to all
"forward looking statements." Management's ability to predict results of the
effect of future plans is inherently uncertain, and is subject to factors that
may cause actual results to differ materially from those projected. Factors that
could affect the actual results include Glacier's success in identifying systems
and programs that are not Year 2000 compliant; the possibility that systems
modifications will not operate as intended; unexpected costs associated with
remediation, including labor and consulting costs; the nature and amount of
programming required
37
<PAGE> 42
to upgrade or replace the affected systems; the uncertainty associated with the
impact of the century change on Glacier's customers, vendors and third-party
service providers; and the economy generally.
INFORMATION CONCERNING MOUNTAIN WEST BANK
BUSINESS
Mountain West Bank was organized on September 1, 1993 as a federal
savings bank and converted to an Idaho state chartered bank on June 30, 1999.
Mountain West Bank engages in commercial banking activities from its main office
located in the community of Coeur d'Alene, Idaho, and branch facilities located
in Post Falls, Hayden and Boise, Idaho. The bank was organized to address a
perceived need for the services of a local community bank with commitment to
personalized service. Mountain West Bank offers commercial banking services,
primarily to small and medium-sized businesses, professionals, and retail
customers, including commercial loans, consumer installments loans, residential
and commercial real estate and construction loans, certificates of deposit, and
checking and savings accounts.
Mountain West Bank's deposit accounts are insured by the FDIC to legal
limits. As of March 31, 1999, Mountain West Bank had deposits of approximately
$71 million and total assets of approximately $81 million. As of September 30,
1999, Mountain West Bank had approximately $74 million in deposits and
approximately $83 million in total assets.
Mountain West Bank is an independent bank owned by approximately 320
stockholders, primarily individuals, who are residents of the Coeur d'Alene
community or have some association with the area. Mountain West Bank has no bank
or non-bank subsidiaries.
A substantial portion of Mountain West Bank's current management has
been with the bank since its inception in 1993. Mountain West Bank has
established a strong presence in commercial and residential real estate, small
business, and installment loan markets in its area.
COMPETITION
Competition in the banking industry is significant and has intensified
with interest rate deregulation. Furthermore, competition from outside the
traditional banking system from investment banking firms, insurance companies,
credit unions, and related industries offering bank-like products has
intensified the competition for deposits and loans.
Mountain West Bank's traditional competition for deposits comes from
commercial banks. The few established credit unions collectively hold a minor
share of the deposit and loan market. Mountain West Bank competes for deposits
by offering a variety of deposit accounts at rates generally competitive with
similar financial institutions in the area.
In competing for deposits, Mountain West Bank is subject to certain
regulations not applicable to non-bank competitors. Legislation enacted in the
1980s authorized banks to offer deposit instruments with rates competitive with
money market funds, but subject to restrictions not applicable to those funds.
Legislation has also made non-bank financial institutions more effective
competitors. Savings and loan associations and credit unions are now permitted
to offer checking accounts and to make commercial loans with certain
limitations.
Mountain West Bank's competition for loans comes primarily from the
same financial institutions with which Mountain West Bank competes for deposits.
Mountain West Bank competes for loan originations primarily through the level of
interest rates and loan fees charged, the variety of commercial and mortgage
loan
38
<PAGE> 43
products offered, and the efficiency and quality of services provided to
borrowers. Factors which affect loan competition include the availability of
lendable funds, local and national economic conditions, current interest rate
levels, and loan demand. Mountain West Bank engages in loan origination for
residential loans which are sold to traditional secondary market investors which
generates fee income while preserving liquidity.
The offices of the larger banks have competitive advantages over
Mountain West Bank in that they have a stronger presence and are able to
maintain advertising and marketing activity on a much larger scale than Mountain
West Bank can economically maintain. Because single borrower lending limits
imposed by law are tied to the institution's capital, the branches or offices of
larger institutions with substantial capital bases are also at an advantage with
respect to loan applications for amounts in excess of Mountain West Bank's legal
lending limit. This advantage has been mitigated somewhat by Mountain West
Bank's network of over-line participants.
FACILITIES
The principal offices of Mountain West Bank are located at the bank's
main office at 125 Ironwood Dr., Coeur d'Alene, ID 83814. The Coeur d'Alene
location houses employee offices, a lobby with five teller stations, a two-lane
drive-up window, and an ATM. Mountain West Bank operates three branches located
in Post Falls, Hayden and Boise, Idaho. The Post Falls and Hayden facilities are
full service branches with teller stations, drive-up lanes, and a drive-up ATM.
The Boise branch is operating in a temporary facility which does not have a
drive-up window or ATM. Residential lending centers are located on the lower
level of the Coeur d'Alene location and in the Boise office. Administrative
offices are located in a building adjacent to the Coeur d'Alene main office.
Mountain West Bank owns all its facilities except the Boise temporary facility
and the administrative offices which are leased.
COMPENSATION INFORMATION
In the merger agreement, Glacier agrees that it will use its best
efforts to nominate and recommend the election of Mr. Jon Hippler, President and
Chief Executive Officer of Mountain West Bank, to Glacier's board of directors
following the merger. See "THE MERGER - Interests of Certain Persons in the
Merger."
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
------------------------ ---------------------------------
AWARDS PAYOUTS
----------------------- -------
RESTRICTED
STOCK SECURITIES ALL OTHER
NAME AND FISCAL AWARD(S) UNDERLYING LTIP COMPENSATION
PRINCIPAL POSITION YEAR SALARY BONUS $ OPTIONS PAYOUTS (1)
- ------------------ ------ ----------- ---------- ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jon W. Hippler 1999 $111,056.00 $15,000.00 0 3,000 0 $15,946
President & CEO
1998 $ 93,556.00 $20,000.00 0 9,000 0 $11,472
1997 $ 79,107.00 $12,000.00 0 0 0 $13,995
</TABLE>
- ----------------
1) Includes medical insurance premiums ($3,675 in 1999; $,3,492 in 1998; $3,512
in 1997) and personal use of the company automobile ($7,569 in 1999; $4,387 in
1998; $7,562 in 1997).
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information concerning
individual grants of stock options pursuant to Mountain West Bank's stock
option plan awarded to Mr. Hippler during the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
PRICE APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
- ---------------------------------------------------------------------- -----------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE EXPIRATION
NAME GRANTED EMPLOYEES PRICE(2) DATE 5% 10%
- ---- ---------- ---------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jon W. Hippler 3,000 13.64% $16.00 4/12/08 $30,200 $76,500
</TABLE>
- ----------------
1) The potential realizable value portion is based on the assumption that the
stock price of the Mountain West Bank common stock appreciates at the annual
rate shown (compounded annually) from the date of grant until the end of the
five-year option term. These numbers are calculated based on the requirements
of the Securities and Exchange Commission and do not reflect Mountain West
Bank's future stock price performance.
2) The exercise price was based on the market price of the Mountain West Bank
common stock on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
The following tables set forth certain information concerning
exercises of stock options pursuant to Mountain West Bank's stock option plans
by Mr. Hippler during the fiscal year ended March 31, 1999 and stock options
held at year end.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND YEAR END OPTION VALUES
- ---------------------------------------------------------------------------------------------------
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT YEAR END(1) OPTIONS AT YEAR END(1)
--------------------------- ---------------------------
SHARES
ACQUIRED
ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jon W. Hippler 0 0 19,855 0 $177,850 $0
</TABLE>
- ----------------
1) Value is calculated by subtracting the exercise price from the fair market
value of the underlying stock. For the purposes of this table, fair market
value is deemed to be $20.00 per share, the last sale price of Mountain West
Bank stock immediately preceding March 31, 1999.
EMPLOYEES
As of September 30, 1999, Mountain West Bank had 73
full-time-equivalent (67 full-time and 10 part-time) employees.
LEGAL PROCEEDINGS
Mountain West Bank is from time to time a party to various legal
proceedings arising in the ordinary course of the bank's business. Management
believes that there is no threatened or pending proceedings against Mountain
West Bank which, if determined adversely would have a material effect on its
business or financial position.
39
<PAGE> 44
SECURITIES OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following table sets forth information regarding the beneficial
ownership of Mountain West Bank common stock as of October 31, 1999 by (i) each
person known to Mountain West Bank to own beneficially more than 5 percent of
Mountain West Bank common stock; (ii) each current director and certain
executive officers of Mountain West Bank; and (iii) all executive officers and
directors of Mountain West Bank as a group. Except as otherwise indicated, each
of the persons named below has sole voting and investment power with respect to
the Mountain West Bank common stock owned by them. Each of the following persons
may be reached at the main office location of Mountain West Bank.
<TABLE>
<CAPTION>
BENEFICIAL OWNER SHARES BENEFICIALLY OWNED PERCENTAGE OF CLASS
---------------- ------------------------- -------------------
<S> <C> <C>
Jon W. Hippler, Director, President
& CEO 31,605(1) 3.81%
David Chapman, Director 17,358(2) 2.09%
Bradley Dugdale, Director 11,349(3) 1.37%
Marilyn Montgomery, Director 13,549(4) 1.63%
James M. English, Director 6,046(5) .73%
Stephen F. Meyer, Director 22,349(6) 2.69%
Charles R. Nipp, Director 14,829(7) 1.79%
Doug Parker, Director 16,849(8) 2.03%
J. Michael Patano, Director 15,162(9) 1.83%
Thomas K. Thilo, Director 15,788(10) 1.90%
Diane E. Reed, Senior Vice President,
Residential Real Estate Manager 7,160(11) .86%
All Executive Officers & Directors as a
group 202,406 24.37%
</TABLE>
- -----------------------
(1) Includes 9,520 shares held directly, 730 shares owned by Mr. Hippler's
children, and 21,355 shares subject to stock options.
(2) Includes 12,452 shares held directly, 877 shares owned by Mr. Chapman's
children, and 4,029 shares subject to stock options.
(3) Includes 7,320 shares held directly and 4,029 shares subject to stock
options.
(4) Includes 9,520 shares held directly and 4,029 shares subject to stock
options.
(5) Includes 2,381 shares held directly and 3,665 shares subject to stock
options.
(6) Includes 18,320 shares held directly and 4,029 shares subject to stock
options.
(7) Includes 10,070 shares held directly, 730 shares owned by Mr. Nipp's
children, and 4,029 shares subject to stock options.
(8) Includes 12,820 shares held directly, and 4,029 shares subject to stock
options.
(9) Includes 10,402 shares held directly, 731 shares owned by Mr. Patano's
children, and 4,029 shares subject to stock options.
(10) Includes 11,759 shares held directly and 4,029 shares subject to stock
options.
(11) Includes 7,160 shares subject to stock options.
40
<PAGE> 45
MOUNTAIN WEST BANK'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Typically new branches incur substantial initial expenses, and net
interest revenue builds over a period of time. The financial impact of the
branches in Hayden, Post Falls, and Boise will be to incur more operating costs
than revenue, until the new branches are able to accumulate substantial loan and
deposit totals for the Bank. Consequently, the financial statements are not
necessarily indicative of future financial condition or operating results. The
revenues of the Bank are derived primarily from interest earned on loans and
investments and from fees, service charges, and gains on the sale of loans. The
operations of the Bank, and financial institutions generally, are influenced
significantly by general economic conditions and by policies of its primary
regulators. Prior to June 30, 1999, the Bank was a federal savings bank
regulated primarily by the Office of Thrift Supervision (OTS). On June 30, 1999,
the Bank converted to an Idaho State Bank and therefore its current primary
regulators, are the FDIC and the Idaho Department of Finance.
This discussion contains some forward-looking statements. A
forward-looking statement may contain words such as "will continue to be," "will
be," "continue to," "expect to," "anticipates that," "to be," or "can impact."
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Bank's actual results to differ materially
from those projected in forward-looking statements.
DISCUSSION AND ANALYSIS OF THE THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30,
1999
FINANCIAL CONDITION-CASH FLOW ACTIVITIES. In the three months ended
September 30, 1999 and 1998, the Bank disbursed for loans of all types
$16,004,000 and $21,068,000, respectively. During the same periods, sales of
loans amounted to $8,164,000 and $13,699,000, respectively, and principal
payoffs and collections on loans accumulated to $7,627,000 and $2,535,000,
respectively. The result of this activity was an increase in total loans
receivable, including loans held for sale, for the period in 1999 of about
$171,000, and $4,834,000 in 1998. During the period in 1999 interest rates were
increasing, which reduced the volume of refinancing loans and related sales
compared to the same period in 1998, when interest rates were decreasing.
In the three months ended September 30, 1999 and 1998, deposits
increased $5,108,000 and $3,208,000, respectively. The second quarter of the
fiscal year is historically a season of growth in deposits, though some is
temporary, caused by an increase in seasonal balances of larger commercial
customers of the Bank.
In the three month period in 1999 the excess of deposit growth over
loan growth of $4,937,000 was used to purchase investments, reduce borrowing,
and increase interest bearing cash equivalent balances. In the same period in
1998, the excess of loan growth over deposit growth of $1,626,000 was primarily
funded by reducing cash equivalent balances, which were also used to reduce
borrowing and to increase investments.
RESULTS OF OPERATIONS. The Bank earned net income after income taxes of
$103,000, or $.14 per basic share, or $.14 per diluted share, for the quarter
year ended September 30, 1999, compared to net income after income taxes of
$100,000, or $.14 per basic share, or $.14 per diluted share, for the same
quarter year in 1998. For the six months ended September 30, 1999, the Bank
earned net income after income taxes of $188,000, or $.26 per basic share, or
$.25 per diluted share, compared to net income after income taxes of $286,000,
or $.41 per basic share, or $.39 per diluted share, for the same period in 1998.
The return on average assets for the quarter year and half year ended
September 30, 1999, was .51% and .44%, compared to .56% and .83% for the same
periods in the prior year. The return on average stockholders' equity was 6.40%
and 5.84% for the quarter year and half year periods in 1999, compared to 6.54%
and 9.50% for the same periods in 1998.
41
<PAGE> 46
Noninterest expenses were substantially higher in 1999 than in 1998,
primarily because of deposit growth within existing facilities, the new branch
in Boise, and upgraded computer and check-processing systems. The new branch and
technology investments are expected to improve the profitability of the Bank in
future years, assuming that anticipated growth in loans and deposits is
achieved.
NET INTEREST INCOME. The most significant component of earnings is net
interest income, defined as the difference between interest income on earning
assets, principally loans and investments, and interest expense on interest
bearing liabilities, principally customer deposits and borrowings. Changes in
net interest income result from changes in the volume, or dollar levels, of
earning assets and interest bearing liabilities and from changes in the interest
rate spread. Interest rate spread is the difference between the average yield on
earning assets and the average cost on interest bearing liabilities.
Before provisions for loan losses, the Bank reported net interest
income of $1,003,000 and $758,000 for the quarters ended September 30, 1999 and
1998, respectively, and reported net interest income of $1,918,000 and
$1,454,000 for the six months ended September 30, 1999 and 1998. The net
interest margin, defined as net interest income divided by average earning
assets, was 5.36% for the quarter in 1999 and 4.78% in 1998. For the six months
ended September 30, 1999 and 1998, the net interest margins were 5.33% and
4.84%.
Interest Income. Interest income increased $252,000 and $495,000, or
about 20%, in the three months and six months ended September 30, 1999, compared
to the equivalent periods in the prior fiscal year. Average earnings also
increased approximately 20%. The average yield on earning assets at the end of
the periods in 1999 was 7.85%, compared to 7.89% at the end of the periods in
1998.
Interest Expense. Interest expense increased $7,000 and $31,000, or 1%
and 3%, in the three and six months ended September 30, 1999, compared to the
equivalent period in the prior fiscal year. Though average deposits increased
approximately 18% from September 30, 1998, to September 30, 1999, the mix of
deposits in 1999 continued to favor lower rate savings and checking products,
contributing to a decline in the average cost of funds from 3.05% in September
1998 to 2.62% in September 1999. This had a positive effect on the net interest
margin.
RISK ELEMENTS-LOANS. The accrual of interest and amortization of net
deferred loan fees generally will cease on any loan when either principal or
interest becomes 90 days past due. Loans may be placed in nonaccrual status
earlier if, in management's judgment, the loan may be uncollectible. The
following table summarizes the principal balances of nonperforming assets, net
of a specific allowance for loan loss of $50,000 at September 30, 1999.
42
<PAGE> 47
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Nonaccrual loans and loans overdue 90 days or
more $53,000 $0
Restructured loans $217,000 $59,000
Total nonperforming loans $270,000 $59,000
Real estate owned 0 $107,000
Total nonperforming assets $270,000 $166,000
Ratio of nonperforming loans to total loans .50% .12%
Ratio of nonperforming assets to total assets .33% .23%
</TABLE>
For loans on nonaccrual status at September 30, 1999, additional gross
interest income of $2,200 and $3,300, respectively, would have been recorded
during the three months and six months ended September 30, 1999, if such loans
had been current in accordance with the original contractual terms. Interest
income of nil and $1,200 was recorded during the periods cited in connection
with such loans.
A provision for loan losses, when determined necessary, is charged to
operations based on management's evaluation of the probable losses that may
occur in its loan portfolio. An evaluation of impaired loans, which may not be
fully collectible, is based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or the estimated fair value,
net of selling costs, of the underlying collateral. The Bank also provides for
probable loan losses on loans that are currently performing based on historical
and peer group loss experiences on various types of loans. These estimates can
be affected by changes in the economic environment in Kootenai and Ada Counties,
Idaho, and the resultant effect on real estate values. As a result of changing
economic conditions, it is reasonably possible that the amount of the allowance
for loan losses could change.
Mountain West Bank recorded provisions for loan losses of $60,000 and
$49,000, respectively, for the quarters ended September 30, 1999 and 1998, and
$120,000 and $107,000 for the six months ended September 30, 1999 and 1998. In
the quarter ended September 30, 1999, $50,000 of the provision for loan losses
was used to establish a specific allowance for loan loss on a loan that was
subsequently charged off in October 1999. Chargeoffs from the allowances for
loan losses were nil and $2,000 for the three and six month periods ended
September 30, 1999, compared to $36,000 and $42,000 for the comparable periods
in 1998.
The following table sets forth the allowances for loan losses by loan
category, based upon management's assessment of the risk associated with such
categories, at the dates indicated, and summarizes the percentage of gross loans
in each category to total gross loans.
43
<PAGE> 48
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------------------------------
1999 1998
---------------------------- ---------------------------
LOANS IN LOANS IN
CATEGORY AS CATEGORY AS
A PERCENTAGE A PERCENTAGE
AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Classification:
Mortgage $100,000 36.75% $ 99,000 43.04%
Construction 32,000 9.03 9,000 6.51
Commercial 338,000 33.89 230,000 29.79
Consumer 133,000 20.33 102,000 20.66
-------- ------ -------- ------
$603,000 100.00% $440,000 100.00%
======== ====== ======== ======
</TABLE>
OTHER INCOME. The largest component of other income is the net gain on
the sale of loans, which includes the recognition of net loan fees previously
deferred and includes the premiums paid or the discounts deducted by the
investor. If loans are sold with servicing released, then the payments for the
value of future servicing are also included. In the three months and six months
ended September 30, 1999, the Bank recorded $84,000 and $295,000 in net gains on
the sale of loans, compared to $174,000 and $373,000, respectively, for the
equivalent periods in the prior fiscal year. Though the volume of total
residential lending and total SBA-guaranteed commercial lending was comparable
in each period, in 1999 more of the lending was in portfolio loans and
construction loans, and less in loans held for sale.
Fees and charges included loan servicing fees, fees and service charges
on deposits and various bank services, which have all increased as the size of
the Bank has increased. In addition, the Bank has emphasized growth in basic
checking accounts that carry lower balances, but do not receive interest.
Besides adding to the Bank's service charge and fee income, the emphasis on
noninterest checking accounts has also aided in increasing net interest margin,
as noted above under the heading "Net Interest Income." However, it has also
increased the frequency of overdrafts in checking accounts, resulting in an
increase in operations losses. Correspondent bank charges and the cost of data
processing are also increased by accounts characterized by a high volume of
transactions relative to the size of the accounts. Over all management believes
that the growth of noninterest checking accounts is beneficial to the Bank, now
and in the future.
Other income in September 1999 included $65,000 as an adjustment to the
valuation allowance for mortgage servicing rights. Increasing interest rates in
the market for residential real estate loans increased the value of loan
servicing held by the Bank.
OTHER EXPENSE. The Bank reported noninterest operating expenses of
$1,177,000 and $2,359,000 for the three and six months ended September 30, 1999,
compared to $880,000 and $1,548,000 for the three and six months ended September
30, 1998.
Reasons for the increase include additional costs in compensation, data
processing, supplies and other categories to handle the increased volume of
transactions related to the increase in numbers and dollars of deposit totals.
In addition the Bank has projects in progress that are adding to the
expense totals. One is a continuing marketing program, which started in July
1998, to attract consumer checking accounts. This program was developed by a
marketing consulting firm, which has used the same approach successfully with
many other financial institutions across the nation. Another project is the new
branch in Boise, opened in October 1998. In the last six months, payroll and
other expenses for operating the new branch reached a total of approximately
$420,000.
44
<PAGE> 49
The results for the periods ended September 30, 1999, do not include
costs and expenses incurred by the Bank or owed or paid by Mountain West Bank to
third parties in connection with the preparation, negotiation and execution of
the Merger Agreement. Management anticipates that such transaction fees,
expected to be $60,000 or less, will be recorded as expenses in the month that
the transaction is closed or the agreement terminated.
LIQUIDITY AND SOURCES OF FUNDS. The primary sources of cash for the
Bank are customer deposits, loan sales, and advances from the Federal Home Loan
Bank of Seattle (FHLB). The Bank uses cash to fund loans, purchase investments,
and continue operations. A summary of activity for the three months ended
September 30, 1999 and 1998, is provided above under the heading of "Financial
Condition." Item 1, Statements of Cash Flow for the six months ended September
30, 1999, and 1998, provide similar information.
It is the policy of the Bank to rely on core deposits, in contrast to
volatile deposits, which are those with negotiated rates, or wholesale deposits,
which are obtained through the assistance of third parties. The ratio of
volatile deposits to total deposits at September 30, 1999, was 10.31% compared
to 14.20% at September 30, 1998. The amount of wholesale deposits held by the
Bank was negligible on both dates.
The Bank has a total credit line with the FHLB, equal to 20% of the
Bank's total assets. At September 30, 1999, there were no outstanding advances.
At September 30, 1998, the total of outstanding advances was $1,000,000, which
had a weighted average maturity of 14 months and a weighted average interest
rate of 6.25%. The unused portion of the credit line as of September 30, 1999,
was approximately $16,000,000.
EXPENDITURES FOR OFFICE PROPERTIES AND EQUIPMENT. The Bank disbursed
$60,000 and $241,000 for office properties and equipment during the three months
ended September 30, 1999 and 1998, respectively, and disbursed $122,000 and
$280,000 for the six month periods ending on the same dates. In the second
quarter of fiscal 1998 the Bank was upgrading equipment and software in
preparation for the conversion of the data processing system to a different
service bureau.
ASSET AND LIABILITY MANAGEMENT. Asset and liability management is
principally about controlling interest rate risk, defined as the sensitivity of
a bank's earnings and net asset value to changes in interest rates. The Board of
Directors has adopted a policy to maintain Bank earnings and net asset value
within self-imposed parameters over a range of possible interest rate
environments. Prior to June 30, 1999, management tracked the success of this
policy by using analysis reports available from the Office of Thrift
Supervision, based on data supplied by the Bank on a regular quarterly basis to
the OTS. The reports from the OTS provided results that were within the Bank's
self-imposed parameters. Going forward as a commercial bank, the Bank expects to
use the same consultants used by Glacier if the Merger Agreement is approved. If
the Merger Agreement is not approved, then management expects to acquire
software to measure compliance to Bank policy and to use as a tool in making
decisions that affect interest rate risk.
CAPITAL RESOURCES. At September 30 and March 31, 1999, the Bank had
total stockholders' equity of $6,525,000 and $6,336,000, respectively, with
corresponding ratios of equity to total assets of 7.87% and 7.84%, respectively.
Management believes that the Bank has sufficient capital to support expected
growth in existing facilities, including the Boise branch, for at least the next
twelve months. Additional capital may be required if the Bank adds additional
facilities or grows more rapidly than expected. The evaluation of the adequacy
of capital is an ongoing process.
The Bank is in compliance with all applicable regulatory capital
requirements.
YEAR 2000 ISSUES. The "Year 2000 problem" arose because many existing
computer programs use only the last two digits to refer to a new year. Therefore
the computer, or a device with a computer chip in it, must properly interpret
the century related to a date entry. If the wrong logic is used, the computer
could fail or provide erroneous results.
45
<PAGE> 50
The Bank utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Bank's third party data processing
vendor and purchased software which is run on in-house computer networks. The
Bank also relies upon other banking organizations and vendors to process checks
and electronic transactions. The term information technology ("IT") is sometimes
used to describe those systems. As with any business, the Bank also depends on
other businesses to provide products and services, such as security, heating,
telephone and electricity. These non-IT systems may have embedded technology
such as microcontrollers, which may be affected by Year 2000 problems.
This discussion contains some forward-looking statements. A
forward-looking statement may contain words such as "will continue to be," "will
be," "continue to," "expect to," "anticipates that," "to be," or "can impact."
Management cautions that forward-looking statements are subject to risks and
uncertainties that could cause the Bank's actual results to differ materially
from those projected in forward-looking statements.
The State of Readiness. The Bank has divided the work of preparing for
Year 2000 into phases, and further subdivided the phases into specific tasks to
complete. A Senior Management Committee consisting of the President, the VP
Operations, the SVP/Chief Financial Officer, and the Systems Manager, direct the
Bank's Year 2000 compliance efforts. A Steering Committee comprised of members
of the Board of Directors reviews management efforts and reports to the Board of
Directors as necessary. The following table summarizes the phases and the dates
of completion.
<TABLE>
<CAPTION>
PROJECT PHASE % COMPLETED TIMETABLE TO COMPLETE
<S> <C> <C>
Awareness 100 October 31, 1998
Assessment 100 October 31, 1998
Renovation 100 October 31, 1998
Validation 100 March 31, 1999
Implementation 100 June 30, 1999
Overall 100 June 30, 1999
</TABLE>
The Bank has now completed all phases. However, management intends to
continue monitoring Year 2000 readiness and to improve contingency plans.
The Awareness Phase consisted primarily of identifying key systems and
relationships and of establishing a project team to analyze risks and to keep
staff and customers informed about the issues. The initial effort in this Phase
is complete, but this type of work is ongoing.
The Assessment Phase consisted of a detailed review of hardware,
software, and other equipment that use embedded technology, both IT and non-IT
systems. The tasks included: (1) obtaining progress statements from
manufacturers and vendors, (2) establishing a budget for remediation, and (3)
establishing a plan to test the solutions of the more important systems and
interfaces between systems. Though this Phase is considered complete, the Bank
expects to continue to monitor the progress of vendors.
In the Renovation Phase, the Bank used the information from the
Assessment Phase to determine whether corrective action was necessary or whether
contingency plans needed to be established.
Validation included testing of the more important systems, interfaces,
and contingency plans. In the Implementation Phase the Bank concluded that all
vendor solutions to the Year 2000 were in use by the users of the systems and
found to be acceptable.
46
<PAGE> 51
Estimated Costs. The following table sets forth the Bank's estimated costs for
the Year 2000 Project and actual disbursements assigned to the Project as of
October 22, 1999. The disbursements do not include the hours devoted to the
Project by Bank staff. However, the Bank engaged temporary help to assist with
the Project and to do normal tasks displaced by the Project. Approximately
$39,000 of the amounts indicated as actual disbursements were classified as
expenses in the prior fiscal year. The estimates provided are subject to
revision.
<TABLE>
<CAPTION>
DESCRIPTION $ ESTIMATE $ TO-DATE ACTUAL
<S> <C> <C>
Software Upgrades 12,000 12,500
Consultants 9,000 8,800
Legal 2,000 800
Communications with customers 5,000 3,000
Temporary staffing 13,000 11,000
Board Steering Committee fees 3,000 3,200
Totals 44,000 39,300
</TABLE>
The Risks of the Company's Year 2000 Issues. While there can be no
assurances, the results of the Bank's assessment of information gathered so far
indicate that all systems and interfaces with systems, whether traditionally
classified under the heading of information technology or not, are anticipated
to be operational. Consequently, as of September 30, 1999, the Bank is preparing
primarily for these risks: (1) localized failure for temporary periods of
utilities, transportation, or communications, (2) temporary failure, in whole or
in part, of the Bank's primary data processing vendor, and (3) liquidity
problems, caused by large cash withdrawals or by reductions in balances on
deposit. The Bank has developed contingency plans to address each of the named
risks, even though the probability of failure seems very low at this point for
the first two. The risk of liquidity problems is partially affected by the
public's perception of whether there are going to be disruptions caused by the
date change. Therefore the Bank has arranged for alternative sources of cash and
funds to replace possible withdrawals.
Contingency Plans. The Bank has identified minimum acceptable levels of
service for its core business activities, and has agreed on strategies to
maintain services during disasters of the type described in the "Risks"
paragraph. The staff of the Bank has tested detailed contingency plans believed
adequate to implement the strategies. While management believes that the Bank
has developed effective contingency plans to address most reasonably likely
worst case Year 2000 scenarios, there can be no assurance that the contingency
plans will be effective, or that the real risks will be correctly identified.
DISCUSSION AND ANALYSIS OF THE FISCAL YEARS ENDED MARCH 31, 1999 AND 1998
FINANCIAL CONDITION-CASH FLOW ACTIVITY. In the twelve months ended
March 31, 1999 and 1998, the Bank originated or brokered to other financial
institutions $111,277,000 and $72,361,000, respectively, for loans of all types,
with the increase primarily attributable to refinancing of residential real
estate loans and to the addition of the Boise branch. Because construction loans
and lines of credit are often not fully utilized, actual disbursements for loans
of all types were $78,619,000 and $60,052,000, respectively. During the same
periods, sales of loans and participations amounted to $58,210,000 and
$38,535,000, respectively, and principal payoffs and collections on loans
accumulated to $8,329,000 and $13,493,000, respectively. The result of this
activity was an increase in total loans receivable, including loans held for
sale, for the period in 1999 of $13,418,000, and $8,385,000 in 1998.
In the twelve months ended March 31, 1999 and 1998, deposits increased
$12,918,000 and $19,918,000, respectively. Management believes that the increase
in deposits between years is attributable to the favorable market for community
banks and to the opening of the Boise branch.
47
<PAGE> 52
The Bank spent $832,000 in the fiscal year ended March 31, 1999, for
leasehold improvements, equipment, furniture, and software, including $326,000
to establish the Boise branch in a rented modular facility on leased land.
Disbursements also included $441,000 to equip and furnish an additional 2,900
square feet of rented office space at the headquarters location, including an
operations center. The operations center converted the computer system to a new
data processing center during the year, and established a proof of deposit
operation to more efficiently handle the growing volume of deposit items. In the
fiscal year ended March 31, 1998, the Bank disbursed $167,000 for equipment,
furniture, and software at all branches.
Management anticipates that disbursements for capital assets in the
fiscal year ending March 31, 2000, are expected to range from $100,000 to
$1,000,000, depending on whether the Bank decides to open a new location.
AVERAGE BALANCE SHEET. The following table sets forth, for the periods
indicated, information with regard to average balances of interest-earning
assets and interest-bearing liabilities, the total dollar amounts of interest
income from interest-earning assets and interest expense on interest-bearing
liabilities, resultant yields or costs, net interest income, net interest
spread, and net interest margin. The method of calculation of average balances
would include nonaccrual loans, if any.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
------------------------------------------------------------------------------------------
1999 1998
------------------------------------------ ------------------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE EARNED YIELD OR AVERAGE EARNED YIELD OR
BALANCE OR PAID COST(1) BALANCE OR PAID COST(1)
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $48,231,282 $ 4,123,796 8.55% $38,096,492 $ 3,376,508 8.86%
Investments and cash
equivalents 16,957,482 983,507 5.80 9,194,934 549,801 5.98
----------- ----------- ---- ----------- ----------- ----
Total interest-earning
assets $65,188,764 $ 5,107,303 7.83% $47,291,426 $ 3,926,309 8.30%
=========== =========== ==== =========== =========== ====
Interest-bearing liabilities:
Certificates of deposit 17,795,943 893,156 5.02 14,999,586 807,934 5.39
Deposit accounts(3) 45,613,544 964,457 2.11 31,711,682 749,035 2.36
----------- ----------- ---- ----------- ----------- ----
Total deposit accounts 63,409,487 1,857,613 2.93 46,711,268 1,556,969 3.33
FHLB Seattle advances 1,000,000 62,626 6.26 1,156,556 72,095 6.23
----------- ----------- ---- ----------- ----------- ----
Total interest-bearing
liabilities $64,409,487 $ 1,920,239 2.98% $47,867,824 $ 1,629,064 3.40%
=========== =========== ==== =========== =========== ====
Net interest income $ 3,187,064 $ 2,297,245
=========== ===========
Net interest spread 4.85% 4.90%
==== ====
Net interest margin 4.89% 4.86%
==== ====
Return on assets (net
income divided by
average total assets) .62% .93%
=== ===
Return on equity (net
income divided by
average equity) 7.49% 12.89%
==== =====
Dividend payment ratio(2) 0.00% 0.00%
==== ====
Equity to assets ratio
(average equity dividend
by avg. total assets) 8.28% 7.18%
==== ====
</TABLE>
- -----------------------
(1) The yield information for the available-for-sale portfolio does not give
effect to changes in fair value that are reflected as a component of
Shareholders' equity.
48
<PAGE> 53
(2) Defined as dividends declared per share divided by net income per share.
No cash dividends were paid during the years ended March 31, 1999 and
1998.
(3) Deposits include non-interest-bearing checking accounts.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES. Mountain West Bank invests
primarily in mortgage-backed securities issued by the Federal National Mortgage
Association, Federal Home Loan Mortgage Corporation, and the Government National
Mortgage Association, U.S. agency obligations and stock in the Federal Home Loan
Bank of Seattle ("FHLB"). Such investments provide the Bank with liquidity, a
source of interest income and collateral which can be used to secure borrowings.
Since its inception, the Bank has invested in investment-grade securities; it
does not invest in high-yield, below investment-grade securities.
The following table provides the amortized cost, maturities and
weighted-average yields of the Bank's portfolio at March 31, 1999.
<TABLE>
<CAPTION>
MATURITY
--------------------------------------------------------------------------------
LESS THAN ONE TO FIVE TO OVER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
--------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. government and agency obligations:
Balance $ 0 $1,500,000 $3,988,670 $ 393,563 $5,882,233
Weighted-average yield 0.00% 5.63% 6.37% 5.50% 6.12%
Mortgage-backed securities:
Balance 0 1,766,894 1,610,565 3,582,777 6,960,236
Weighted-average yield 0.00% 5.85% 5.78% 6.35% 6.09%
Held-to-maturity:
U.S. government and agency obligations:
Balance 0 499,835 0 0 499,835
Weighted-average yield 0.00% 6.51% 0.00% 0.00% 6.51%
Mortgage-backed securities:
Balance 0 0 0 279,597 279,597
Weighted-average yield 0.00% 0.00% 0.00% 6.65% 6.65%
Restricted:
FHLB stock:
Balance 0 0 0 604,600 604,600
Weighted-average yield 0.00% 0.00% 0.00% 7.50% 7.50%
----- ---------- ---------- ---------- -----------
Total carrying value $ 0 $3,766,729 $5,599,235 $4,860,537 $14,266,501
===== ========== ========== ========== ===========
Total average yield 0.00% 5.85% 6.20% 6.44% 6.19%
===== ========== ========== ========== ===========
</TABLE>
NOTE: Mortgage-backed securities and U.S. government and agency securities are
classified in periods according to contractual maturities. The
weighted-average yield for FHLB stock is based upon dividends received for
the fiscal year ended March 31, 1999. There were no reportable investments
that exceeded 10% of stockholders' equity as of March 31, 1999.
LENDING ACTIVITIES. The Bank focuses on small commercial loans and
loans to consumers with a particular concentration on making loans secured by
residential real estate. Management has developed policies and procedures that
will enable the Bank to generate the volume of loans necessary to meet its
business objectives. Such policies and procedures also help the Bank maintain
asset quality standards. Note 2 to the Financial Statements provides the
components of loans receivable for the fiscal years ended March 31, 1999 and
1998. The following table sets forth information on loan origination, purchase
and sale activities for the periods indicated. Loan originations do not include
loan applications that are processed by the Bank, but referred to an investor
before closing, which amounted to $2,454,200 and $1,744,000 for the years ended
March 31, 1999 and 1998, respectively. Dollars in the table are in thousands.
49
<PAGE> 54
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FISCAL YEAR ENDED
MARCH 31, 1999 MARCH 31, 1998
------------------- ------------------
AMOUNT % AMOUNT %
------ ----- ------ -----
<S> <C> <C> <C> <C>
Mortgage--permanent:
1-4 family residential $ 59,752 54.91 $45,308 64.16
Multifamily residential 0 0.00 0 0.00
Commercial & Land 6,914 6.35 2,393 3.39
Mortgage--construction:
1-4 family residential 16,066 14.76 11,377 16.11
Multifamily residential 0 0.00 0 0.00
Commercial 0 0.00 2,537 3.59
Non-mortgage:
Consumer 3,434 3.16 2,373 3.36
Business 22,657 20.82 6,628 9.39
Total loans originated $108,823 100.00 $70,616 100.00
Loans purchased 431 0
Loans sold $ 57,313 $38,073
</TABLE>
LOAN PORTFOLIO. The following table sets forth the composition of
Mountain West Bank's loan portfolio, not including loans held for sale, by type
of loan for the dates indicated:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------------------------------
1999 1998
----------------------- ------------------------
AMOUNT % AMOUNT %
----------- ------ ----------- ------
<S> <C> <C> <C> <C>
Mortgage $16,406,182 32.30 $18,735,599 49.02
Construction 3,713,805 7.31 2,329,876 6.10
Commercial 21,490,643 42.31 9,293,872 24.32
Consumer 9,186,144 18.08 7,862,804 20.56
----------- ------ ----------- ------
Total loans receivable 50,796,774 100.00 38,222,151 100.00
====== ======
Deferred loan fees, net (63,657) (23,946)
Allowance for loss (535,000) (375,000)
------------ ------------
Loans receivable, net $50,198,117 $37,823,205
=========== ===========
</TABLE>
MATURITY OF LOANS. The following table stratifies the Bank's loan
portfolio at March 31, 1999, by stated maturity.
50
<PAGE> 55
<TABLE>
<CAPTION>
BALANCE
OUTSTANDING MATURING IN FISCAL YEARS ENDED MARCH 31,
MAR. 31, 1999 2000 2001-2004 THEREAFTER
------------- ---- --------- ----------
<S> <C> <C> <C> <C>
Mortgage $16,406,182 $ 0 $ 0 $16,406,182
Construction 3,713,805 3,637,326 76,479 0
Commercial 21,490,643 6,942,344 11,363,119 3,185,180
Consumer 9,186,144 565,445 2,860,372 5,760,327
----------- ----------- ----------- -----------
Total loans receivable $50,796,774 $11,145,115 $14,299,970 $25,351,689
Loans at adjustable rates $27,416,465 $ 6,629,261 $ 7,904,857 $12,882,347
Loans at fixed rates 23,380,309 4,515,854 6,395,113 12,469,342
----------- ----------- ----------- -----------
Total loans receivable $50,796,774 $11,145,115 $14,299,970 $25,351,689
=========== =========== =========== ===========
</TABLE>
RESULTS OF OPERATIONS. The Bank recorded net income of $460,000, $.65
per basic share, or $.62 per diluted share for the year ended March 31, 1999,
compared to the prior year net income of $501,000, $.88 per basic share, or $.86
per diluted share. The return on average assets for fiscal 1999 was .61%,
compared to .93% for fiscal 1998. The return on shareholders' equity was 7.36%
for fiscal 1999, compared to 12.89% for fiscal 1998. In fiscal 1999 the net
expense of opening and operating the new branch in Boise was the major reason
for the difference in performance, though contributing factors were the expense
of a new marketing program to attract personal checking accounts and the expense
of converting the Bank to the proof of deposit method of handling deposits.
Management estimates that, without the costs of these business development
projects, net income would have been about $775,000, or $1.10 per basic share,
an increase of approximately 25% over the results for the prior year.
NET INTEREST INCOME.
Overview. The most significant component of earnings is net interest
income, defined as the difference between interest income on earning assets,
principally loans and investments, and interest expense on interest bearing
liabilities, principally customer deposits and Bank borrowing. Changes in net
interest income result from changes in the volume, or dollar levels, of earning
assets and interest bearing liabilities and from changes in the interest rate
spread. Interest rate spread is the difference between the average yield on
earning assets and the average cost on interest bearing liabilities.
Before provisions for loan losses, the Bank reported net interest
income of $3,187,000 and $2,297,000 for the years ended March 31, 1999 and 1998,
respectively. The increase is directly attributable to an increase in net
earning assets. The net interest margin, defined as net interest income divided
by average earning assets, was 4.89% for fiscal year 1999 and 4.86% for fiscal
year 1998. The net interest margin improved slightly despite a decline in
interest rates during fiscal year 1999.
Interest Income. Interest income in fiscal year 1999, compared to
fiscal year 1998, increased $1,181,000 as the size of the loan portfolio
increased and the mix of loans changed to include higher yielding commercial and
consumer loans. Economic conditions were generally causing lower interest rates
during fiscal year 1999. The continued shift in the mix of the loan portfolio
toward commercial and consumer loans helped partially offset the general trend
toward lower loan rates, though the average yield on loans declined from 8.86%
in fiscal year 1998 to 8.55% in fiscal year 1999. Growth in deposits exceeded
growth in loans during fiscal year 1999. The excess was invested in investments
and in interest bearing bank accounts with relatively short terms, resulting in
a reduction in the average yield on investments and cash equivalents from 5.98%
in fiscal year 1998 to 5.80% in fiscal year 1999. The average yield on all
interest earning assets declined from 8.30% in fiscal year 1998 to 7.83% in
fiscal year 1999.
51
<PAGE> 56
Interest Expense. During fiscal year 1999, the average balance of total
deposits increased $16,698,000, and the average balance of Federal Home Loan
Bank ("FHLB") advances decreased $157,000. As a result interest expense for
fiscal year 1999 increased $291,000 over the result for fiscal year 1998. The
average cost of deposits declined from 3.33% to 2.93%, primarily because a
substantial portion of the growth in deposits was in lower rate savings and
checking products, rather than in certificates of deposit. The average cost of
borrowing increased from 6.23% to 6.26% as deposit growth was used to pay off
shorter term lower cost FHLB advances. Overall the average cost of interest
bearing liabilities declined from 3.40% in fiscal year 1998 to 2.98% in fiscal
year 1999.
Variance Analysis. The following table illustrates the changes in
Mountain West Bank's net interest income due to changes in volume (change in
volume multiplied by initial rate), changes in interest rate (change in rate
multiplied by initial volume) and changes in rate/volume (change in rate
multiplied by change in average volume) for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR 1999 V. FISCAL YEAR 1998
INCREASE (DECREASE) DUE TO:
--------------------------------------------------------
RATE/
VOLUME RATE VOLUME TOTAL
------ ---- ------ -----
<S> <C> <C> <C> <C>
Interest income on:
Loans $ 898,251 $(119,241) $(31,722) $ 747,288
Investments and cash equivalents 464,153 (16,509) (13,938) 433,706
---------- ---------- --------- ----------
Total interest income 1,362,404 (135,750) (45,659) 1,180,994
---------- ---------- --------- ----------
Deposits and certificates of deposits:
Certificates of deposit 150,622 (55,123) (10,276) 85,223
Deposit accounts 328,365 (78,521) (34,422) 215,421
---------- ---------- --------- ----------
Total deposits and checking accounts 478,987 (133,644) (44,699) 300,644
---------- ---------- --------- ----------
FHLB Seattle advances (9,759) 335 (45) (9,469)
----------- --------- --------- -----------
Total interest expense 469,228 (133,308) (44,744) 291,175
---------- ---------- --------- ----------
Net interest income $ 893,176 $ (2,442) $ (915) $ 889,819
========== ========== ========= ==========
</TABLE>
RISK ELEMENTS-LOANS. The accrual of interest and amortization of net
deferred loan fees generally will cease on any loan when either principal or
interest becomes 90 days past due. Loans may be placed in nonaccrual status
earlier if, in management's judgment, the loan may be uncollectible. The
following table summarizes the principal balances of nonperforming assets, net
of a specific allowance for loan loss of $5,243 at March 31, 1998.
For loans on nonaccrual status at March 31, 1998, additional gross
interest income of $2,500 would have been recorded during the year ended March
31, 1998, if such loans had been current in accordance with the original
contractual terms. Interest income of $24,000 was recorded during the year ended
March 31, 1998, in connection with such loans.
52
<PAGE> 57
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1999 1998
--------- ---------
<S> <C> <C>
Nonaccrual loans and loans overdue 90 days or
more $ 4,645 $ 77,612
Restructured loans 205,437 222,471
Total nonperforming loans $210,082 $300,083
Real estate owned 0 106,912
Total nonperforming assets $210,082 $406,995
Ratio of nonperforming loans to total loans .42% .79%
Ratio of nonperforming assets to total assets .26% .61%
</TABLE>
A provision for loan losses, when determined necessary, is charged to
operations based on management's evaluation of the probable losses that may
occur in its loan portfolio. An evaluation of impaired loans, which may not be
fully collectible, is based on the present value of expected future cash flows,
discounted at the loan's effective interest rate or the estimated fair value,
net of selling costs, of the underlying collateral. The Bank also provides for
probable loan losses on loans that are currently performing based on historical
and peer group loss experiences on various types of loans. These estimates can
be affected by changes in the economic environment in Kootenai and Ada Counties,
Idaho, and the resultant effect on real estate values. As a result of changing
economic conditions, it is reasonably possible that the amount of the allowance
for loan losses could change.
Mountain West Bank recorded provisions for loan losses of $203,000 and
$163,000 for the twelve months ended March 31, 1999 and 1998, respectively. The
Bank increased the provision for loan losses in anticipation of potentially
higher levels of loss from its expanded business banking and consumer lending
activities. Management anticipates that its provisions for loan losses will
increase in the future as the Bank continues to increase the portfolio of higher
yielding, higher risk loans.
During the fiscal year ended March 31, 1999, $43,318 was charged to the
loan loss allowance, and there were no recoveries of loans. During the fiscal
year ended March 31, 1998, $6,940 was charged to the loan loss allowance, and
there were no recoveries of loans.
The following table sets forth the allowances for loan losses by loan
category, based upon management's assessment of the risk associated with such
categories, at the dates indicated, and summarizes the percentage of gross loans
in each category to total gross loans.
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------------------------------
1999 1998
--------------------------------------------------------
LOANS IN LOANS IN
CATEGORY AS CATEGORY AS
A PERCENTAGE A PERCENTAGE
AMOUNT OF TOTAL LOANS AMOUNT OF TOTAL LOANS
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Classification:
Mortgage $ 86,110 32.30% $ 97,294 49.02%
Construction 18,605 7.31 21,072 6.10
Commercial 323,446 42.31 177,709 24.32
Consumer 106,839 18.08 78,925 20.56
-------- ------ -------- ------
$535,000 100.00% $375,000 100.00%
======== ====== ======== ======
</TABLE>
OTHER INCOME. The largest component of other income is the net gain on
the sale of loans, which includes the recognition of net loan fees previously
deferred and includes the premiums paid or the discounts deducted by the
investor. If loans are sold with servicing released, then the payments for the
value of future
53
<PAGE> 58
servicing are also included. In the twelve months ended March 31, 1999 and 1998,
the Bank recorded $897,000 and $480,000, respectively, in net gains on the sale
of loans. The increase parallels a 33% increase in residential loans originated,
and an increase from $155,000 to $299,000 in the gain on sale of participations
in SBA-guaranteed loans.
Other fees and charges included loan servicing fees, service charges on
deposits and various bank services, which have all increased as the size of the
Bank has increased and as the mix of deposits has changed to include more
checking accounts. See Note 6 to the Financial Statements. The Bank implemented
a marketing program in July 1998 to continue the momentum in increasing checking
accounts. The program was developed by a marketing consulting firm, which has
used the same approach successfully with many other financial institutions
across the nation. Employee compensation, operations losses, correspondent bank
charges and the cost of data processing are increased by accounts characterized
by a high volume of transactions relative to the size of the accounts. To
compensate for the additional expenses, fee income for overdrafts was $333,000
for the year ended March 31, 1999, compared to $158,000 for the year ended March
31, 1998.
OPERATING EXPENSES. The Bank reported noninterest operating expenses of
$3,885,000 and $2,282,000 for fiscal years ended March 31, 1999 and 1998,
respectively. Note 12 to the Financial Statements provides additional detail on
the components of noninterest expense.
Reasons for the increase included: (1) additional costs in
compensation, data processing, supplies and other categories to handle the
increased volume of transactions related to the increase in deposit totals, and
(2) additional compensation related to the increase in the volume of loans. In
addition, in fiscal year 1999 the Bank had several special projects in progress
that added to the expense totals. One project was the continuing marketing
program to attract consumer checking accounts. The Bank spent approximately
$190,000 in the last nine months of fiscal 1999 for direct marketing and
customer gifts. Another project was establishing the new branch in Boise. In the
last nine months of fiscal 1999, payroll and other expenses for establishing and
operating the new branch reached a total of approximately $470,000. Management
has also been preparing for the Year 2000, described in the section, "Year 2000
Issues." Finally, the Bank converted to a different data processing service
bureau on October 23, 1998. Coinciding with the conversion, the Bank changed the
method of processing transactions from "online, real time," to "proof of
deposit."
INCOME TAX. Income tax provisions were $276,000 and $273,000 for the
fiscal years ended March 31, 1999 and 1998, respectively. The effective tax
rates on income before income taxes were 37.5% for fiscal year 1999 and 35.2%
for fiscal year 1998, which approximated the applicable statutory tax rates. See
Note 8 to the Financial Statements for additional detail.
LIQUIDITY AND SOURCES OF FUNDS. The primary sources of cash for the
Bank are customer deposits, loan sales, and advances from the Federal Home Loan
Bank of Seattle. The Bank uses cash to fund loans, purchase investments, and
continue operations. A summary of activity for the years ended March 31, 1999
and 1998, is provided under the heading of "Financial Condition-Cash Flow
Activity." The Statements of Cash Flows in the Financial Statements provide
detailed information.
It is the policy of the Bank to rely on core deposits, in contrast to
volatile deposits, which are those with negotiated rates, or wholesale deposits,
which are obtained through the assistance of third parties. The ratio of
volatile deposits to total deposits at March 31, 1999 and 1998, respectively,
was 12.69% and 15.44%. The amount of wholesale deposits held by the Bank was
negligible on both dates.
The amount of individual deposits greater than $100,000 (not including
volatile deposits) at March 31, 1999 and 1998 was $21,001,356 and $17,242,383,
respectively. The ratio of these deposits to total deposits was 29.72% and
29.86%, respectively. Substantially all of these individual deposits consisted
of business checking, business interest and money market accounts. Such
accounts are numerous and have been historically stable. Management believes
that these accounts are less likely to react to changes in market rates of
interest.
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<PAGE> 59
Deposit Balances. The following table presents the average balance outstanding
and weighted average interest rate paid for each major category of deposits for
the periods indicated.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Certificates of deposit $17,795,943 5.02% $15,000,179 5.39%
Savings & money market 22,691,275 3.57% 16,002,769 3.84%
Checking--NOW accounts 9,681,101 1.60% 6,742,144 1.98%
Noninterest bearing demand 13,241,168 0% 8,966,177 0%
$63,409,487 2.93% $46,711,268 3.33%
</TABLE>
At March 31, 1999, the amount of time deposits outstanding in amounts
more than $100,000 was $10,492,882, of which $3,808,873 matures in three months
or less, $3,858,120 matures in over three through six months, $2,249,338 matures
in over six through twelve months, and $576,551 matures in over twelve months.
The components of deposits at March 31, 1999 and 1998, are provided in
Note 6 to the Financial Statements.
Borrowing. The Bank may borrow funds on a short-term basis to
compensate for reductions in other sources of funds. Borrowing may also be used
on a longer-term basis to support lending activities. Detail on current
borrowing is provided in Note 7 to the Financial Statements.
The following table sets forth certain information regarding Mountain
West Bank's short-term borrowings as of and for the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED MARCH 31,
-----------------------------
1999 1998
---- ----
<S> <C> <C>
Maximum Amount outstanding at any month end during the period:
Federal Home Loan Bank Advances $1,000,000 $2,500,000
Average amount outstanding during the period:
Federal Home Loan Bank Advances $1,000,000 $1,156,556
Weighted-average interest rate paid during the period:
Federal Home Loan Bank Advances 6.26% 6.23%
Amount outstanding at the end of the reported period:
Federal Home Loan Bank Advances $1,000,000 $2,000,000
Weighted-average interest rate paid at end of period:
Federal Home Loan Bank Advances 6.25% 6.25%
</TABLE>
The Bank has a total credit line with the FHLB, equal to 20% of the
Bank's total assets.
The unused portion of the credit line at March 31, 1999, was
approximately $15,000,000, compared to $11,000,000 at the end of the prior year.
EXPENDITURES FOR OFFICE PROPERTIES AND EQUIPMENT. In fiscal 1999, the
Bank disbursed $832,000 for office properties and equipment, compared to
$167,000 in total disbursements in the prior year. Additional detail may be
found above under the heading of "Financial Condition," and in Note 5 to the
Financial Statements.
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<PAGE> 60
In the final quarter of fiscal year 1999, the Bank leased and furnished
additional space, approximately 1,700 square feet, in the office building behind
the Ironwood branch, for the purpose of providing room for the accounting and
loan servicing departments. The lessor is Glacier Partners, owned by Stephen F.
Meyer and Charles R. Nipp, directors of the Bank. The term of the lease is for a
base term of approximately five years, with an option to renew for an additional
five years. The monthly base rent for the first two years is $1,756.
ASSET AND LIABILITY MANAGEMENT. Asset and liability management is
principally about controlling interest rate risk, defined as the sensitivity of
a bank's earnings and net asset value to changes in interest rates. The Board of
Directors has adopted a policy to maintain the net portfolio value within
self-imposed parameters over a range of possible interest rate environments.
Prior to June 30, 1999, management tracked the success of this policy by using
analysis reports available from the (OTS), based on data supplied by the Bank on
a regular quarterly basis to the OTS. The reports from the OTS have provided
results that were within the Bank's self-imposed parameters. Going forward as a
commercial bank, management has acquired software to measure compliance to Bank
policy and uses it as a tool in making decisions that affect interest rate risk.
In addition, prior to June 30, 1999, the Bank used OTS reports to
provide peer group comparisons that indicate that most of the institutions in
the thrift industry accept a higher level of interest rate risk than Mountain
West Bank. For example, the Bank's Rate Sensitivity Measure of 116 basis points
at March 31, 1999, was up from 50 basis points at March 31, 1998, but
approximately 55% of the industry had a higher measure. The Rate Sensitivity
Measure is defined as the decline (in basis points) in the Net Portfolio Value
Capital ratio caused by a 200 basis point increase in rates. Going forward, the
Bank expects to use the FDIC call reports to provide peer group comparisons
The Bank also uses gap analysis, a traditional analytical tool designed
to measure the difference between the amount of interest-earning assets and the
amount of interest-bearing liabilities expected to mature or reprice in a given
period. The following table sets forth the estimated maturity/repricing and the
resulting gap between the Bank's interest-earning assets and interest-bearing
liabilities at March 31, 1999. To produce a better picture of the ability of the
Bank to handle interest rate change, the table also shows the gap earnings
sensitivity, and earnings sensitivity ratio, along with a description of how
they are calculated.
INTEREST SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
AT MARCH 31, 1999, MATURING OR REPRICING
--------------------------------------------------------------
NON-
WITHIN 91-365 1 TO 5 OVER INTEREST
90 DAYS DAYS YEARS 5 YEARS BEARING TOTAL
------- ---- ----- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest-earning assets:
Loans receivable, net $16,287 $17,074 $ 4,995 $12,441 $ 0 $50,797
Loans held for sale 2,782 0 0 0 0 2,782
Cash equivalents 5,221 0 0 0 0 5,221
Investments and mortgage-backed sec. 1,462 0 3,771 8,971 0 14,204
--------------------------------------------------------------
Total earning assets $25,752 $17,074 $ 8,766 $21,412 $ 0 73,004
=========================================
Cash & cash equivalents 3,900 3,900
Other non-earning assets 3,963 3,963
-----------------
Total assets $7,863 $80,867
=================
Interest-bearing liabilities:
Money market accounts $19,513 $ 0 $ 0 $ 0 $ 0 $19,513
Demand accounts 0 0 0 15,777 0 15,777
NOW accounts 0 0 11,497 0 0 11,497
Savings accounts 0 0 4,847 0 0 4,847
Certificates of deposit 8,077 9,757 1,074 127 0 19,025
FHLB advances 500 0 500 0 0 1,000
--------------------------------------------------------------
Tot. int.-bearing liabilities $28,090 $ 9,747 $17,918 $15,904 $ 0 71,659
=========================================
</TABLE>
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<PAGE> 61
<TABLE>
<CAPTION>
AT MARCH 31, 1999, MATURING OR REPRICING
NON-
WITHIN 91-365 1 TO 5 OVER INTEREST
90 DAYS DAYS YEARS 5 YEARS BEARING TOTAL
------- ---- ----- ------- ------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other liabilities 2,872 2,872
Stockholders' equity 6,336 6,336
------ -------
Total liabilities and equity $9,208 $80,867
====== =======
Period gap $ (2,338) $ 7,327 $(9,152) $5,508 $1,345)
Cumulative gap $ (2,338) $ 4,989 $(4,163) $1,345 $ 0
Cumulative gap to total assets -2.89% 6.17% -5.15% 1.66% 0.00%
Gap earnings sensitivity(2) $ 30
Gap earnings sensitivity ratio(3) 3.99%
</TABLE>
- -----------------------
(1) Loan totals do not include deferred loan fees or allowance for losses. The
separation of loans into time periods is based on scheduled maturity or
time before the loan can be repriced; it does not reflect estimated
amortization or prepayments.
(2) Gap earnings sensitivity is the estimated effect on income after taxes at
40% of a 1% increase or decrease in interest rates ($4,989 less tax of
$1,996).
(3) Gap earnings sensitivity ratio is Gap earnings sensitivity divided by the
estimated yearly earnings of $750. A 1% increase in interest rates causes
this estimated percentage increase (decrease) in annual income.
CAPITAL RESOURCES. At the end of fiscal years 1999 and 1998, the Bank
had total stockholders' equity of $6,336,000 and $5,836,000, respectively, with
corresponding ratios of equity to total assets of 7.84% and 8.69%, respectively.
On February 12, 1998, the Bank completed a common stock offering, issuing
150,000 shares at $13.00 per share. After net expenses of $28,000 were deducted,
the proceeds of the stock offering were $1,922,000. The Bank anticipates that it
will continue to maintain adequate capital resources through the retention of
earnings, the management of the level and mix of assets, and the sale of
additional stock, if necessary.
The Bank is in compliance with all applicable regulatory capital
requirements. The tables in Note 10 to the Financial Statements contain specific
information comparing the Bank's actual capital levels to the OTS minimum and
well capitalized requirements. In the current regulatory environment, a banking
institution must stay well capitalized to receive favorable regulatory treatment
and lower deposit insurance assessments. Throughout fiscal years 1999 and 1998,
the Bank exceeded required regulatory minimums for "well capitalized" status,
and it is the policy of Mountain West Bank to maintain this status. Going
forward, the Bank will be required to comply with the FDIC regulatory capital
requirements.
SUPERVISION AND REGULATION
INTRODUCTION
The following generally refers to certain statutes and regulations
affecting the banking industry. These references provide brief summaries only
and are not intended to be complete. They are qualified in their entirety by the
referenced statutes and regulations. In addition, some statutes and regulations
may exist which apply to and regulate the banking industry, but are not
referenced below.
Glacier is a bank holding company, due to its ownership of Glacier
Bank, Glacier Bank of Whitefish, Glacier Bank of Eureka, Valley Bank of Helena,
First Security Bank of Missoula, and Big Sky Western Bank, all of which are
Montana-state chartered commercial banks, and all of which are members of the
Federal Reserve. Prior to Glacier Bank's conversion from a federal savings bank
to a state-chartered commercial bank, Glacier was also a savings and loan
holding company within the meaning of the Home Owners' Loan Act and, as such,
was registered
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<PAGE> 62
with and subject to examination and supervision by the Office of Thrift
Supervision. The Bank Holding Company Act of 1956, as amended subjects Glacier
and the State Banks to supervision and examination by the Federal Reserve Bank,
and Glacier files annual reports of operations with the Federal Reserve Bank.
BANK HOLDING COMPANY REGULATION
In general, the Bank Holding Company Act limits bank holding company
business to owning or controlling banks and engaging in other banking-related
activities. Bank holding companies must obtain the Federal Reserve Bank'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 such bank; (2) merge or
consolidate with another bank holding company; or (3) acquire substantially all
of the assets of any additional banks. 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 both in-state and out-of-state
bank.
Control of Nonbanks. With certain exceptions, the BHCA prohibits bank
holding companies from acquiring direct or indirect ownership or control of
voting shares in any company that is not a bank or a bank holding company unless
the Federal Reserve Bank determines that the activities of such company are
incidental or closely related to the business of banking. If a bank holding
company is well-capitalized and meets certain criteria specified by the Federal
Reserve Bank, it may engage de novo in certain permissible nonbanking activities
without prior Federal Reserve Bank approval.
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 Federal Reserve Bank with 60
days' prior written notice of the proposed acquisition. Following receipt of
this notice, the Federal Reserve Bank has 60 days within which to issue a notice
disapproving the proposed acquisition, but the Federal Reserve Bank may extend
this time period for up to another 30 days. An acquisition may be completed
before expiration of the disapproval period if the Federal Reserve Bank issues
written notice of its intent not to disapprove the transaction. In addition, any
"company" must obtain the Federal Reserve Bank's approval before acquiring 25%
(5% if the "company" is a bank holding company) or more of the outstanding
shares or otherwise obtaining control over Glacier.
TRANSACTIONS WITH AFFILIATES
Glacier and its subsidiaries are deemed to be 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. Generally, Sections
23A and 23B: (1) limit the extent to which the financial institution or its
subsidiaries may engage in "covered transactions" with an affiliate, as defined,
to an amount equal to 10% of such institution's capital and surplus and an
aggregate limit on all such transactions with all affiliates to an amount equal
to 20% of such capital and surplus, and (2) require all transactions with an
affiliate, whether or not "covered transactions," to be on terms substantially
the same, or at least as favorable to the institution or subsidiary, as those
provided to a non-affiliate. The term "covered transaction" includes the making
of loans, purchase of assets, issuance of a guarantee and other similar types of
transactions.
REGULATION OF MANAGEMENT
Federal law sets forth the circumstances under which officers or
directors of a financial institution may be removed by the institution's federal
supervisory agency. Federal law also places restraints on lending by an
institution to its executive officers, directors, principal stockholders, and
their related interests. Finally, federal law prohibits management personnel
from serving as a director or in other management positions with another
financial institution which has assets exceeding a specified amount, or which
has an office within a specified geographic area.
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<PAGE> 63
TIE-IN ARRANGEMENTS
Glacier 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 Glacier 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.
The Federal Reserve Board has adopted significant amendments to its
anti-tying rules that: (1) removed Federal Reserve Board-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 were designed to enhance competition in banking
and nonbanking products and to 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, Glacier may be subject to certain
limitations and restrictions as provided under applicable Delaware corporate
law. Each of Glacier's subsidiary banks, as Montana state-chartered commercial
banks, are subject to supervision and regulation by the Montana Department of
Commerce's Banking and Financial Institutions Division. Mountain West Bank, as
an Idaho state-chartered bank, is subject to supervision and regulation by the
Idaho Department of Finance.
THE SUBSIDIARIES
GENERAL
Glacier's subsidiaries are subject to extensive regulation and
supervision by the Montana Department of Commerce's Banking and Financial
Institutions Division, and the subsidiary banks are also subject to regulation
and examination by the Federal Reserve Board as a result of their membership in
the Federal Reserve System. Mountain West Bank's primary federal regulator is
the Federal Deposit Insurance Corporation. The federal laws that apply to
Glacier's banking 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 Glacier's banking subsidiaries and
Mountain West Bank generally have been promulgated to protect depositors, and
not to protect stockholders of such institutions or their holding companies.
Community Reinvestment Act. The Community Reinvestment Act requires
that, in connection with examinations of financial institutions within their
jurisdiction, the Federal Reserve or the FDIC evaluates the record of the
financial institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those banks. These factors are also considered in evaluating
mergers, acquisitions, and applications to open a branch or facility.
Insider Credit Transactions. Banks are also subject to certain
restrictions imposed by the Federal Reserve Act on extensions of credit to
executive officers, directors, principal stockholders, or any related interests
of such persons. Extensions of credit must be made on substantially the same
terms, including interest rates and collateral, and follow credit underwriting
procedures that are not less stringent than those prevailing at the time for
comparable transactions with persons not covered above and who are not
employees. Such extensions of credit must not involve more than the normal risk
of repayment or present other unfavorable features. Banks are also subject to
certain lending limits and restrictions on overdrafts to such persons. A
violation of these restrictions may result in the assessment of substantial
civil monetary penalties on the affected
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<PAGE> 64
bank or any officer, director, employee, agent, or other person participating in
the conduct of the affairs of that bank, the imposition of a cease and desist
order, and other regulatory sanctions.
FDICIA. Under the Federal Deposit Insurance Corporation Improvement
Act, each federal banking agency has prescribed, by regulation, noncapital
safety and soundness standards for institutions under its authority. These
standards cover internal controls, information systems, and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, such other operational and managerial
standards as the agency determines to be appropriate, and standards for asset
quality, earnings and stock valuation. An institution which fails to meet these
standards must develop a plan acceptable to the agency, specifying the steps
that the institution will take to meet the standards. Failure to submit or
implement such a plan may subject the institution to regulatory sanctions.
Management of Glacier believes that Glacier's subsidiary banks meet all such
standards, and therefore, does not believe that these regulatory standards
materially affect Glacier's business operations.
INTERSTATE BANKING AND BRANCHING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
permits nationwide interstate banking and branching under certain circumstances.
This legislation generally authorizes interstate branching and relaxes federal
law restrictions on interstate banking. Currently, bank holding companies may
purchase banks in any state, and states may not prohibit such purchases.
Additionally, banks are permitted to merge with banks in other states as long as
the home state of neither merging bank has opted out. The Interstate Act
requires regulators to consult with community organizations before permitting an
interstate institution to close a branch in a low-income area.
Under recent FDIC regulations, banks are prohibited from using their
interstate branches primarily for deposit production. The FDIC has accordingly
implemented a loan-to-deposit ratio screen to ensure compliance with this
prohibition.
With regard to interstate bank mergers, Montana has "opted-out" of the
Riegle-Neal Act and prohibits 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 authorizes 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. Montana law does
not authorize the establishment of a branch bank in Montana by an out-of-state
bank.
With regard to interstate bank mergers, Idaho has "opted-in" to the
Riegle-Neal Act and generally permits in-state banks to merge with out-of-state
banks and be acquired by out-of-state bank holding companies, so long as the
in-state bank has been in existence for at least 5 years prior to the
acquisition.
DEPOSIT INSURANCE
The deposits of the State Banks are currently insured to a maximum of
$100,000 per depositor through the Bank Insurance Fund administered by the FDIC.
All insured banks are required to pay semi-annual deposit insurance premium
assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act included
provisions to reform the Federal Deposit Insurance System, including the
implementation of risk-based deposit insurance premiums. The Act also permits
the FDIC to make special assessments on insured depository institutions in
amounts determined by the
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<PAGE> 65
FDIC to be necessary to give it adequate assessment income to repay amounts
borrowed from the U.S. Treasury and other sources, or for any other purpose the
FDIC deems necessary. The FDIC has implemented a risk-based insurance premium
system under which banks are assessed insurance premiums based on how much risk
they present to the Bank Insurance Fund. Banks with higher levels of capital and
a low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital or a higher degree of supervisory concern.
DIVIDENDS
The principal source of Glacier's cash revenues is dividends received
from its subsidiary banks. The payment of dividends is subject to government
regulation, in that regulatory authorities may prohibit banks and bank holding
companies from paying dividends which would constitute an unsafe or unsound
banking practice. In addition, a bank may not pay cash dividends if that payment
could reduce the amount of its capital below that necessary to meet minimum
applicable regulatory capital requirements. Other than the laws and regulations
noted above, which apply to all banks and bank holding companies, neither
Glacier nor are currently subject to any regulatory restrictions on its
dividends.
CAPITAL ADEQUACY
Federal bank regulatory agencies use capital adequacy guidelines in the
examination and regulation of bank holding companies and banks. If capital falls
below minimum guideline levels, the holding company or bank may be denied
approval to acquire or establish additional banks or nonbank businesses or to
open new facilities.
The FDIC and Federal Reserve use risk-based capital guidelines for
banks and bank holding companies. These are designed to make such capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies, to account for off-balance sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance sheet items. The guidelines are minimums, and the Federal
Reserve has noted that bank holding companies contemplating significant
expansion programs should not allow expansion to diminish their capital ratios
and should maintain ratios well in excess of the minimum. The current guidelines
require all bank holding companies and federally regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier I capital.
Tier I capital for bank holding companies includes common stockholders'
equity, qualifying perpetual preferred stock (up to 25% of total Tier I capital,
if cumulative, although under a Federal Reserve Rule, redeemable perpetual
preferred stock may not be counted as Tier I capital unless the redemption is
subject to the prior approval of the Federal Reserve), and minority interests in
equity accounts of consolidated subsidiaries, less intangibles, except as
described above.
The Federal Reserve also employs a leverage ratio, which is Tier I
capital as a percentage of total assets less intangibles, to be used as a
supplement to risk-based guidelines. The principal objective of the leverage
ratio is to constrain the maximum degree to which a bank holding company may
leverage its equity capital base. The Federal Reserve requires a minimum
leverage ratio of 3% or 4%, depending on the institution. However, for all but
the most highly rated bank holding companies, and for bank holding companies
seeking to expand, the Federal Reserve expects an additional cushion of at least
1% to 2%.
The Federal Deposit Insurance Corporation Improvement Act created a
statutory framework of supervisory actions indexed to the capital level of the
individual institution. Under regulations adopted by the FDIC, an institution is
assigned to one of five capital categories, depending on its total risk-based
capital ratio, Tier I risk-based capital ratio, and leverage ratio, together
with certain subjective factors. Institutions which are
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<PAGE> 66
deemed to be "undercapitalized" depending on the category to which they are
assigned are subject to certain mandatory supervisory corrective actions.
Glacier and Mountain West Bank do not believe that these regulations have any
material effect on their operations.
EFFECTS OF GOVERNMENT MONETARY POLICY
The earnings and growth of Glacier and Mountain West Bank are affected
not only by general economic conditions, but also by the fiscal and monetary
policies of the federal government, particularly the Federal Reserve. The
Federal Reserve can and does implement national monetary policy for such
purposes as curbing inflation and combating recession, but its open market
operations in U.S. government securities, control of the discount rate
applicable to borrowings from the Federal Reserve, and establishment of reserve
requirements against certain deposits, influence the growth of bank loans,
investments and deposits, and also affect interest rates charged on loans or
paid on deposits. The nature and impact of future changes in monetary policies
and their impact on Glacier and Mountain West Bank cannot be predicted with
certainty.
CHANGES IN BANKING LAWS AND REGULATIONS
On November 12, 1999, the president signed into law the Financial Services
Modernization Act of 1999. Generally, the legislation will (i) repeal the
historical restrictions on preventing banks from affiliating with securities
firms, (ii) provide a uniform framework for the activities of banks, savings
institutions and their holding companies, (iii) broaden the activities that may
be conducted by national banks and banking subsidiaries of bank holding
companies, (iv) provide an enhanced framework for protecting the privacy of
consumers' information and (v) address a variety of other legal and regulatory
issues affecting both day-to-day operations and long-term activities of
financial institutions.
Bank holding companies will be permitted to engage in a wider variety
of financial activities than permitted under current law, particularly with
respect to insurance and securities activities. In addition, in a change from
current law, bank holding companies will be in a position to be owned,
controlled or acquired by any company engaged in financially related activities,
so long as such company meets certain regulatory requirements.
Glacier and Mountain West do not believe that the legislation will
materially affect their operations. However, to the extent the legislation
permits banks, securities firms and insurance companies to affiliate, the
financial services industry may experience further consolidation. This
consolidation could result in a growing number of larger financial institutions
that offer a wider variety of financial services than Glacier and Mountain West
currently offer and that can aggressively compete in the markets we currently
serve.
DESCRIPTION OF GLACIER'S CAPITAL STOCK
Glacier's authorized capital stock consists of 15,000,000 common stock
shares with a $.01 per share par value, and 1,000,000 preferred stock shares
with a $.01 per share par value. As of the date of this prospectus/proxy
statement, Glacier had no shares of preferred stock issued. The Glacier Board is
authorized, without further stockholder action, to issue preferred stock shares
with such designations, preferences and rights as the Glacier board of directors
may determine.
Glacier's stockholders do not have preemptive rights to subscribe to
any additional securities that may be issued. If Glacier is liquidated, the
holders of Glacier common stock are entitled to share, on a pro rata basis,
Glacier's remaining assets after provision for liabilities. The Glacier board of
directors is authorized to determine the liquidation rights and preferences of
any preferred stock that may be issued.
Under the Delaware General Corporation Law, a stockholder who has
neither voted in favor of a proposed merger nor consented in writing to a
proposed merger is entitled to an appraisal by the Delaware Court of Chancery of
the fair value of his or her shares, unless the merger is a stock-for-stock
merger and either (i) the stock is listed on a national exchange or is
designated a national market system security on an interdealer quotation system
by The NASDAQ Stock Market, (ii) the stock is held by more than 2,000
stockholders, or (iii) stockholders are not entitled to vote on the merger.
Because Glacier's common stock is traded on NASDAQ, in the event of a proposed
merger, Glacier stockholders will not be entitled under Delaware law to
appraisal rights (rights to receive the fair value of
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their shares in cash upon dissent from the proposed merger and rights to an
appraisal of the fair value of their shares), regardless of whether such Glacier
stockholders vote for or against the proposed merger.
Under Delaware law, Glacier may acquire shares of its own stock.
Glacier's stockholders may amend Glacier's Certificate of Incorporation by an
affirmative majority vote of the shares entitled to vote on the matter following
approval of the amendment by Glacier's Board, but the anti-takeover provisions
detailed in Section 9.6 of Glacier's Certificate of Incorporation, may not be
amended or repealed and provisions inconsistent with Article 9 may not be
adopted without the affirmative vote of 80% of Glacier's outstanding voting
stock. Glacier's board of directors is authorized to alter, amend or repeal
Glacier's Bylaws by affirmative vote; Glacier's stockholders are authorized to
alter, amend or repeal Glacier's Bylaws by majority vote at an annual
stockholders meeting or at a special stockholders meeting.
For additional information concerning Glacier's capital stock, see
"COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF GLACIER AND MOUNTAIN WEST BANK
COMMON STOCK."
COMPARISON OF CERTAIN RIGHTS OF HOLDERS OF
GLACIER AND MOUNTAIN WEST BANK COMMON STOCK
Delaware law and Glacier's Certificate of Incorporation and Bylaws
govern the rights of Glacier stockholders and will govern the rights of Mountain
West Bank's stockholders who become stockholders of Glacier as a result of the
merger. The rights of Mountain West Bank stockholders are currently governed by
the Idaho Statutes and by Mountain West Bank's Articles of Incorporation and
Bylaws. The following is a brief summary of certain differences between the
rights of Mountain West Bank and Glacier stockholders. This summary does not
purport to be complete and is qualified by the documents and statutes referenced
and by other applicable law.
GENERAL
Under its Certificate of Incorporation, Glacier's authorized capital
stock consists of 15,000,000 of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, $.01 par value per share. No shares of
preferred stock are currently outstanding.
Under its Articles of Incorporation, Mountain West Bank's authorized
capital consists of 1,500,000 shares of common stock, $2.50 par value per share.
The following is a more detailed description of Glacier's and Mountain
West Bank's capital stock.
COMMON STOCK
As of September 30, 1999, there were 9,540,989 shares of Glacier common
stock issued and outstanding, in addition to options for the purchase of 613,480
shares of Glacier common stock under Glacier's employee and director stock
option plans.
As of September 30, 1999, there were 715,472 shares of Mountain West
Bank common stock issued and outstanding. Additionally, 115,019 shares of
Mountain West Bank common stock are subject to outstanding options under
Mountain West Bank's employee and director stock option plans.
PREFERRED STOCK
As of the date of this prospectus/proxy statement, neither Glacier nor
Mountain West Bank had shares of preferred stock issued. The Glacier board of
directors is authorized, without further stockholder action, to issue
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preferred stock shares with such designations, preferences and rights as the
Glacier board of directors may determine.
DIVIDEND RIGHTS
Dividends may be paid on Glacier common stock as and when declared by
the Glacier board of directors out of funds legally available for the payment of
dividends. The Glacier board of directors may issue preferred stock that is
entitled to such dividend rights as the board of directors may determine,
including priority over the common stock in the payment of dividends. The
ability of Glacier to pay dividends basically depends on the amount of dividends
paid to it by its subsidiaries. Accordingly, the dividend restrictions imposed
on the subsidiaries by statute or regulation effectively may limit the amount of
dividends Glacier can pay. See "SUPERVISION AND REGULATION - The Bank
Subsidiaries; Dividend Restrictions." Under Delaware law, the Glacier board of
directors can declare dividends out of Glacier's surplus. If there is no
surplus, the board of directors may declare dividends out of Glacier's net
profits for the fiscal year in which the dividend is declared, or for the
preceding fiscal year, unless there is a deficiency in the amount of capital
represented by the issued and outstanding stock of all classes having a
preference to the distribution of assets.
Dividends may be paid on Mountain West Bank common stock as and when
declared by the board of directors out of funds legally available for the
payment of dividends. IC Section 26-604 provides that an Idaho state bank may
not declare or pay a dividend until the bank has a surplus equal to 20% of the
paid-in capital stock of the bank. Thereafter, the board of directors of the
bank may declare a dividend of so much of its net profits as the board may deem
expedient so long as 20% of the net profits of the bank for such period as is
covered by the dividend shall be carried to the surplus fund until such surplus
fund shall amount to 50% of the paid-in common stock.
VOTING RIGHTS
All voting rights are currently vested in the holders of Glacier common
stock and Mountain West Bank common stock, with each share being entitled to one
vote.
Glacier's Bylaws and the Articles of Incorporation of Mountain West
Bank provide that stockholders do not have cumulative voting rights in the
election of directors.
PREEMPTIVE RIGHTS
Glacier's and Mountain West Bank's stockholders do not have preemptive
rights to subscribe to any additional securities that may be issued.
LIQUIDATION RIGHTS
If Glacier is liquidated, the holders of Glacier common stock are
entitled to share, on a pro rata basis, Glacier's remaining assets after
provision for liabilities. The Glacier board of directors is authorized to
determine the liquidation rights of any preferred stock that may be issued.
If Mountain West Bank is voluntarily liquidated, the holders of
Mountain West Bank common stock are entitled to share, on a pro rata basis,
Mountain West Bank's remaining assets after provision for liabilities.
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ASSESSMENTS
All outstanding shares of Glacier common stock are fully paid and
nonassessable.
All outstanding shares of Mountain West Bank common stock are fully
paid and nonassessable.
STOCK REPURCHASES
Under Delaware law, a corporation may acquire shares of its own stock.
Therefore, Glacier may repurchase shares of its own capital stock. Under the
regulations of the Federal Reserve, Glacier may be limited from repurchasing
its shares, if, for instance, such repurchase would cause Glacier to become not
"well-capitalized" as defined in applicable regulations.
Idaho banking statutes prohibit Mountain West Bank from purchasing its
own stock unless such purchase is necessary to prevent a loss to the bank on
debts previously contracted. Under the laws regulating a bank insured by the
FDIC, Mountain West bank is prohibited from repurchasing or redeeming shares
of its stock without the prior approval of the FDIC.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS
Under Delaware law, Glacier's stockholders may amend Glacier's
Certificate of Incorporation by an affirmative majority vote of the shares
entitled to vote on the matter following approval of the amendment by Glacier's
Board, but the anti-takeover provisions detailed in Article 9 of Glacier's
Certificate of Incorporation may not be amended or repealed, and provisions
inconsistent with Article 9 may not be adopted, without the affirmative vote of
80% of the outstanding voting stock. Glacier's board of directors is authorized
to alter, amend or repeal Glacier's Bylaws by affirmative vote; Glacier's
stockholders are authorized to alter, amend or repeal Glacier's Bylaws by
majority vote at an annual stockholders meeting or at a special stockholders
meeting.
The Articles of Incorporation of Mountain West Bank provide that no
amendment, addition, alteration, change or repeal of the Articles shall be made,
unless such is first proposed by the Mountain West Bank board of directors, then
approved by the Director of the Idaho Department of Finance, and thereafter
approved by the board of directors and stockholders by a majority of the total
votes eligible to be cast. Provided that, the affirmative vote of the holders of
at least 75% of the total votes eligible to be cast is required to amend, repeal
or adopt any provisions inconsistent with the current provisions of the Articles
concerning directors, shareholder meetings and cumulative voting.
Mountain West Bank's board is authorized to amend or repeal Mountain
West Bank's Bylaws, and to adopt new Bylaws, in its discretion upon the
affirmative vote of a majority of Mountain West Bank's board when a quorum is
present. Mountain West Bank's stockholders are also authorized to amend or
repeal Mountain West Bank's Bylaws upon the affirmative vote of a majority of
Mountain West Bank's stockholders when a quorum is present.
APPROVAL OF CERTAIN TRANSACTIONS
Under the Delaware law, sales of assets, mergers and dissolutions must
be approved by a majority of a corporation's outstanding stock. In addition,
Delaware law prohibits certain business combinations with a business entity for
a period of three years following the entity's acquisition of at least 15% of
the corporation's voting stock. Article 9 of Glacier's Certificate of
Incorporation provides that certain mergers involving a stockholder owning 10%
or more of Glacier's outstanding voting stock must be approved by 80% of
Glacier's outstanding voting stock. These provisions are described in "Potential
`Anti-Takeover' Provisions" below.
Under the Idaho Bank Act, approval by at least two-thirds of the
outstanding shares entitled to vote is required for mergers, and the approval of
at least a majority of the outstanding shares entitled to vote is required of
the sale of substantially all the assets or dissolution.
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DISSENTERS' RIGHTS
Under Delaware law, a stockholder who has neither voted in favor of a
proposed merger nor consented in writing to a proposed merger is entitled to an
appraisal by the Delaware Court of Chancery of the fair value of his or her
shares, unless the merger is a stock-for-stock merger and either (i) the stock
is listed on a national exchange or is designated a national market system
security on an interdealer quotation system by The NASDAQ Stock Market, (ii) the
stock is held by more than 2,000 stockholders, or (iii) stockholders are not
entitled to vote on the merger. Because Glacier's Common Stock is traded on
Nasdaq, in the event of a proposed merger, Glacier stockholders will not be
entitled under Delaware law to appraisal rights (rights to receive the fair
value of their shares in cash upon dissent from the proposed merger and rights
to an appraisal of the fair value of their shares), regardless of whether a
Glacier stockholder votes for or against such proposed merger.
Under the Idaho Bank Act, a stockholder is entitled to dissent from,
and, upon completion of various notice and demand requirements prescribed in
Section 26-909, to obtain payment of the fair value of his or her shares in the
event of certain corporate actions, including certain mergers, share exchanges,
sales of substantially all assets of the corporation, and the conversion from a
state to national bank.
BOARD OF DIRECTORS
Glacier's Certificate of Incorporation provides for division of its
Board into three classes, as nearly equal in number as possible. Each director
serves for a three-year term, and the classes are staggered so that one class is
elected each year. The Glacier board of directors sets the exact number of
directors by resolution. Currently, the Glacier board of directors has ten
directors. A Glacier director may be removed with cause by Glacier's
stockholders if a majority of the stockholders entitled to vote on the matter
vote in favor of removal at a meeting expressly called for that purpose. A
Glacier director may not be removed without cause.
Mountain West Bank's Articles of Incorporation provide for the annual
election of its board by the stockholders. The number of directors shall not be
less than seven nor more than 15. The exact number of directors shall be fixed
from time to time by the board of directors pursuant to a resolution adopted by
a majority of the entire board of directors. A Mountain West Bank director may
be removed for cause at a meeting of shareholders called expressly for that
purpose by a vote of the holders of 75% of the shares then entitled to vote at
an election of directors.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Glacier's Certificate of Incorporation provides that the personal
liability of Glacier's directors and officers for monetary damages shall be
eliminated to the fullest extent permitted under Delaware law. Delaware law
permits the elimination and limitation of personal liability for directors,
provided that such provision shall not eliminate or limit the liability of a
director for liability arising from (i) any breach of the director's duty of
loyalty; (ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; (iii) a director's approval of, or
assent to, certain distributions that violate Delaware law; or (iv) any
transaction from which the director derived an improper personal benefit.
Glacier's Bylaws provide that Glacier will indemnify any present or
former director, officer or employee, or any present or former director, officer
or employee of another business entity serving in such capacity at Glacier's
request, from any threatened, pending or completed action, suit or proceeding
against expenses (including attorney's fees), judgments, fines, excise taxes and
settlement amounts actually and reasonably incurred by such person to the
fullest extent permitted under Sections 145(a)-(d) of Delaware General
Corporation Law. Glacier will not be liable, however, for any settlement amounts
which are effected without Glacier's prior written consent, or any amounts
claimed in an action that was initiated by any person seeking indemnification
without Glacier's prior written consent. Reasonable expenses (including
attorney's fees) will be advanced to any person claiming indemnification, if
that person undertakes in writing to repay Glacier if it is ultimately
determined that the person is not entitled to indemnification. Glacier's
obligation to indemnify and advance expenses to persons covered by Glacier's
bylaw indemnification provisions will continue despite the subsequent amendment
or repeal of such provisions.
Neither Mountain West Bank's Articles of Incorporation nor its Bylaws
provide for the elimination or limitation of the personal liability of its
directors and officers for monetary damages.
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Under Idaho law, a corporation such as Mountain West Bank may indemnify its
officers and directors if such officer or director conducted himself or herself
in good faith, and reasonably believed that his or her conduct was in the best
interests of the corporation (in the case of official conduct), reasonably
believed that his or her conduct was not opposed to the best interests of the
corporation, and had no reasonable cause to believe that his or her conduct was
unlawful (in the case of alleged criminal action).
Unless ordered otherwise by a court, a corporation's indemnification of
an officer or director in connection with a proceeding by or in the right of the
corporation is limited to reimbursement of the reasonable expenses associated
with such proceeding, and a corporation may not indemnify an officer or director
in connection with any proceeding with respect to conduct for which such officer
or director was adjudged liable on the basis that he or she received a financial
benefit to which he or she was not entitled.
Reasonable expenses may be advanced to an officer or director claiming
indemnification if such individual submits a written affirmation of his or her
good faith belief that he or she has met the standard of conduct described above
and agrees in writing to repay such funds in the event it is ultimately
determined that he or she is not entitled to indemnification.
POTENTIAL "ANTI-TAKEOVER" PROVISIONS
Glacier's Certificate of Incorporation and Delaware law contain certain
provisions which may limit or prevent certain acquisitions. These provisions are
briefly summarized below.
1. Glacier's Certificate of Incorporation.
Glacier's Certificate of Incorporation includes certain provisions that
could make it more difficult for another party to acquire Glacier by means of a
tender offer, a proxy contest, merger or otherwise. These provisions include:
o a requirement that at least 80% of Glacier's outstanding voting
stock approve business combinations (discussed in more detail
below);
o an authorization to Glacier's board of directors allowing it to
issue preferred stock (discussed in more detail below); and
o the staggered terms of Glacier's board of directors (see "- Board of
Directors" above); and
o restrictions on removal of directors which could limit changes in
the composition of the Glacier board of directors (see "- Board of
Directors" above).
Article 9 of Glacier's Certificate of Incorporation contains detailed
provisions governing certain change-in-control transactions, including mergers
and consolidations, and significant sales of corporate assets, involving
business entities owning at least 10% of Glacier's outstanding voting stock, or
which have the opportunity, through beneficial ownership of the voting stock or
rights to acquire Glacier voting stock, to own or control at least 10% of
Glacier's voting stock. Other transactions treated as business combinations
under these change-in-control provisions are detailed in Section 9.1 of
Glacier's Certificate of Incorporation. All such business combinations must be
approved by at least 80% of Glacier's outstanding voting stock entitled to vote
generally in the election of directors, all of which will vote as one class,
with each share entitled to the number of votes that it is granted either under
the Certificate of Incorporation, or, if preferred stock, as designated by the
board of directors when the preferred shares were issued. The "super-majority"
voting requirement applies regardless of other requirements in Glacier's
Certificate of Incorporation and Bylaws, lesser voting requirements provided by
applicable law, and requirements imposed under any agreement between Glacier and
any national securities exchange.
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The "super-majority" voting requirement does not apply to those
business combinations which meet all the criteria prescribed in Section 9.2 of
Glacier's Certificate of Incorporation. Some of these stringent criteria include
the approval of the business combination by directors unaffiliated with the
Glacier stockholder seeking the business combination, the payment of fair and
adequate consideration (based upon recent pricing history of Glacier's stock),
limitations on the form of consideration payable to Glacier's stockholders, and
Glacier's continuing ability to pay dividends of a consistent value on its
outstanding stock. Other requirements are detailed in Section 9.2 of Glacier's
Certificate of Incorporation.
Glacier will provide any Mountain West Bank stockholder with a copy of
its Certificate of Incorporation and/or Bylaws. To obtain such documents,
contact Glacier at the address provided in "INFORMATION INCORPORATED BY
REFERENCE."
In addition, the authorization of preferred stock, which is intended
primarily as a financing tool and not as a defense against takeovers, may
potentially be used by management to render more difficult uninvited attempts to
acquire control of Glacier (e.g., by diluting the ownership interest of a
substantial stockholder, increasing the amount of consideration necessary for a
stockholder to obtain control, or selling authorized but unissued shares to
friendly third parties). The rights, powers and preferences of any class(es) of
preferred stock issued would be established by the Glacier board of directors
at the time such stock is authorized for issuance, and could include voting
rights. Additionally, any such class(es) of preferred stock may be entitled to
voting rights in certain circumstances, even if not specifically granted by
Glacier, under Delaware law.
The requirement of a super-majority vote of stockholders to approve
change-in-control transactions, the availability of Glacier's preferred stock
for issuance without stockholder approval, the staggered terms for Glacier's
directors (as described under "Board of Directors" above), provisions in
Glacier's Certificate of Incorporation permitting the removal of directors only
for cause and the Glacier board of directors' ability to expand the board of
directors' size and fill resulting vacancies, may have the effect of lengthening
the time required for a person to acquire control of Glacier through a tender
offer, proxy contest, the election of a majority of the Glacier board of
directors, or otherwise, and may deter any potential unfriendly offers or other
efforts to obtain control of Glacier. This could deprive Glacier's stockholders
of opportunities to realize a premium for their Glacier common stock and could
make removal of incumbent directors more difficult, even in circumstances where
the action was favored by a majority of Glacier's stockholders.
2. Delaware Law.
Delaware's significant anti-takeover provisions are generally described
below.
Delaware prohibits business combinations with an interested stockholder
(i.e., a stockholder who owns at least 15% of the voting stock of a corporation)
for a period of three years following the date the stockholder becomes
interested. Business combinations with an interested stockholder are not
prohibited, however, if:
o the corporation's board of directors approves in advance either the
business combination or the transaction in which the stockholder
becomes an interested stockholder;
o the stockholder acquires 85% or more of the outstanding voting stock
in the same transaction in which the stockholder becomes interested;
or
o the board of directors approves the business combination and at
least two-thirds of the outstanding voting stock (excluding those
shares held by the acquiring stockholder) approve the transaction by
affirmative vote.
These change-of-control provisions of the Delaware General Corporation
Law will not apply if:
o a corporation expressly elects not to follow them (Glacier has not
so elected);
o a stockholder inadvertently becomes interested and divests his
shares as soon as practicable; or
o the corporation has no stock listed on a national securities
exchange, authorized for quotation on an inter dealer quotation
system of a registered national securities association, or held of
record by more than 2,000 stockholders.
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3. Idaho Law.
Idaho law requires any person or group of affiliated people who acquire
at least 20% of the outstanding shares of stock of a corporation to provide a
detailed information statement discussing the acquisition of such shares. Unless
approved by two-thirds of the disinterested shareholders, the shares so acquired
will not have any voting rights.
Idaho law prohibits business combinations with an "interested"
shareholder (i.e., a shareholder who owns at least 10% of the voting stock of a
corporation) for a period of three years following the date the shareholder
becomes "interested," unless the share acquisition that resulted in the
shareholder becoming "interested" is approved by the Board of Directors prior to
the share acquisition date.
CERTAIN LEGAL MATTERS
The validity of the Glacier common stock to be issued in the merger
will be passed upon for Glacier by its counsel, Graham & Dunn, P.C., Seattle,
Washington. Graham & Dunn, P.C. also will give an opinion concerning certain tax
matters related to the merger.
EXPERTS
The consolidated financial statements of Glacier as of December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, are incorporated in this prospectus/proxy statement and in the
Registration Statement filed by Glacier in reliance on the report of KPMG LLP,
independent certified public accountants, as indicated in their reports with
respect thereto, and on the authority of such firm as experts in accounting and
auditing.
The financial statements of Mountain West Bank as of March 31, 1999 and
1998 and for the fiscal years then ended included in this prospectus/proxy
statement and in the Registration Statement have been so included in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
Glacier files annual, quarterly and current reports, proxy statements,
and other information with the SEC. You may read and copy any reports,
statements, or other information that Glacier files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can
request copies of these documents, upon payment of a duplicating fee, by writing
the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Glacier's SEC filings are also
available to the public on the SEC Internet site (http://www.sec.gov). As
described below under "INFORMATION INCORPORATED BY REFERENCE," you may also
obtain the documents that Glacier is incorporating by reference into this
prospectus/proxy statement from Glacier.
Glacier has filed a Registration Statement on Form S-4 (File No. 333-
90701) to register with the SEC, the Glacier common stock to be issued to
Mountain West Bank stockholders in the merger. This prospectus/proxy statement
is part of that Registration Statement and constitutes a prospectus of Glacier
in addition to being a proxy statement of Mountain West Bank for the Mountain
West Bank special stockholders meeting. As allowed by SEC rules, this
prospectus/proxy statement does not contain all of the information that you can
find in the Registration Statement or the exhibits to the Registration
Statement.
Prior to June 30, 1999, Mountain West Bank filed annual, quarterly and
current reports, proxy statements, and other information with the OTS and for
the periods thereafter has filed reports with the FDIC. You may read and copy
any reports, statements, or other information that Mountain West Bank has filed
with the OTS at the OTS public reference room at 1700 G Street, N.W.,
Washington, D.C. 20512. The reports, statements, or other information filed
with the FDIC may be read and copied at the FDIC public reference room at 550 -
17th Street, NW, Room F-6043, Registration, Disclosure and Securities
Operations Unit, Washington, DC 20429. You can request copies of these
documents, upon payment of a duplicating fee, by writing the OTS or FDIC.
Please call the OTS at 1-202-906-5900 or the FDIC at 1-202-898-8911, and
1-202-898-3909 (fax) for further information on the operation of the public
reference rooms. If the merger occurs, Mountain West Bank will no longer file
reports with the FDIC, and information regarding Mountain West Bank will be
included in Glacier's filings with the SEC.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows Glacier to "incorporate by reference" information into
this prospectus/proxy statement, which means that Glacier can disclose important
information to you by referring you to another document filed
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separately by Glacier with the SEC. The information incorporated by reference is
deemed to be part of this prospectus/proxy statement, except for any information
superseded by any information in this prospectus/proxy statement. This
prospectus/proxy statement incorporates by reference the documents set forth
below that Glacier has previously filed with the SEC. These documents contain
important information about Glacier and its finances:
o Annual Report on Form 10-K and Form 10-K/A for the year ended
December 31, 1998;
o Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999; June 30, 1999 and September 30, 1999;
o Proxy Statement for Glacier's 1999 Annual Meeting of Stockholders;
and
o Current Reports on Form 8-K filed January 25, 1999; May 25, 1999;
and September 17, 1999.
As described in "INFORMATION CONCERNING GLACIER," information filed
with the SEC prior to July 8, 1998 was filed by, and describes, "Original
Glacier," Glacier's predecessor corporation.
Glacier is also incorporating by reference additional documents that
Glacier files with the SEC between the date of this prospectus/proxy statement
and the date of the special meeting of Mountain West Bank stockholders.
You can obtain the documents that are incorporated by reference through
Glacier or the SEC. You can obtain the documents from the SEC, as described
above under "WHERE YOU CAN FIND MORE INFORMATION". These documents are also
available from Glacier without charge, excluding exhibits unless Glacier has
specifically incorporated such exhibits by reference in this prospectus/proxy
statement. You may obtain documents incorporated by reference in this
prospectus/proxy statement by requesting them from Glacier at 49 Commons Loop,
Kalispell, Montana 59901, telephone number (406) 756-4263, ATTN: James H.
Strosahl. If you would like to request documents from Glacier, please do so by
January 11, 2000 to receive them before the Mountain West Bank special
stockholders meeting.
Glacier has supplied all of the information concerning it contained in
this prospectus/proxy statement, and Mountain West Bank has supplied all of the
information concerning it.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS/PROXY STATEMENT IN DECIDING HOW TO VOTE ON THE
MERGER. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION OTHER THAN
WHAT IS CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT. THIS PROSPECTUS/PROXY
STATEMENT IS DATED DECEMBER 17, 1999. YOU SHOULD NOT ASSUME THAT INFORMATION
CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT IS ACCURATE AS OF ANY OTHER DATE,
AND NEITHER THE MAILING OF THIS PROSPECTUS/PROXY STATEMENT TO MOUNTAIN WEST BANK
STOCKHOLDERS NOR THE ISSUANCE OF GLACIER COMMON STOCK IN THE MERGER WILL CREATE
ANY IMPLICATION TO THE CONTRARY.
OTHER MATTERS
The Mountain West Bank board of directors is not aware of any business
to come before the Mountain West Bank special stockholders meeting, other than
those matters described above in this prospectus/proxy statement. However, if
any other matters should properly come before the meeting, it is intended that
proxies in the accompanying form will be voted on such matters in accordance
with the judgment of the persons voting the proxies.
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MOUNTAIN WEST BANK
INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
SEPTEMBER 30, 1999
<PAGE> 76
BALANCE SHEETS
(UNAUDITED)
(in thousands of dollars)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and noninterest bearing deposits in banks $ 3,491 $ 3,900
Interest bearing deposits in banks 3,942 5,221
Investments and mortgage-backed securities 16,961 14,204
Loans held for sale 2,553 2,782
Loans receivable:
Total loans 51,950 50,797
Less unearned income (80) (64)
Less allowance for loan losses (603) (535)
-------- --------
Net loans 51,267 50,198
Accrued interest receivable 478 455
Mortgage servicing rights, net 351 278
Premises and equipment, net of accumulated depreciation of $901 at
09/30/99 and $710 at 03/31/99 3,339 3,408
Deferred income taxes 125 31
Prepaid expenses and other assets, net 377 390
-------- --------
Total assets $ 82,884 $ 80,867
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing deposits $ 15,948 $ 15,777
Interest bearing demand, money market and savings accounts 40,037 35,857
Time deposits 18,018 19,025
-------- --------
Total deposits 74,003 70,659
Advances from Federal Home Loan Bank 0 1,000
Checks issued and payable 1,210 1,388
Accounts payable and other accrued expenses 1,146 1,484
-------- --------
Total liabilities 76,359 74,531
Common stock; $2.50 par value; authorized 1,500,000 shares; issued
and outstanding 715,472 shares at 09/30/99 and 704,774 shares
at 03/31/99 1,789 1,762
Paid-in surplus 4,413 4,321
Unrealized gain (loss) on investments (141) (23)
Retained earnings (accumulated deficit) 464 276
-------- --------
Total stockholders' equity 6,525 6,336
-------- --------
Total liabilities and stockholders' equity $ 82,884 $ 80,867
======== ========
</TABLE>
See notes to financial statements.
F-1
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STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
(in thousands of dollars, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 1,177 $ 994 $ 2,322 $ 1,920
Investments and interest bearing bank deposits 324 255 565 472
-------- -------- -------- --------
Total interest income 1,501 1,249 2,887 2,392
Interest expense:
Deposits 492 476 950 907
Borrowing, net of capitalized interest 6 15 19 31
-------- -------- -------- --------
Total interest expense 498 491 969 938
-------- -------- -------- --------
Net interest income 1,003 758 1,918 1,454
Provision for loan losses 60 49 120 107
-------- -------- -------- --------
Net interest income after provision for losses 943 709 1,798 1,347
Other income (expense):
Fees and service charges 267 163 540 299
Net gains on sales of loans 84 174 295 373
Other 51 0 32 0
-------- -------- -------- --------
Total other income 402 337 867 672
Noninterest expense:
Employee compensation and benefits 595 453 1,168 811
Occupancy and equipment 212 133 420 246
Data Processing 112 83 216 152
Professional services and examinations 17 27 41 45
Telephone, postage, and delivery 57 12 112 25
Marketing 76 72 170 105
Printing and supplies 29 36 70 52
Other expenses 79 64 162 112
-------- -------- -------- --------
Total noninterest expense 1,177 880 2,359 1,548
-------- -------- -------- --------
Income (loss) before income taxes 168 166 306 471
Income tax provision 65 66 118 185
-------- -------- -------- --------
Net income (loss) $ 103 $ 100 $ 188 $ 286
======== ======== ======== ========
Earnings per common share $ 0.14 $ 0.14 $ 0.26 $ 0.41
======== ======== ======== ========
Earnings per common share - assuming dilution $ 0.14 $ 0.14 $ 0.25 $ 0.39
======== ======== ======== ========
Weighted average shares outstanding $714,657 $702,815 $711,168 $701,963
======== ======== ======== ========
</TABLE>
See notes to financial statements.
F-2
<PAGE> 78
STATEMENTS OF CASH FLOW (UNAUDITED)
For the Six Months Ended September 30, 1999 and 1998
(in thousands of dollars)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 188 $ 286
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization 191 113
Amortization of mortgage servicing rights 4 28
Provision for loan losses 68 65
Valuation adjustments on loans held for sale 33 0
Valuation adjustments on mortgage servicing rights (65) 0
Change in accrued interest receivable (23) (51)
Deferred income taxes (94) 0
Change in accounts payable, accrued expenses and income tax (338) 58
Change in prepaid expenses and other assets 13 74
Change in unearned income 16 41
Proceeds from sales of loans and participations 19,779 23,240
Disbursements on loans originated for sale (19,583) (22,770)
-------- --------
Net cash provided by *used in) operating activities 189 1,084
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans disbursed (14,990) (16,263)
Loan principal collections 13,837 6,640
Purchase of investment securities (5,455) (2,671)
Proceeds from paydowns, sales and maturities of investment sec. 2,698 568
Purchase of office properties and equipment (122) (280)
Retained mortgage servicing rights (12) (145)
Other, net (118) (60)
-------- --------
Net cash provided by (used in) investing activities (4,162) (12,211)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in checking, savings and money market deposits 4,351 4,307
Net change in time deposits (1,007) (139)
Net change in checks issued and payable (178) 693
Net change in short-term Federal Home Loan Bank advances (1,000) (1,000)
Proceeds from exercise of stock options 119 29
-------- --------
Net cash provided by (used in) financing activities 2,285 3,890
Net increase (decrease) in cash and cash equivalents (1,688) (7,237)
Cash and cash equivalents at beginning of period 9,121 16,567
-------- --------
Cash and cash equivalents at end of period $ 7,433 $ 9,330
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest expense $ 238 $ 302
Income taxes $ 133 $ 174
</TABLE>
See notes to financial statements.
F-3
<PAGE> 79
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Six Months Ended September 30, 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Common Stock Unrealized
------------ Paid-in Gain (Loss) Retained
Shares Amount Surplus Investments Earnings
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1999 704,774 $1,762 $4,322 $ (23) $276
Stock options exercised 10,698 27 91
Available-for-sale securities
adjusted to fair value (118)
Net income 188
-------------------------------------------------------------
Balance, September 30, 1999
715,472 $1,789 $4,413 $(141) $464
=============================================================
</TABLE>
See notes to financial statements.
STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands of dollars)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
Sept. 30, Sept. 30, Sept. 30, Sept 30,
1999 1998 1999 1998
-----------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 103 $ 100 $ 188 $ 286
Other comprehensive income (loss):
Change in unrealized losses on investments and
mortgage-backed securities available-for-sale
54 62 (197) 79
Tax (expense) benefit (21) (16) 79 (23)
-----------------------------------------------
Net other comprehensive income (loss) 33 46 (118) 56
-----------------------------------------------
Comprehensive income (loss) $ 136 $ 146 $ 70 $ 342
===============================================
</TABLE>
See notes to financial statements.
F-4
<PAGE> 80
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. GENERAL:
Notes to the financial statements as of March 31, 1999, which were
included in Form 10-KSB, substantially apply to the interim financial
statements as of September 30, 1999, presented herein, and are not
repeated here.
The amounts set forth in the accompanying consolidated financial
statements reflect the adjustments, all of which are of a normal and
recurring nature, which, in the opinion of management, are necessary
for a fair presentation of the periods reported.
2. INVESTMENTS:
The Bank classifies its investments and mortgage-backed securities as
"held-to-maturity" or "available-for-sale" based upon management's
intent with respect to the securities. The following summary of the
amortized cost basis and fair value by security type as of September
30, 1999, supplements the Notes to the financial statements as of March
31, 1999.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Agency obligations $ 6,962,508 $ 8,521 $(119,534) $ 6,851,495
----------- ------- --------- -----------
SBA Pool 342,206 0 (1,222) 340,984
Mortgage-backed securities 8,501,057 6,755 (129,963) 8,377,849
----------- ------- --------- -----------
15,805,771 15,276 (250,719) 15,570,328
- ---------------------------------------------------------------------------------------------------
Held-to-Maturity:
Mortgage-backed securities 263,650 2,144 (2,809) 262,985
U.S. Agency obligations 499,857 0 (3,767) 496,090
----------- ------- --------- -----------
763,507 2,144 (6,576) 759,075
- ---------------------------------------------------------------------------------------------------
Restricted:
FHLB Stock 626,700 626,700
- ---------------------------------------------------------------------------------------------------
</TABLE>
3. CAPITALIZED SERVICING RIGHTS:
During the quarter and year-to-date ended September 30, 1999, the Bank
capitalized $2,000 and $12,000, respectively, in connection with
originating the right to service mortgage loans. Gain on sale of loans
was increased by the same amount. For the same quarter and
year-to-date, the capitalized mortgage servicing rights (MSRs) were
reduced by amortization in the amount of $4,000 using the depletion
method. The principal balance of the loans serviced at September 30,
1999, was $22,470,830. At September 30, 1999, the Bank was also
servicing $7,979,267 in mortgage loans on which the value of the MSRs
has not been capitalized.
4. STOCK OPTIONS:
On July 21, 1994, the shareholders of the Bank approved a stock option
plan which provides for the granting of options to purchase shares of
the Bank's common stock to certain directors and key employees. The
following table summarizes option activity in this fiscal year. Unless
specified, options granted become exercisable immediately. The number
of shares and exercise prices have been retroactively adjusted to
recognize the effects of stock dividends.
F-5
<PAGE> 81
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Not Average Expiration
Exercisable Exercisable Option Year
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance of Options Granted, March 31, 1999 112,717 4,000 $11.30 2004-2008
- ----------------------------------------------------------------------------------------------------------------
Options Granted 05/19/99 8,000 $20.00 2009
- ----------------------------------------------------------------------------------------------------------------
Options Exercised 04/05/99, 05/18/99, and 07/23/99 10,698 $11.08 2004-2008
- ----------------------------------------------------------------------------------------------------------------
Options Vested 2,000 (2,000) $18.50 2008-2009
- ----------------------------------------------------------------------------------------------------------------
Options Granted 06/17/99 1,000 $22.00 2009
- ----------------------------------------------------------------------------------------------------------------
Balance, September 30, 1999 112,019 3,000 $12.02 2004-2009
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
5. EARNINGS PER SHARE:
The following table reconciles the denominator (shares) of the two
calculations of earnings per common share for each period presented on
the Statements of Income. There were no differences in the numerators.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
Shares Used as the ------------------ ----------------
Denominator for the Sept. 30, Sept. 30, Sept. 30, Sept 30,
Calculation of Earnings Per Share 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings per common share 714,657 702,815 711,168 701,963
- -------------------------------------------------------------------------------------------------------------------
Stock options effect 48,852 35,343 47,311 32,265
- -------------------------------------------------------------------------------------------------------------------
Earnings per common share - assuming dilution 763,509 738,158 758,479 734,228
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The dilutive effect of outstanding stock options is calculated by
application of the treasury stock method, which assumes that the
proceeds from exercise are used to purchase common stock at the average
market price during the period. The incremental shares are included in
the denominator of the diluted computation.
F-6
<PAGE> 82
MOUNTAIN WEST BANK
FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
<PAGE> 83
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Stockholders
Mountain West Bank
Coeur d'Alene, Idaho
In our opinion, the accompanying balance sheets and the related statements of
income, comprehensive income, changes in stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Mountain
West Bank (the Bank) as of March 31, 1999 and 1998, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Bank's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
May 19, 1999
1
<PAGE> 84
MOUNTAIN WEST BANK
BALANCE SHEETS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents:
Interest bearing $5,220,751 $12,728,613
Non-interest bearing 3,900,441 3,838,491
Loans receivable, net 50,198,117 37,823,205
Loans held for sale 2,782,207 1,938,548
Investments and mortgage-backed securities:
Available-for-sale, at market 12,819,575 4,877,933
Held-to-maturity, at amortized cost 779,432 1,606,092
Restricted, at cost 604,600 560,500
Accrued interest receivable 455,367 342,085
Mortgage servicing rights, net 278,468 121,350
Office properties and equipment, net 3,407,444 2,915,115
Real estate owned, net -- 106,912
Prepaid expenses and other assets, net 389,853 276,561
Deferred income taxes 30,890 --
----------- -----------
Total assets $80,867,145 $67,135,405
=========== ===========
LIABILITIES:
Deposits $70,659,270 $57,741,470
Advances from Federal Home Loan Bank of Seattle 1,000,000 2,000,000
Accounts payable and other accrued expenses 1,483,434 791,153
Checks issued and payable 1,388,027 766,735
----------- -----------
Total liabilities 74,530,731 61,299,358
----------- -----------
Commitments (Notes 14 and 15)
STOCKHOLDERS' EQUITY:
Common stock, $2.50 par value; 1,500,000 shares authorized;
704,774 and 637,223 shares issued and outstanding 1,761,935 1,593,058
Additional paid-in capital 4,321,507 3,953,985
Accumulated other comprehensive loss (22,895) (22,572)
Retained earnings 275,867 311,576
----------- -----------
Total stockholders' equity 6,336,414 5,836,047
----------- -----------
Total liabilities and stockholders' equity $80,867,145 $67,135,405
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 85
MOUNTAIN WEST BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans $4,123,796 $3,376,508
Investments and cash equivalents 983,507 549,801
---------- ----------
Total interest income 5,107,303 3,926,309
---------- ----------
INTEREST EXPENSE:
Deposits 1,857,613 1,556,969
Other borrowings 62,626 72,095
---------- ----------
Total interest expense 1,920,239 1,629,064
---------- ----------
Net interest income 3,187,064 2,297,245
Provision for loan losses 203,318 162,940
---------- ----------
Net interest income after provision for loan losses 2,983,746 2,134,305
---------- ----------
OTHER INCOME (EXPENSE):
Fees and service charges 804,960 432,021
Net gains on sales of loans 897,440 480,240
Net gains on sales of investments and mortgage-backed securities 17,016 9,135
Other (82,725) 538
---------- ----------
Total other income 1,636,691 921,934
---------- ----------
Operating expenses 3,884,746 2,282,293
---------- ----------
Income before income taxes 735,691 773,946
Income tax provision 275,902 272,769
---------- ----------
Net income $459,789 $501,177
========== ==========
Net income per share - basic $ 0.65 $ 0.88
========== ==========
Net income per share - diluted $ 0.62 $ 0.86
========== ==========
Weighted-average shares outstanding - basic 702,956 568,320
========== ==========
Weighted-average shares outstanding - diluted 744,961 579,774
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 86
MOUNTAIN WEST BANK
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net income $459,789 $501,177
Other comprehensive income (loss):
Change in unrealized losses on available-for-sale investments and
mortgage-backed securities (323) 13,560
-------- --------
Comprehensive income $459,466 $514,737
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 87
MOUNTAIN WEST BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACCUMULATED RETAINED
COMMON STOCK ADDITIONAL OTHER EARNINGS
-------------------------- PAID-IN COMPREHENSIVE (ACCUMULATED
SHARES AMOUNT CAPITAL LOSS DEFICIT)
------- ---------- ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1997 487,223 $1,218,058 $2,406,953 $(36,132) $(189,601)
Proceeds from stock offering, net 150,000 375,000 1,547,032
Change in unrealized losses on investments
and mortgage-backed securities 13,560
Net income 501,177
------- ---------- ---------- -------- ---------
BALANCE, MARCH 31, 1998 637,223 1,593,058 3,953,985 (22,572) 311,576
Shares issued upon exercise of stock options 3,714 9,285 33,465
Common stock dividend 63,837 159,592 335,906 (495,498)
Cash paid for fractional shares
($16.75 per share) (1,849)
Change in unrealized losses on investments
and mortgage-backed securities (323)
Net income 459,789
------- ---------- ---------- -------- ---------
BALANCE, MARCH 31, 1999 704,774 $1,761,935 $4,321,507 $(22,895) $ 275,867
======= ========== ========== ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 88
MOUNTAIN WEST BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 459,789 $ 501,177
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 203,318 162,940
Depreciation 296,669 224,841
Amortization of premiums and discount on investment and
mortgage-backed securities 18,257 (1,609)
Amortization of mortgage servicing rights 70,484 20,307
Valuation adjustments on loans held for sale 10,755 --
Valuation adjustments on mortgage servicing rights 62,884 2,260
Net gain on sales of loans (897,440) (480,240)
Net gain on investments and mortgage-backed securities (17,016) (9,135)
Net loss on sales of real estate owned 4,276 --
Net (gain) loss on disposal of office properties and equipment 18,790 (1,772)
Stock dividends on restricted investment (44,100) (23,800)
Deferred income tax provision (benefit) (31,174) 87,082
Change in:
Accrued interest receivable (113,282) (129,090)
Prepaid expenses and other assets (113,292) (139,947)
Accounts payable and other accrued expenses 692,565 139,992
Proceeds from sales of loans 52,538,668 36,717,676
Principal repayments on loans held for sale 5,611 287,878
Disbursements on loans originated for sale (51,563,803) (35,173,855)
------------ ------------
Net cash provided by operating activities 1,601,959 2,184,705
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal repayments on loans 8,323,311 13,204,823
Disbursement of loans, net (27,055,462) (24,877,785)
Purchase of loans (431,000) --
Proceeds from sale of loan participations 5,671,471 1,817,031
Principal reductions on available-for-sale investments 1,333,956 260,323
Proceeds from sale and maturity of available-for-sale investments 3,466,786 750,000
Purchase of available-for-sale investments (12,744,982) (3,315,327)
Principal reductions on held-to-maturity investments 86,494 57,175
Proceeds from maturity of held-to-maturity investments 741,200 2,350,000
Purchase of held-to-maturity investments -- (3,079,140)
Proceeds from sale of office properties and equipment -- 5,100
Acquisition of office properties and equipment (831,788) (166,623)
Purchase of restricted investments -- (333,200)
Retained mortgage servicing rights (290,486) (40,048)
Proceeds from sale of real estate owned 102,636 --
------------ ------------
Net cash used in investing activities (21,627,864) (13,367,671)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in checks issued and payable 621,292 766,735
Net change in commercial demand accounts, NOW, passbook and
money market deposits 11,474,074 14,965,356
Proceeds from sales of certificates of deposit 17,773,134 9,266,992
Payments for maturing certificates of deposit (16,329,408) (4,314,045)
Advances from Federal Home Loan Bank of Seattle -- 15,741,800
Repayments of advances from Federal Home Loan Bank of Seattle (1,000,000) (15,741,800)
Proceeds from issuance of common stock, net -- 1,922,032
Proceeds from exercise of stock options 42,750 --
Cash paid for fractional shares (1,849) --
------------ ------------
Net cash provided by financing activities 12,579,993 22,607,070
------------ ------------
Net change in cash and cash equivalents (7,445,912) 11,424,104
Cash and cash equivalents, beginning of year 16,567,104 5,143,000
------------ ------------
Cash and cash equivalents, end of year $ 9,121,192 $ 16,567,104
============ ============
</TABLE>
6
<PAGE> 89
MOUNTAIN WEST BANK
STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest $1,856,402 $1,615,564
Income taxes 301,800 210,050
Noncash investing activities:
Transfer of loans held for sale to loans receivable 1,011,978 517,524
Transfer of loans receivable to loans held for sale 74,528 --
Issuance of loan for sale of fixed asset 24,000 --
Write-off of loans receivable against allowance for loan losses 43,318 6,940
Transfer of loans receivable to real estate owned -- 106,912
Noncash financing activities:
Distribution of stock dividend 495,498 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 90
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
Mountain West Bank (the Bank), formerly Mountain West Savings Bank,
F.S.B., was organized on June 12, 1992. The Bank completed its initial
public offering of common stock and received its federal charter in
September 1993, emerged from the organizational stage and began
operations in Coeur d'Alene, Idaho in October 1993. In February 1996,
the Bank opened a branch operation in Hayden, Idaho; in November 1996,
the Bank opened a branch in Post Falls, Idaho; and in November 1998, the
Bank opened a branch in Boise, Idaho.
CASH AND CASH EQUIVALENTS
The Bank considers cash equivalents to be any highly liquid debt
instrument purchased with a remaining maturity of three months or less.
Periodically, the Bank invests excess funds not presently being used for
lending purposes with other financial institutions in amounts that, at
times, are in excess of federal insurance limits. The Bank considers the
credit worthiness of the financial institution in making its investment
decisions and presently invests most excess funds with the Federal Home
Loan Bank of Seattle.
LOANS RECEIVABLE
Loans receivable are recorded at their unpaid principal balance less any
deferred loan fees, net of direct loan origination costs and an
allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is recorded based on the Bank's evaluation
of past loan 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 and current economic and
geographic conditions. Such evaluation, which includes a review of
impaired loans which may not be fully collectible, is based on the
present value of expected future cash flows, discounted at the loan's
effective interest rate or the estimated fair value, net of selling
costs, of the underlying collateral. A provision for loan losses, when
determined necessary, is charged to operations based on management's
evaluation of the probable losses that may occur in its loan portfolio.
The accrual of interest and amortization of net deferred loan fees cease
on any loan when either principal or interest becomes 90 days past due.
LOAN ORIGINATION AND COMMITMENT FEES
Loan origination fees, net of certain specifically defined direct loan
origination costs, are deferred and recognized as interest income using
the level yield interest method over the contractual term of each loan
adjusted for actual loan prepayment experience. If the related loan is
sold, the remaining net amount deferred, which is part of the basis of
the loan, is considered in determining the gain or loss on sale.
Loan commitment fees are deferred until the expiration of the commitment
period unless management believes there is a remote likelihood that the
underlying commitment will be exercised, in which case the fees are
amortized to fee income using the straight-line method over the
commitment period. If a loan commitment is exercised, the deferred
commitment fee is accounted for in the same manner as a loan origination
fee. Deferred commitment fees associated with expired commitments are
recognized as fee income.
8
<PAGE> 91
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or market value as
determined on an individual loan basis. Any loan that management
determines will not be held to maturity is classified as held for sale.
Market value is determined based on published quotes for loans with
comparable interest rates and maturities. Unrealized losses on loans
held for sale are recognized through a valuation allowance by a charge
to operations as incurred.
INVESTMENTS AND MORTGAGE-BACKED SECURITIES
The accounting policies related to investments and mortgage-backed
securities are as follows:
- AVAILABLE-FOR-SALE. Debt and equity securities that will be held for
indefinite periods of time, including securities that may be sold in
response to changes in market interest or prepayment rates, needs for
liquidity and changes in the availability and the yield of alternative
investments are classified as available-for-sale. These assets are
carried at market value. Market value is determined using published
quotes as of the balance sheet date. Unrealized gains and losses are
excluded from operations and recognized in other comprehensive income.
- HELD-TO-MATURITY. Debt securities that management has the positive
intent and ability to hold until maturity are classified as
held-to-maturity and are carried at their remaining unpaid principal
balance, net of unamortized premiums or unaccreted discounts. Premiums
are amortized and discounts are accreted using the level yield
interest method over the estimated remaining term of the underlying
security.
- RESTRICTED. Equity security investments in the Federal Home Loan Bank
of Seattle (FHLB-Seattle) are recorded at cost and are evaluated
annually for impairment. Cash and stock dividends are recorded in
income as received.
Realized and unrealized gains and losses on investments and
mortgage-backed securities are recognized using the specific
identification method.
MORTGAGE SERVICING RIGHTS
The Bank capitalizes as a separate asset the rights to service mortgage
loans for others on loans that are originated and sold with retained
servicing rights. Mortgage servicing rights are valued at fair value,
based on observable market prices quoted for servicing rights for
comparable loans.
The Bank assesses the impairment of the mortgage servicing rights on a
disaggregated basis. The servicing portfolio is stratified by
predominant risk characteristic (loan type, rate and term) and valued
using current observable market prices. In the event that the carrying
value of the mortgage servicing rights of any stratum exceeds the fair
value, an impairment loss is recognized in operations. A decline in
interest rates most likely will result in increased prepayment rates,
which would accelerate the amortization of these mortgage servicing
rights.
The mortgage servicing rights are amortized using the depletion method
in proportion to and over the estimated term of the servicing income.
9
<PAGE> 92
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful lives
of the assets or the term of the related lease. Expenditures for new
properties and equipment and major renewals or betterments are
capitalized. Expenditures for repairs and maintenance are charged to
operations as incurred. Upon sale or retirement of property or
equipment, the cost and related accumulated depreciation are removed
from the respective accounts, and the resulting gains or losses are
reflected in operations.
The Bank's policy is to review its properties and equipment for
impairment in value whenever events or circumstances indicate that the
carrying value may not be recoverable.
REAL ESTATE OWNED
Real estate owned includes property acquired through foreclosure in
satisfaction of the related loan receivable. Real estate owned is
carried at the lower of cost or fair value less estimated costs to sell
at foreclosure.
An allowance for losses on real estate owned is established to include
amounts for estimated losses as a result of an impairment in value of
the real property. The Bank reviews its real estate owned for impairment
in value whenever events or circumstances indicate that the carrying
value of the property may not be recoverable. In performing the review,
if expected future undiscounted cash flow from the use of the property
or the fair value, less selling costs, from the disposition of the
property is less than its carrying value, an impairment loss is
recognized.
INCOME TAXES
The Bank accounts for income taxes using the liability method, which
requires that deferred tax assets and liabilities be determined based on
the temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities and tax attributes using
enacted tax rates in effect in the years in which the temporary
differences are expected to reverse.
NET INCOME PER SHARE
Net income per share - basic is computed by dividing net income by the
weighted-average number of shares outstanding during the period. Net
income per share - diluted is computed by dividing net income by the
weighted-average number of shares outstanding increased by the dilutive
effect associated with additional shares that would have been
outstanding if the dilutive potential shares had been issued.
All weighted-average shares outstanding and per-share amounts have been
retroactively restated to reflect the 10% common stock dividend which
occurred during the year ended March 31, 1999 (see Note 9).
COMPREHENSIVE INCOME
During the year ended March 31, 1999, the Bank adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general- purpose financial
statements. This Statement requires that all items required to be
recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the
same prominence as other financial statements. SFAS No. 130 requires the
change in unrealized losses on investments and mortgage-backed
securities classified as available for sale to be included in
comprehensive income. The financial statements as of and for the year
ended March 31, 1998 have been reclassified to conform to this
Statement.
10
<PAGE> 93
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES, CONTINUED:
COMPREHENSIVE INCOME, CONTINUED
Reclassification adjustments, representing the net gains on
available-for-sale securities that were realized during the period, were
as follows:
<TABLE>
<S> <C>
Year ended March 31, 1999 $12,188
Year ended March 31, 1998 --
</TABLE>
These gains had previously been included in other comprehensive income
as a component of unrealized losses on investments and mortgage-backed
securities available for sale.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain amounts in the 1998 financial statements have been reclassified
to conform with the current year's presentation. These reclassifications
had no effect on net income or retained earnings as previously reported.
2. LOANS RECEIVABLE:
The Bank originates residential and commercial real estate, consumer and
commercial loans. Generally, most loans are collateralized by real
property located in Kootenai and Ada counties, Idaho and bordering
areas. At March 31, 1999 and 1998, the Bank had $2,303,417 and
$1,464,764, respectively, of commercial and consumer loans that did not
have specific collateral.
The components of loans receivable and their original scheduled
maturities at March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
ORIGINAL
1999 1998 MATURITY
----------- ----------- ------------
<S> <C> <C> <C>
Real estate loans:
Single family $16,399,066 $18,315,891 5-30 years
Multi-family 7,116 419,708 10-30 years
Construction 3,713,805 2,329,876 0.5-1 year
Commercial 13,094,835 4,872,100 1-15 years
Home equity 3,528,854 3,854,926 20 years
Consumer 2,977,265 884,528 1-15 years
----------- -----------
39,720,941 30,677,029
Other commercial loans 8,395,808 4,421,772 0.25-7 years
Consumer loans 2,680,025 3,123,350 1-10 years
----------- -----------
Total loans receivable 50,796,774 38,222,151
Deferred loan fees, net of direct loan origination costs (63,657) (23,946)
Allowance for loan losses (535,000) (375,000)
=========== ===========
Loans receivable, net $50,198,117 $37,823,205
=========== ===========
Weighted-average interest rate 8.34% 8.80%
=========== ===========
</TABLE>
11
<PAGE> 94
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
2. LOANS RECEIVABLE, CONTINUED:
At March 31, 1999 and 1998, loans receivable with balances of
$27,416,465 and $24,798,468, respectively, were subject to adjustable
interest rates. The remaining loans outstanding of $23,380,309 and
$13,423,683 at March 31, 1999 and 1998, respectively, were at fixed
rates ranging from 4.62% to 15.75% and 5.00% to 15.50%, respectively.
Included above are outstanding balances of $4,830,637 and $1,994,325 at
March 31, 1999 and 1998, respectively, representing the Bank's interest
in loans under participation agreements with other lenders. The
outstanding principal balance of these loans was $19,258,534 and
$6,905,756 at March 31, 1999 and 1998, respectively. These loans bear
interest at annual rates ranging from 7.50% to 11.50% and from 7.75% to
12.25% at March 31, 1999 and 1998, respectively. The Bank acts as the
servicer on these loans.
The following is an analysis of the changes in net deferred loan fees
for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Beginning balance $ 23,946 $ 29,415
Fees collected 993,542 657,184
Loan origination costs (824,299) (568,571)
Fees amortized (119,888) (78,844)
Fees recognized on sales of loans (5,630) (5,426)
Fees passed to investors (4,014) (9,812)
--------- ---------
Ending balance $ 63,657 $ 23,946
========= =========
</TABLE>
Expenses which are capitalized as loan origination costs include
employee compensation for certain specified activities in originating
loans as well as incremental direct costs. For residential real estate
loans, the Bank uses the functional method of accumulating the cost
information, which results in a standard origination cost per loan. This
cost per loan is updated periodically throughout the fiscal year. For
other loans, the origination costs are based on the actual costs
incurred.
The following is an analysis of the changes in the allowances for loan
losses for the years ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning balance $375,000 $219,000
Provision for loan losses 203,318 162,940
Write offs (43,318) (6,940)
-------- --------
Ending balance $535,000 $375,000
======== ========
</TABLE>
The following is a summary of loans that are not performing in
accordance with their original contractual terms at March 31, 1999 and
1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Nonaccrual loans (A) $ -- $ 82,855
Restructured loans (B) 205,437 222,471
-------- --------
Total nonperforming loans $205,437 $305,326
======== ========
</TABLE>
12
<PAGE> 95
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
2. LOANS RECEIVABLE, CONTINUED:
(A) The accrual of interest and amortization of net deferred loan fees
are discontinued when either principal or interest become 90 days
past due, unless the loan meets specific criteria. A loan also may
be put on nonaccrual if, in management's judgment, the loan may be
uncollectible. Interest income on nonaccrual loans is recognized
as collected. There was a specific allowance for loan losses of
$5,243 related to these loans at March 31, 1998.
For loans on nonaccrual status at March 31, 1998, additional gross
interest income of $2,500 would have been recorded during the year
ended March 31, 1998, if such loans had been current in accordance
with their original contractual terms. Interest income of $24,000
was recorded during the year ended March 31, 1998 in connection
with such loans.
The average recorded investment in impaired loans was
approximately $41,000 during the year ended March 31, 1998.
(B) Restructured loans occur when the Bank has agreed to compromise
the contractual loan terms to provide a reduction in the rate of
interest and, in most instances, an extension of payments of
principal or interest, or both, because of a deterioration in the
financial position of the borrower. Restructured loans performing
in accordance with their new terms are not included in nonaccrual
loans unless there is uncertainty as to the ultimate collection of
principal or interest.
The Bank also provides for probable loan losses on loans that are
currently performing based on historical and peer group loss experiences
on various types of loans. These estimates can be affected by changes in
the economic environment in Kootenai and Ada counties, Idaho. As a
result of changing economic conditions, it is reasonably possible that
the amount of the allowance for loan losses could change in the near
term.
3. LOANS HELD FOR SALE:
The Bank has sold loans with outstanding principal balances of
$51,641,229 and $36,237,436 during the years ended March 31, 1999 and
1998 to the Federal Home Loan Mortgage Corporation (FHLMC), Federal
National Mortgage Association (FNMA) and to other investors and
recognized net gains of $897,440 and $480,240, respectively. The Bank
acts as the servicer on the FHLMC and FNMA loans.
Loans serviced for others are not included in the financial statements.
The unpaid principal balances of these loans are summarized as follows
at March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Loan portfolios serviced for:
FHLMC $30,276,706 $22,091,451
FNMA 741,955 1,034,981
Others 14,618,033 4,911,431
----------- -----------
$45,636,694 $28,037,863
=========== ===========
</TABLE>
Custodial escrow balances maintained in connection with the foregoing
loan servicing were approximately $253,000 and $81,000 at March 31, 1999
and 1998, respectively.
13
<PAGE> 96
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
3. LOANS HELD FOR SALE, CONTINUED:
The following is an analysis of the changes in mortgage servicing rights
associated with loans serviced for others for the years ended March 31,
1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Beginning balance $121,350 $103,869
Retained mortgage servicing rights 290,486 40,048
Amortization of mortgage servicing rights (70,484) (20,307)
Valuation adjustments (62,884) (2,260)
-------- --------
Ending balance $278,468 $121,350
======== ========
</TABLE>
The accumulated valuation allowances for mortgage servicing rights at
March 31, 1999 and 1998 were $65,144 and $2,260, respectively.
4. INVESTMENTS AND MORTGAGE-BACKED SECURITIES:
A summary of the amortized cost and fair values of investments and
mortgage-backed securities as of March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government and agency obligations $ 5,882,233 $ 1,689 $(18,197) $ 5,865,725
Mortgage-backed securities 6,960,237 10,432 (16,819) 6,953,850
----------- ------- -------- -----------
$12,842,470 $12,121 $(35,016) $12,819,575
=========== ======= ======== ===========
Held-to-Maturity:
U.S. Government and agency obligations $ 499,835 $ 942 $-- $ 500,777
Mortgage-backed securities 279,597 2,244 (1,144) 280,697
----------- ------- -------- -----------
$ 779,432 $ 3,186 $ (1,144) $ 781,474
=========== ======= ======== ===========
Restricted:
Federal Home Loan Bank of Seattle (FHLB)
stock $ 604,600
===========
</TABLE>
14
<PAGE> 97
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
4. INVESTMENTS AND MORTGAGE-BACKED SECURITIES, CONTINUED:
<TABLE>
<CAPTION>
1998
-----------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ------- -------- ----------
<S> <C> <C> <C> <C>
Available-for-Sale:
U.S. Government and agency obligations $4,320,315 $ 872 $(28,752) $4,292,435
Mortgage-backed securities 580,190 5,388 (80) 585,498
---------- ------- -------- ----------
$4,900,505 $ 6,260 $(28,832) $4,877,933
========== ======= ======== ==========
Held-to-Maturity:
U.S. Government and agency obligations $1,240,242 $ 6,683 $1,246,925
Mortgage-backed securities 365,850 6,979 $ (2,656) 370,173
---------- ------- -------- ----------
$1,606,092 $13,662 $ (2,656) $1,617,098
========== ======= ======== ==========
Restricted:
Federal Home Loan Bank of Seattle stock $ 560,500
==========
</TABLE>
At March 31, 1999, all securities were performing in accordance with
their contractual terms.
The FHLB stock is restricted in that it can only be sold back to the
FHLB or to another member institution at its par value. The Bank intends
to hold the stock as a long-term investment. The FHLB stock does not
have a readily determinable fair value due to its lack of marketability
and restrictive nature.
Accrued interest receivable related to the investments and
mortgage-backed securities was $144,015 and $91,765 at March 31, 1999
and 1998, respectively.
The contractual maturities of investments and mortgage-backed securities
at March 31, 1999 are as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Available-for-sale:
After one year through five years $ 5,877,310 $ 5,879,488
After five years through ten years 2,988,820 2,982,922
After ten years 3,976,340 3,957,165
----------- -----------
$12,842,470 $12,819,575
=========== ===========
Held-to-maturity:
After five years through ten years $ 499,835 $ 500,777
After ten years 279,597 280,697
----------- -----------
$ 779,432 $ 781,474
=========== ===========
</TABLE>
15
<PAGE> 98
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
5. OFFICE PROPERTIES AND EQUIPMENT:
The components of office properties and equipment at March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
ESTIMATED
1999 1998 USEFUL LIFE
---------- ---------- -----------
<S> <C> <C> <C>
Land $ 565,853 $ 565,853
Buildings 2,008,444 1,827,084 31-40 years
Furniture, fixtures and equipment 1,543,538 1,034,145 3-10 years
---------- ----------
4,117,835 3,427,082
Less accumulated depreciation (710,391) (511,967)
---------- ----------
$3,407,444 $2,915,115
========== ==========
</TABLE>
6. DEPOSITS:
The components of deposits at March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Demand accounts (non-interest bearing commercial and consumer) $15,776,953 $14,723,723
NOW accounts, 1.50% and 2.00% 11,497,451 8,115,890
Savings accounts, 2.50% and 3.40% 4,846,559 2,946,079
Money market demand accounts, 3.40% 19,513,362 14,374,558
----------- -----------
51,634,325 40,160,251
----------- -----------
Certificate accounts:
4.00 to 4.99% 12,983,268 3,176,802
5.00 to 5.99% 5,391,498 13,063,574
6.00 to 6.99% 650,179 1,340,843
----------- -----------
19,024,945 17,581,219
----------- -----------
Total deposits $70,659,270 $57,741,470
=========== ===========
</TABLE>
The weighted-average interest rate on deposit accounts at March 31, 1999
and 1998 was approximately 2.66% and 3.06%, respectively.
Included above are aggregate balances of $31,494,238 and $25,865,661 of
individual deposits greater than $100,000 at March 31, 1999 and 1998,
respectively, of which $10,492,882 and $8,623,278, respectively,
represent balances in certificates accounts.
16
<PAGE> 99
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
6. DEPOSITS, CONTINUED:
At March 31, 1999, the amounts and scheduled maturities of certificate
accounts were as follows:
<TABLE>
<CAPTION>
YEAR ENDING WEIGHTED-AVERAGE
MARCH 31, INTEREST RATE AMOUNT
----------- ---------------- ------------
<S> <C> <C>
2000 4.75% $17,950,977
2001 5.22 783,734
2002 5.48 231,094
2003 5.68 7,780
2004 5.03 51,360
-----------
$19,024,945
===========
</TABLE>
The components of interest expense on deposits for the years ended March
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Demand and NOW accounts $ 154,916 $ 133,736
Savings accounts 92,791 71,759
Money market demand accounts 716,750 543,540
Certificate accounts 893,156 807,934
---------- ----------
$1,857,613 $1,556,969
========== ==========
</TABLE>
7. ADVANCES FROM THE FEDERAL HOME LOAN BANK OF SEATTLE:
The Bank has an available line-of-credit agreement from the Federal Home
Loan Bank (FHLB) of Seattle in an authorized amount equal to 20% of the
Bank's total assets. At March 31, 1999, the Bank's total availability
under this line-of-credit agreement was approximately $16,270,000. The
line is subject to variable rates of interest. The weighted-average
interest rate on the advances outstanding was 6.25% at March 31, 1999.
The advances outstanding from the FHLB of Seattle at March 31, 1999 are
as follows:
<TABLE>
<S> <C>
Interest at 6.30%, matures June 7, 2000, collateralized
by a blanket security agreement $ 500,000
Interest at 6.19%, matures April 2, 1999, collateralized
by a blanket security agreement 500,000
----------
$1,000,000
==========
</TABLE>
At March 31, 1999, the scheduled maturity of these advances is as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
MARCH 31,
-----------
<S> <C>
2000 $ 500,000
2001 500,000
----------
$1,000,000
==========
</TABLE>
17
<PAGE> 100
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
8. INCOME TAXES:
The components of the Bank's income tax provision for the years ended
March 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Current provision:
Federal $279,107 $176,974
State 27,969 8,713
-------- --------
307,076 185,687
-------- --------
Deferred provision (benefit):
Federal (24,845) 87,044
State (6,329) 38
-------- --------
(31,174) 87,082
-------- --------
Income tax provision $275,902 $272,769
======== ========
</TABLE>
The tax effect of the primary temporary differences and tax attributes
giving rise to the Bank's deferred tax assets and liabilities at March
31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------------------- -----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Allowance for loan losses $181,900 $127,500
Office properties and equipment $ 81,006 $ 67,891
Deferred loan fees 51,601 48,854
Organizational and start-up costs 5,891
Other 6,050 24,453 16,930
-------- -------- -------- --------
Total deferred income taxes $187,950 $157,060 $133,391 $133,675
======== ======== ======== ========
</TABLE>
At March 31, 1998, the net deferred tax liability is included in
accounts payable and other accrued expenses.
A reconciliation of the income tax provision to an amount as computed by
applying the statutory federal income tax rate to income before income
taxes for the years ended March 31, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
AMOUNT RATIO AMOUNT RATIO
-------- ----- -------- ----
<S> <C> <C> <C> <C>
Income tax provision at federal statutory rate $250,135 34.0% $263,142 34.0%
Tax effect of:
State taxes (net of federal tax benefit) 14,282 1.9 5,751 0.7
Other 11,485 1.6 3,876 0.5
-------- ---- -------- ----
$275,902 37.5% $272,769 35.2%
======== ==== ======== ====
</TABLE>
18
<PAGE> 101
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
9. COMMON STOCK:
The Board of Directors of the Bank approved a 10% common stock dividend
and paid $16.75 for all fractional shares resulting from the stock
dividend, which was distributable to stockholders on July 16, 1998. The
stock dividend resulted in the issuance of 63,837 common shares and the
payment of $1,849. All weighted-average shares, per-share amounts,
options outstanding and exercise prices have been retroactively restated
to reflect the stock dividend.
On February 12, 1998, the Bank completed an offering of its common
stock. The common stock offering resulted in the issuance of 150,000
common shares at $13.00 per share. The net proceeds received from the
common stock offering were $1,922,032.
10. REGULATORY MATTERS:
In connection with the insurance of its deposits by the Federal
Depository Insurance Corporation (FDIC) and general regulatory oversight
by the Office of Thrift Supervision (OTS), the Bank is required to
maintain minimum levels of regulatory capital.
The OTS adopted final rules, effective December 19, 1992, to implement
certain provisions of the FDIC Improvement Act of 1991 (FDICIA)
establishing five capital tiers: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. At March 31, 1999 and 1998, the Bank was
considered "well capitalized."
The minimum capital requirements, well capitalized capital requirements
and the Bank's actual capital amounts at March 31, 1999 and 1998 are as
follows (rounded to thousands):
<TABLE>
<CAPTION>
MINIMUM CAPITAL WELL CAPITALIZED
REQUIREMENTS REQUIREMENTS ACTUAL
-------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1999:
Total Capital (to Risk Weighted Assets) $4,382,000 8.00% $5,478,000 10.00% $6,894,000 12.59%
Tier I Capital (to Risk Weighted Assets) 2,191,000 4.00 3,286,000 6.00 6,359,000 11.61
Tier I Capital (to Adjusted Assets) 3,235,000 4.00 4,044,000 5.00 6,359,000 7.86
As of March 31, 1998:
Total Capital (to Risk Weighted Assets) $3,266,000 8.00% $4,083,000 10.00% $6,229,000 15.26%
Tier I Capital (to Risk Weighted Assets) 1,633,000 4.00 2,450,000 6.00 5,859,000 14.35
Tier I Capital (to Adjusted Assets) 2,686,000 4.00 3,358,000 5.00 5,859,000 8.72
</TABLE>
Management expects that the Bank will remain in compliance with
applicable regulatory capital requirements, although there can be no
assurance in this regard.
19
<PAGE> 102
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
10. REGULATORY MATTERS, CONTINUED:
The following is a reconciliation between regulatory capital and
stockholders' equity as reported in these financial statements at March
31, 1999 and 1998 (rounded to thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Stockholders' equity $6,336,000 $5,836,000
Adjustments:
Unrealized loss on available-for-sale securities 23,000 23,000
---------- ----------
Regulatory tangible and core capital 6,359,000 5,859,000
Adjustments:
Allowance for loan losses (less amounts specifically reserved) 535,000 370,000
---------- ----------
Regulatory risk-based capital $6,894,000 $6,229,000
========== ==========
</TABLE>
On May 19, 1999, the Board of Directors authorized management to file an
application with the State of Idaho to convert its charter to a state
chartered commercial bank. As a result, the Bank will become regulated
by the State of Idaho Department of Finance rather than by the OTS.
Regulation by the Idaho Department of Finance could subject the Bank to
requirements that are not currently applicable under OTS regulation. At
this time, the Bank does not expect that the charter change would
significantly alter its regulatory capital requirements or impact its
operations.
11. STOCK OPTION PLAN:
The Bank has adopted a formal stock option plan for the benefit of its
directors and key employees. The Bank has granted options to purchase
shares of its common stock at exercise prices equal to the fair market
value of the common stock at the date of the grant. Most options are
exercisable immediately and expire in 10 years from the date of grant.
At March 31, 1999, 11,344 options are available to be granted.
The Bank has chosen not to record compensation expense using fair value
measurement principles. Had compensation cost for the Bank's Plan been
determined based on the fair value at the grant dates for awards under
the Plan, the Bank's net income and net income per share for the years
ended March 31, 1999 and 1998 would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
AS PRO AS PRO
REPORTED FORMA REPORTED FORMA
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $459,789 $321,208 $501,177 $290,848
Net income per share - basic $ 0.65 $ 0.46 $ 0.88 $ 0.51
Net income per share - diluted $ 0.62 $ 0.43 $ 0.86 $ 0.50
</TABLE>
The fair value of each option grant is estimated on the date of grant
using the minimum value method with the following weighted-average
assumptions used for grants during the years ended March 31, 1999 and
1998: dividend yield of 0%, risk-free interest rates of 5.54% to 6.68%
and expected lives of 10 years.
20
<PAGE> 103
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
11. STOCK OPTION PLAN, CONTINUED:
The summary of the status of the Plan as of March 31, 1999 and 1998 and
changes during the years then ended is presented below:
<TABLE>
<CAPTION>
1999 1998
----------------------- ---------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 85,552 $ 11.20 37,564 $ 9.00
Granted 31,000 16.23 48,488 12.92
Expired or terminated (6,600) (13.00) (500) (13.00)
Options exercised (3,714) (11.51) -- --
Increase due to common stock dividend 10,479 -- -- --
------ ------- ------- -------
Outstanding at end of year 116,717 $ 11.30 85,552 $ 11.20
======= =======
Options exercisable at year end 112,717 85,552
======= =======
Weighted-average fair value of options granted
during the year $ 7.15 $ 6.67
======= =======
</TABLE>
The following table summarizes information about the Plan's stock
options at March 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
-----------------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
RANGE OF OUTSTANDING AT NUMBER EXERCISABLE REMAINING WEIGHTED-AVERAGE
EXERCISE PRICES MARCH 31, 1999 AT MARCH 31, 1999 CONTRACTUAL LIFE EXERCISE PRICE
- --------------- -------------- ------------------ ---------------- ----------------
<S> <C> <C> <C> <C>
$7.00-7.99 11,713 11,713 5.3 years $7.34
8.00-8.99 24,624 24,624 5.6 years 8.26
10.00-10.99 2,420 2,420 7.2 years 10.54
11.00-11.99 50,860 50,860 8.7 years 11.74
14.00-14.99 23,100 23,100 9.0 years 14.55
17.00-17.99 3,000 -- 9.4 years 17.00
20.00-20.99 1,000 -- 9.8 years 20.00
------ -------
116,717 112,717
======= =======
</TABLE>
All exercise prices, options outstanding and weighted-average exercise
prices have been retroactively restated to reflect the 10% stock
dividend in July 1998. Additionally, the Plan provides that any
outstanding options will be adjusted to reflect stock dividends.
Accordingly, total shares under option were increased by 10,479 shares
due to the stock dividend in July 1998.
On May 19, 1999, the Bank granted 8,000 stock options at an exercise
price of $20.00 per share.
21
<PAGE> 104
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
12. OPERATING EXPENSES:
The components of total operating expenses for the years ended March 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Employee compensation and benefits $1,650,998 $1,014,749
Occupancy, utilities and equipment 420,875 224,590
Depreciation 296,669 224,841
Data processing 351,852 235,155
Insurance 21,268 21,535
FDIC assessments 34,011 45,713
Professional services 110,424 79,954
Promotion 339,093 114,154
Other 659,556 321,602
---------- ----------
$3,884,746 $2,282,293
</TABLE>
13. NET INCOME PER SHARE:
The following table presents a reconciliation of the numerators and
denominators used in the basic and diluted net income per share
computations.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NET INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- ---------
<S> <C> <C> <C>
March 31, 1999:
Net income per share - basic $459,789 702,956 $0.65
Effect of dilutive stock options -- 42,005
-------- -------
Net income per share - diluted $459,789 744,961 $0.62
======== =======
March 31, 1998:
Net income per share - basic $501,177 568,320 $0.88
Effect of dilutive stock options 11,454
-------- -------
Net income per share - diluted $501,177 579,774 $0.86
======== =======
</TABLE>
22
<PAGE> 105
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
14. RELATED-PARTY TRANSACTIONS:
The Bank has entered into loan transactions with its directors, senior
officers, significant stockholders and their affiliates. The aggregate
amount of outstanding loans to such related parties at March 31, 1999
was $566,887, and an additional $283,259 was authorized but not
disbursed as of such date. These loans include commercial and consumer
installment loans and lines of credit, bear interest at rates from 6.75%
to 13.50%, and have original terms from 1 to 20 years. Virtually all
loans have outstanding principal balances greater than $60,000. The
aggregate amount of outstanding loans to related parties at March 31,
1998 was $463,169.
The Bank has outstanding deposit balances with its directors, senior
officers, significant stockholders and their affiliates of $5,023,304
and $3,507,233 at March 31, 1999 and 1998, respectively.
During the years ended March 31, 1999 and 1998, the Bank purchased
credit reports from a credit bureau owned by one of its directors for
$36,384 and $28,643, respectively.
The Bank leases land from one of its directors for the Hayden branch.
The lease expires in the year 2015 and the Bank has the option to renew
the lease for a total of three successive five-year periods. Total rent
expense associated with this lease was $38,400 during each of the years
ended March 31, 1999 and 1998.
The Bank leases office space from a partnership owned by two of its
directors. The lease expires in the year 2003 and the Bank has the
option to renew the lease for an additional five-year period. The rent
expense associated with this lease during the year ended March 31, 1999
was $18,552. There was no rent expense associated with this lease during
the year ended March 31, 1998.
In fiscal 1999, the Bank entered into three additional operating lease
agreements to lease office space from a partnership owned by two of its
directors. The leases expire in the years 2003 and 2004. The Bank has
the option to renew the leases for additional five-year periods. Total
rent expense associated with these leases was $12,273 during the year
ended March 31, 1999.
At March 31, 1999, the minimum future rental payments due over the
remaining term of the noncancellable leases with related parties are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING MINIMUM FUTURE
MARCH 31, RENTAL COMMITMENTS
----------- ------------------
<S> <C>
2000 $154,404
2001 121,969
2002 100,234
2003 102,440
2004 67,366
Thereafter 450,100
--------
$996,513
========
</TABLE>
15. COMMITMENTS:
At March 31, 1999, the Bank had loan commitments to borrowers totaling
$9,559,673. Commitments, which are disbursed subject to certain
limitations, extend over various periods of time, with the majority of
the funds expected to be disbursed within a twelve-month period. The
commitments are for single family residential loans, commercial real
estate loans, commercial loans and consumer loans that have credit risks
similar to the Bank's existing portfolio.
23
<PAGE> 106
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
15. COMMITMENTS, CONTINUED:
At March 31, 1999, the Bank had made available various secured and
unsecured commercial and personal lines of credit totaling approximately
$19,567,845, of which the undisbursed portion is approximately
$10,262,093. These lines of credit provide for periodic adjustment to
market rates of interest, and have credit risk similar to the Bank's
existing portfolio. The Bank has not historically realized credit losses
due to these off-balance sheet commitments. Based on this fact and the
Bank's analysis of the undisbursed portion of these lines of credit, no
specific valuation allowances were recorded for these off-balance sheet
commitments at March 31, 1999.
The Bank had undisbursed construction loan commitments at March 31, 1999
of $2,345,251. These loans are made at fixed interest rates and are
short-term in nature.
The Bank had commitments to sell loans to investors of $8,266,992 at
March 31, 1999.
16. PROFIT-SHARING PLAN:
The Bank maintains a profit sharing plan (the Plan) authorized under
Section 401(k) of the Internal Revenue Code, available for all employees
who are 21 years of age or older. Employees may make elective deferrals
in any amount from 1% to 15% of their compensation. The Bank makes a
matching contribution of 50% of an employee's contribution up to a
maximum of 6% of the employee's compensation. The Bank's contributions
to the Plan during the years ended March 31, 1999 and 1998 were $39,751
and $22,057, respectively.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS:
Fair value estimates are determined as of a specific date in time
utilizing quoted market prices, where available, or various assumptions
and estimates. As the assumptions underlying these estimates change, the
fair value of the financial instruments will change. The use of
assumptions and various valuation techniques, as well as the absence of
secondary markets for certain financial instruments, will likely reduce
the comparability of fair value disclosures between financial
institutions. Accordingly, the aggregate fair value amounts presented do
not represent and should not be construed to represent the full
underlying value of the Bank.
The methods and assumptions used to estimate the fair values of each
class of financial instruments are as follows:
CASH AND CASH EQUIVALENTS
The carrying value of cash and cash equivalents approximates
fair value due to the relatively short-term and highly liquid
nature of these instruments.
AVAILABLE-FOR-SALE SECURITIES AND HELD-TO-MATURITY INVESTMENTS
Fair value of investment securities is based on quoted market
prices. If quoted market prices are not available, fair values
are based on quoted market prices of comparable instruments.
LOANS HELD FOR SALE
Fair values are based on the estimated value at which the loans
could be sold in the secondary market.
24
<PAGE> 107
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
17. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
LOANS RECEIVABLE
The fair values of performing residential mortgage loans and home equity
loans are estimated using current market comparable information for
securitizable mortgages, adjusting for credit and other relevant
characteristics. The fair values of performing commercial real estate
construction and permanent financing, and consumer loans are estimated
by discounting the expected cash flows using interest rates that
consider the current credit and interest rate risk inherent in the loans
and current economic and lending conditions.
MORTGAGE SERVICING RIGHTS
The fair values of mortgage servicing rights are estimated using quoted
market rates from a mortgage banking institution.
DEPOSITS
The fair values for deposits subject to immediate withdrawal such as
interest and non-interest checking, passbook savings, and NOW accounts
and money market deposit accounts, are equal to the amount payable on
demand at the reporting date (i.e., their carrying amount on the balance
sheet). The carrying amounts for variable-rate certificates of deposit
and other time deposits approximate their fair value at the reporting
date. Fair values for fixed-rate certificates of deposits are estimated
by discounting future cash flows using interest rates currently offered
on time deposits with similar remaining maturities.
ADVANCES FROM THE FEDERAL HOME LOAN BANK OF SEATTLE
The fair value of borrowings from the FHLB approximates its carrying
value due to the fact that the borrowings bear variable (current)
interest rates.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The amounts shown under carrying value represent accruals or deferred
income (fees) arising from the related unrecognized financial
instruments. Fair value for the Bank's off-balance sheet instruments
(lending commitment, selling commitments) are based on current
settlement values; current quoted market prices; fees and interest rates
currently charged to enter into similar agreements, taking into account
the remaining terms of the agreements and the counterparties' credit
standing.
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $9,121,192 $9,121,192 $16,567,104 $16,567,104
Loans held for sale 2,782,207 2,782,207 1,938,548 1,938,548
Loans receivable, net 50,198,117 49,929,009 37,823,205 37,907,312
Investments and mortgage-backed
securities:
Available-for-sale 12,819,575 12,819,575 4,877,933 4,877,933
Held-to-maturity 779,432 781,474 1,606,092 1,617,098
Mortgage servicing rights 278,468 278,468 121,350 121,350
</TABLE>
25
<PAGE> 108
MOUNTAIN WEST BANK
NOTES TO FINANCIAL STATEMENTS, CONTINUED
FOR THE YEARS ENDED MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
17. FAIR VALUES OF FINANCIAL INSTRUMENTS, CONTINUED:
<TABLE>
<CAPTION>
MARCH 31, 1999 MARCH 31, 1998
----------------------- -------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Financial liabilities:
Non-maturity deposits 51,634,325 51,634,325 40,160,251 40,160,251
Deposits with stated maturities 19,024,945 19,107,875 17,581,219 17,600,038
Advances from FHLB Seattle 1,000,000 1,000,000 2,000,000 2,000,000
Off-balance sheet financial
instruments:
Commitments to disburse loans 22,167,017 22,167,017 13,734,533 13,734,533
Commitments to sell loans 8,266,992 8,266,992 4,014,992 4,014,992
</TABLE>
18. INTEREST RATE RISK:
The results of operations for savings institutions may be materially and
adversely affected by changes in prevailing economic conditions,
including rapid changes in interest rates, declines in real estate
market values and the monetary and fiscal policies of the federal
government. Like all financial institutions, the Bank's net interest
income and its NPV (the net present value of financial assets,
liabilities and off-balance sheet financial instruments) are subject to
fluctuations in interest rates. Currently, the Bank's interest-bearing
liabilities, consisting primarily of savings deposits, certificate
accounts and FHLB Seattle advances, mature or reprice more rapidly, or
on different terms, than do its interest-earning assets. The fact that
liabilities mature or reprice more frequently on average than assets may
be beneficial in times of declining interest rates; however, such an
asset/liability structure may result in declining net interest income
during periods of rising interest rates.
Additionally, the extent to which borrowers prepay loans is affected by
prevailing interest rates. When interest rates increase, borrowers are
less likely to prepay loans; whereas when interest rates decrease,
borrowers are more likely to prepay loans. Prepayments may affect the
levels of loans retained in an institution's portfolio, as well as its
net interest income. The Bank maintains an asset and liability
management program intended to manage net interest income through
interest rate cycles and to protect its NPV by controlling its exposure
to changing interest rates.
Management is aware of the sources of interest rate risk and endeavors
to actively monitor and manage its interest rate risk although there can
be no assurance regarding the management of interest rate risk in future
periods.
26
<PAGE> 109
APPENDIX A
===============================================================================
PLAN AND AGREEMENT OF MERGER
BETWEEN
MOUNTAIN WEST BANK
AND
NEW MOUNTAIN WEST BANK
UPON ITS FORMATION BY
GLACIER BANCORP, INC.
===============================================================================
DATED AS OF SEPTEMBER 9, 1999
<PAGE> 110
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
SECTION 1 TERMS OF TRANSACTION............................................................... 2
1.1 Transaction.................................................................... 2
1.2 Effect of Transaction.......................................................... 3
1.3 Prospective Effect............................................................. 3
1.4 Events of Closing.............................................................. 3
1.5 Effect on Glacier Common Stock................................................. 3
1.6 Consideration.................................................................. 3
1.7 Payment to Dissenting Stockholders............................................. 5
1.8 Alternative Structures......................................................... 5
1.9 Letter of Transmittal.......................................................... 6
1.10 Undelivered Certificates....................................................... 6
1.11 Stock Option Agreement......................................................... 6
SECTION 2 CLOSING OF THE TRANSACTION......................................................... 6
2.1 Closing........................................................................ 6
2.2 Events of Closing.............................................................. 6
2.3 Place of Closing............................................................... 6
SECTION 3 REPRESENTATIONS.................................................................... 7
3.1 Representations of Glacier and Mountain West................................... 7
3.2 Mountain West's Additional Representations.................................... 12
3.3 Exceptions to Representations................................................. 18
SECTION 4 CONDUCT AND TRANSACTIONS BEFORE CLOSING........................................... 19
4.1 Conduct of Mountain West's Business Before Closing............................ 19
4.2 Registration Statement........................................................ 22
4.3 Accounting Treatment.......................................................... 23
4.4 Submission to Regulatory Authorities.......................................... 24
4.5 Announcements................................................................. 24
4.6 Consents...................................................................... 24
4.7 Further Actions............................................................... 24
4.8 Notice........................................................................ 24
4.9 Confidentiality............................................................... 25
4.10 Update of Financial Statements................................................ 25
4.11 Availability of Glacier's Books, Records and Properties....................... 25
SECTION 5 APPROVALS AND CONDITIONS.......................................................... 25
5.1 Required Approvals............................................................ 25
5.2 Conditions to Glacier's Obligations........................................... 25
5.3 Conditions to Mountain West's Obligations..................................... 28
SECTION 6 DIRECTORS, OFFICERS AND EMPLOYEES................................................. 29
</TABLE>
i
<PAGE> 111
<TABLE>
<S> <C> <C>
6.1 Directors..................................................................... 29
6.2 Employment Agreement.......................................................... 29
6.3 Employees..................................................................... 29
6.4 Indemnification............................................................... 30
6.5 Employee Benefit Issues....................................................... 31
SECTION 7 TERMINATION OF AGREEMENT AND ABANDONMENT OF TRANSACTION........................... 31
7.1 Termination by Reason of Lapse of Time........................................ 31
7.2 Other Grounds for Termination................................................. 31
7.3 Mountain West Termination Fee................................................. 32
7.4 Glacier Termination Fee....................................................... 32
7.5 Cost Allocation Upon Termination.............................................. 32
SECTION 8 MISCELLANEOUS..................................................................... 32
8.1 Notices....................................................................... 32
8.2 Waivers and Extensions........................................................ 34
8.3 General Interpretation........................................................ 34
8.4 Construction and Execution in Counterparts.................................... 34
8.5 Survival of Representations and Covenants..................................... 34
8.6 Attorneys' Fees and Costs..................................................... 34
8.7 Arbitration................................................................... 34
8.8 Governing Law and Venue....................................................... 35
8.9 Severability.................................................................. 35
SECTION 9 AMENDMENTS........................................................................ 35
</TABLE>
EXHIBITS AND SCHEDULES:
EXHIBIT A Voting Agreement
EXHIBIT B Non-Competition Agreement
EXHIBIT C Form of Affiliate Letter
EXHIBIT D Form of Opinion for Lukins & Annis, P.S.
EXHIBIT E Form of Opinion for Graham & Dunn, P.C.
EXHIBIT F Names and Residences of Combined Bank's Directors and Officers
EXHIBIT G Amendments to the Combined Bank's Articles and Bylaws
TRANSITION PLAN SCHEDULE
SCHEDULE 1 Exceptions to Representations
SCHEDULE 2 Offices
SCHEDULE 3 Subsidiaries
SCHEDULE 4 Glacier and Mountain West Stock Plans
SCHEDULE 5 Material Contracts
SCHEDULE 6 Mountain West's Required Third Party Consents
SCHEDULE 7 Mountain West's Asset Classification List
ii
<PAGE> 112
SCHEDULE 8 Mountain West's Investments
SCHEDULE 9 Mountain West's Property Encumbrances
SCHEDULE 10 Mountain West's Offices and Branches
SCHEDULE 11 Mountain West's Compliance with Laws
SCHEDULE 12 Mountain West's Litigation Disclosure
SCHEDULE 13 Mountain West's Insurance Policies
SCHEDULE 14 Mountain West's Employee Benefit Plans
iii
<PAGE> 113
INDEX OF DEFINITIONS
<TABLE>
<CAPTION>
TERMS SECTION
- ----- -------
<S> <C>
Agreement Intro. Paragraph
ASR 4.3.2
Asset Classification 3.2.4
Bank Common Stock 3.1.3((b))((2))
BHCA Recital A
Closing 1.4
Change in Control 1.3
Columbia Recital G
Combined Bank 1.2
Company Common Stock 3.1.3((b))((1))
Compensation Plans 3.2.14((b))
Continuing Employees 6.3
Contracts 3.2.3((b))
Dissenting Shares 1.7
Effective Date 2.1
Employees 3.2.14((b))
Environmental Laws 3.2.15((a))((2))
ERISA 3.2.14((a))
Exchange Act 3.1.5((b))
Exchange Agent 1.6.4((a))
Exchange Ratio 1.6.1
Executive Officer 3.1.8
FDIC Recital D
</TABLE>
iv
<PAGE> 114
<TABLE>
<CAPTION>
TERMS SECTION
- ----- -------
<S> <C>
Federal Reserve Board Recital D
Financial Statements 3.1.5((d))((1))
GAAP 3.1.5((d))
Glacier Intro. Paragraph
Glacier Common Stock 3.1.3((a))((1))
Glacier Financial Statements 3.1.5((d))((2))
Glacier Option 1.6.5
Glacier Preferred Stock 3.1.3((a))((1))
Glacier Shares 1.6.1
Glacier Stock Plans 3.1.3((a))((2))
Governmental Entity 3.2.3((a))
Hazardous Substances 3.2.15((a))((3))
Information Technology 3.2.13
IRC Recital H
Liens 3.1.3((a))((5))
Material Adverse Effect 3.1.6
Merger Recital B
Mountain West Intro. Paragraph
Mountain West Common Stock 1.1
Mountain West Option 1.6.5
Mountain West Financial Statements 3.1.5((d))((4))
Mountain West Stock Plans 3.1.3((b))((2))
New Bank Intro. Paragraph
OTS 3.1.5((a))
</TABLE>
v
<PAGE> 115
<TABLE>
<CAPTION>
TERMS SECTION
- ----- -------
<S> <C>
Pension Plan 3.2.14((c))
Plan/Plans 3.2.14((a))
Property 4.1.10
Prospectus/Proxy Statement 4.2.1((a))
Registration Statement 4.2.1((a))
Regulatory Approvals Recital D
Reports 3.1.5((b))
SEC 3.1.5((a))
Securities Act 3.1.5((b))
Securities Laws 3.1.5((b))
Stock Option Agreement Recital I
Subject Property 3.2.15((a))((1))
Subsequent Glacier Financial Statements 3.1.5((d))((3))
Subsequent Mountain West Financial Statements 3.1.5((d))((5))
Subsidiary/Subsidiaries 3.1.2((a))
Tangible Equity Capital 5.2.3
Tax 3.2.10
Termination Date 2.1
Transaction 1.1
Transaction Fees 5.2.4
Year 2000 Compliance 3.2.13
</TABLE>
vi
<PAGE> 116
PLAN AND AGREEMENT OF MERGER
BETWEEN
MOUNTAIN WEST BANK
AND
NEW MOUNTAIN WEST BANK
UPON ITS FORMATION BY
GLACIER BANCORP, INC.
This Plan and Agreement of Merger (the "Agreement"), dated as of
September 9, 1999, is between MOUNTAIN WEST BANK ("Mountain West") and GLACIER
BANCORP, INC. ("Glacier"), acting on its own behalf and on behalf of an Idaho
banking corporation to be formed by it under the title NEW MOUNTAIN WEST BANK
(the "New Bank").
PREAMBLE
The management and boards of directors of Glacier and Mountain West,
respectively, believe that the proposed transaction between Glacier and Mountain
West, on the terms and conditions set forth in this Agreement, is in the best
interests of Glacier's and Mountain West's stockholders.
RECITALS
A. THE PARTIES. The parties to the Merger are as follows:
(1) Mountain West is a state-chartered banking corporation duly
organized and validly existing under Idaho law with its principal
office located in Coeur d'Alene, Idaho.
(2) Glacier is a corporation duly organized and validly existing
under Delaware law and is a registered bank holding company under
the Bank Holding Company Act of 1956, as amended ("BHCA").
Glacier's principal office is located in Kalispell, Montana.
Glacier owns (1) all of the outstanding common stock of Glacier
Bank, First Security Bank of Missoula, Valley Bank of Helena, and
Big Sky Western Bank; and (2) 94 and 98% of the outstanding
common stock of Glacier Bank of Whitefish and Glacier Bank of
Eureka, respectively.
(3) New Bank will be organized by persons designated by Glacier who
will, upon execution of this Agreement by Mountain West and
Glacier, apply for preliminary approval from the State of Idaho
for New Bank to become an interim state banking corporation. Upon
receipt of such preliminary approval, New Bank will become a body
corporate and will execute this Agreement, thereby becoming a
party hereto and ratifying all prior actions taken on its behalf
by Glacier. All of the capital stock of New Bank will be
subscribed for solely by Glacier, and the consideration for such
stock will be paid in before the Effective Date.
B. THE MERGER. On the Effective Date, all of the outstanding shares of
Mountain West common stock will be exchanged for shares of Glacier
Common Stock, and Mountain West will become a wholly-owned subsidiary of
Glacier.
C. BOARD APPROVALS. Glacier's and Mountain West's respective boards of
directors have approved this Agreement and authorized its execution and
delivery.
1
<PAGE> 117
D. OTHER APPROVALS. The Merger is subject to:
(1) Satisfaction of the conditions described in this Agreement;
(2) Approval by Mountain West's stockholders; and
(3) Approval or acquiescence, as appropriate, by (a) the Board of
Governors of the Federal Reserve System ("Federal Reserve
Board"), (b) the Federal Deposit Insurance Corporation ("FDIC"),
and (c) the State of Idaho (collectively, "Regulatory
Approvals").
E. EMPLOYMENT AGREEMENTS. Mountain West has entered into an employment
agreement, effective as of the Effective Date, with Jon W. Hippler,
Mountain West's President and Chief Executive Officer. In addition to
remaining as Mountain West's President and CEO, Mr. Hippler will also be
appointed to the Glacier board of directors. It is anticipated that
Mountain West will also enter into employment agreements with Robert
Beck, Diane Reed, Ronn C. Rich and Paula Smyly.
F. DIRECTOR AGREEMENTS. In association with the parties' execution of this
Agreement, the directors and officers of Mountain West have entered into
agreements, substantially in the form attached to this Agreement as
Exhibit A, pursuant to which, among other things, each such individual
has agreed to vote his or her shares of Mountain West common stock in
favor of the actions contemplated by this Agreement. In addition, all
such directors and officers have entered into non-competition
agreements, substantially in the form attached to this Agreement as
Exhibit B.
G. FAIRNESS OPINION. Mountain West has received from Columbia Financial
Advisors ("Columbia") and delivered to Glacier an opinion to the effect
that the financial terms of the Transaction are financially fair to
Mountain West's stockholders. As a condition to Closing of the
Transaction, Columbia will update this fairness opinion (1) immediately
before Mountain West mails the Prospectus/Proxy Statement to its
stockholders and (2) immediately before Closing.
H. INTENTION OF THE PARTIES--ACCOUNTING AND TAX TREATMENT. The parties
intend the Merger to qualify, for accounting purposes, as a "pooling of
interests." The parties intend the Merger to qualify, for federal income
tax purposes, as a tax-free reorganization under Section 368(a) of the
Internal Revenue Code of 1986, as amended ("IRC").
I. STOCK OPTION AGREEMENT. As an inducement to and condition of Glacier's
execution of this Agreement, Mountain West has approved the grant of an
option to Glacier under the Stock Option Agreement, as provided in
Subsection 1.11.
AGREEMENT
Glacier and Mountain West agree as follows:
SECTION 1
TERMS OF TRANSACTION
1.1 TRANSACTION. Under and subject to this Agreement and the other documents
referred to in this Agreement, Glacier will acquire all of the
outstanding common stock shares of Mountain West ("Mountain West Common
Stock"). All outstanding shares of Mountain West Common Stock will be
exchanged for common stock shares of Glacier ("Glacier Common Stock").
The term "Transaction" means the Merger transaction contemplated by this
Agreement, subject to any modifications Glacier elects in accordance
with Subsection 1.8.
2
<PAGE> 118
1.2 EFFECT OF TRANSACTION. On the Effective Date, the corporate existence of
each of Mountain West and the New Bank will be merged into and continued
in the resulting bank of the Merger (the "Combined Bank"). The principal
office of the Combined Bank will be located in Coeur d'Alene, Idaho, and
will be deemed to be the same corporation as each of Mountain West and
the New Bank. The authorized capital of the Combined Bank will consist
of 1,500,000 shares of common stock, $2.50 par value per share. The
Articles of Incorporation and the Bylaws of the Combined Bank will be
the Articles of Incorporation and the Bylaws of Mountain West in effect
immediately before the Effective Time, subject to the amendments to the
Articles and Bylaws attached to this Agreement as Exhibit G. All rights,
franchises and interests of each of Mountain West and the New Bank in
and to every type of property (real, personal and mixed) and choses in
action will be transferred to and vested in the Combined Bank by virtue
of the Merger without any deed or other transfer. The Combined Bank,
upon the Effective Date and without any order or other action on the
part of any court or otherwise, will hold and enjoy all rights of
property, franchises, and interests in the same manner and to the same
extent as such rights, franchises and interests were held or enjoyed by
each of the Bank and New Bank immediately prior to the Effective Date,
subject to the conditions of Title 26 of the Idaho Statutes. The name of
the Combined Bank will be "Mountain West Bank."
1.3 PROSPECTIVE EFFECT. Subject to a Change in Control of Glacier, the
following provisions will apply: (a) the Combined Bank will retain the
name "Mountain West Bank" for at least 3 years following the Effective
Date; (b) there will be no data processing or system computer
conversions for Mountain West for at least 2 years following the
Effective Date; and (c) subject to Glacier and its subsidiaries
remaining well-capitalized, within 2 years of the Effective Date and at
the request of Mountain West, Glacier will provide sufficient capital
for Mountain West to expand by 2 branches and for construction of a
permanent Boise branch building. "Change in Control" means a change "in
the ownership or effective control" or "in the ownership of a
substantial portion of the assets" of Mountain West, within the meaning
of section 280G of the Internal Revenue Code.
1.4 EVENTS OF CLOSING. Closing of the Transaction will take place in
accordance with Section 2 ("Closing"). All shares, other than Dissenting
Shares, of Mountain West Common Stock issued and outstanding immediately
before Closing will be exchanged at Closing for shares of Glacier Common
Stock in accordance with Subsection 1.6 by virtue of the Merger and
without any further action required by the holders of Mountain West
Common Stock. After Closing and subject to any Dissenting Shares,
Glacier will own all of the outstanding shares of Mountain West Common
Stock. The Board of Directors of Mountain West after the Effective Date
will consist of Mountain West's directors immediately before the Merger,
with the addition of Michael J. Blodnick (or, if Mr. Blodnick is unable
to serve, another individual designated by Glacier). Nothing in this
Agreement is intended to restrict any rights of Mountain West's
stockholder and directors at any time after the Effective Date to
nominate, elect, select, or remove directors. As required by Section
26-903 (c) of the Idaho Statutes, the names and residences of the
proposed officers and directors of the Combined Bank are listed on
Exhibit F.
1.5 EFFECT ON GLACIER COMMON STOCK. Glacier Common Stock shares issued and
outstanding immediately before the Effective Date will remain
outstanding and unchanged after the Merger.
1.6 CONSIDERATION.
1.6.1 EXCHANGE RATIO. Subject to the conditions and limitations
in this Agreement, holders of Mountain West Common Stock will
receive Glacier Common Stock in exchange for their Mountain West
Common Stock. The number (rounded to 2 decimals, rounding down if
the third decimalis four or less or up if it is five or more) of
Glacier Common Stock shares each holder will receive in exchange
for each Mountain West Common Stock share he or she holds of
record on the Effective Date (the "Exchange Ratio") will be 1.18,
subject to Subsections 1.6.2 (change
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in equity capital) and 1.7 (dissenting shares). The shares of
Glacier Common Stock to be issued to Mountain West Common
Stockholders under this Agreement in connection with the
Transaction are referred to as the "Glacier Shares."
1.6.2 CHANGE IN EQUITY CAPITAL. If, after the date of this Agreement
but before the Effective Date, Glacier's or Mountain West's
Common Stock issued and outstanding increases or decreases in
number or is changed into or exchanged for a different kind or
number of securities, through a recapitalization,
reclassification, stock dividend, stock split, reverse stock
split or other similar change in capitalization (not including
increases in number due to issuances of shares upon exercise of
any outstanding options to purchase Glacier Common Stock shares)
of Glacier or Mountain West, as the case may be, then, as
appropriate, the parties will make the proportionate adjustment
to the Exchange Ratio.
1.6.3 NO FRACTIONAL SHARES. No fractional shares of Glacier Corporation
Common Stock will be issued. In lieu of fractional shares, if
any, each stockholder of Mountain West who is otherwise entitled
to receive a fractional share of Glacier Common Stock will
receive an amount of cash equal to the product of such fraction
times $20. Such fractional share interests will not include the
right to vote or receive dividends or any interest on dividends.
1.6.4 CERTIFICATES.
(a) Surrender of Certificates. Each certificate evidencing
Mountain West Common Stock shares (other than Dissenting
Shares) will, on and after the Effective Date, be deemed
for all corporate purposes to represent and evidence only
the right to receive a certificate representing the
Glacier Shares (or to receive the cash for fractional
shares) to which the Mountain West Common Stock shares
converted in accordance with the provisions of this
Subsection 1.6. Following the Effective Date, Mountain
West stockholders shall exchange Mountain West Common
Stock certificates by surrendering them to the agent
("Exchange Agent") designated by Glacier and Mountain West
to effect the exchange of Mountain West Common Stock
certificates for certificates representing Glacier Shares
(or for cash in lieu of fractional shares), in accordance
with any instructions provided by the Exchange Agent and
together with a properly completed and executed form of
transmittal letter. Until a holder's certificate
evidencing Mountain West Common Stock is so surrendered,
the holder will not be entitled to receive any
certificates evidencing Glacier Shares or cash in lieu of
fractional shares.
(b) Issuance of Certificates in Other Names. Any person
requesting that any certificate evidencing Glacier Shares
be issued in a name other than the name in which the
surrendered Mountain West Common Stock certificate is
registered, must: (1) establish to the Exchange Agent's
satisfaction the right to receive the certificate
evidencing Glacier Shares and (2) either pay to the
Exchange Agent any applicable transfer or other taxes or
establish to the Exchange Agent's satisfaction that all
applicable taxes have been paid or are not required.
(c) Lost, Stolen, and Destroyed Certificates. The Exchange
Agent will be authorized to issue a certificate
representing Glacier Shares in exchange for a Mountain
West Common Stock certificate that has been lost, stolen
or destroyed, if the holder provides the Exchange Agent
with: (1) satisfactory evidence that the holder owns
Mountain West Common Stock and that the certificate
representing this ownership is lost, stolen, or
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destroyed, (2) any appropriate affidavit the Exchange
Agent may require, and (3) any indemnification assurances
that the Exchange Agent may require.
(d) Rights to Dividends and Distributions. After the Effective
Date, no holder of a certificate evidencing Mountain West
Common Stock shares will be entitled to receive any
dividends or other distributions otherwise payable to
holders of record of Glacier Common Stock on any date
after the Effective Date, unless the holder (1) is
entitled by this Agreement to receive a certificate
representing Glacier Shares and (2) has surrendered in
accordance with this Agreement his or her Mountain West
Common Stock certificates (or has met the requirements of
Subsection 1.6.4(c) above) in exchange for certificates
representing Glacier Shares. Surrender of Mountain West
Common Stock certificates will not deprive the holder of
any dividends or distributions that the holder is entitled
to receive as a record holder of Mountain West Common
Stock on a date before the Effective Date. When the holder
surrenders his or her certificates, the holder will
receive the amount, without interest, of any cash
dividends and any other distributions distributed after
the Effective Date on the whole number of shares of
Glacier Shares into which the holder's Mountain West
Common Stock was converted at the Effective Date.
(e) Checks in Other Names. Any person requesting that a check
for cash in lieu of fractional shares be issued in a name
other than the name in which the Mountain West Common
Stock certificate surrendered in exchange for the cash is
registered, must establish to the Exchange Agent's
satisfaction the right to receive this cash.
1.6.5 EFFECT ON MOUNTAIN WEST OPTIONS. On the Effective Date, by virtue
of the Merger, and without any action on the part of any party,
any option to acquire Mountain West Common Stock, excluding the
option under the Stock Option Agreement ("Mountain West Option"),
will be converted into and become an option to purchase Glacier
Common Stock ("Glacier Option") on the same terms and conditions
as are in effect with respect to the Mountain West Option
immediately prior to the Effective Date, except that (A) each
such Glacier Option may be exercised solely for shares of Glacier
Common Stock, (B) the number of shares of Glacier Common Stock
subject to such Glacier Option will be equal to the number of
shares of Mountain Common Stock subject to such option
immediately prior to the Effective Date multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or
down to the nearest whole share, and (C) the per share exercise
price under each such Glacier Option will be adjusted by dividing
the Mountain West Option exercise price by the Exchange Ratio and
rounding up or down to the nearest cent.
1.7 PAYMENT TO DISSENTING STOCKHOLDERS. For purposes of this Agreement,
"Dissenting Shares" means those shares of Mountain West Common Stock as
to which stockholders have properly taken all steps necessary to perfect
their dissenters' rights under Section 26-909 of the Idaho Statutes.
Each outstanding Dissenting Share of Mountain West Common Stock will be
converted at Closing into the rights provided under this section of the
Idaho Statutes. For purposes of (beta) 26-909 (2) of the Idaho Statutes,
the parties to this Agreement hereby fix $21 as the fair market value of
dissenting shares of Mountain West Common Stock.
1.8 ALTERNATIVE STRUCTURES. Subject to the conditions set forth below,
Glacier may in its sole discretion elect to consummate the Transaction
by means other than those specified in this Section 1. If Glacier so
elects, any means, procedures, or amendments necessary or desirable to
consummate the Transaction, in the opinion of Glacier's counsel, will
supersede any conflicting, undesirable or unnecessary provisions of this
Agreement. But, unless this Agreement is amended in accordance with
Section 9, the following
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conditions will apply: (1) the type and amount of consideration set
forth in Subsection 1.6 will not be modified and (2) the tax
consequences to Mountain West and its stockholders will not be adversely
affected.
1.9 LETTER OF TRANSMITTAL. Glacier will prepare a transmittal letter form
reasonably acceptable to Mountain West for use by stockholders holding
Mountain West Common Stock. Certificates representing shares of Mountain
West Common Stock must be delivered for payment in the manner provided
in the transmittal letter form. On or about the Effective Date, Glacier
will mail the transmittal letter form to Mountain West stockholders.
1.10 UNDELIVERED CERTIFICATES. If outstanding certificates for Mountain West
Common Stock are not surrendered or the payment for them is not claimed
before those payments would escheat or become the property of any
governmental unit or agency, the unclaimed items will, to the extent
permitted by abandoned property or any other applicable law, become the
property of Glacier (and to the extent not in its possession will be
paid over to Glacier), free and clear of all claims or interests of any
person previously entitled to such items. But, neither Glacier nor
Mountain West will be liable to any holder of Mountain West Common Stock
for any amount paid to any governmental unit or agency having
jurisdiction over any such unclaimed items under the abandoned property
or other applicable law of the jurisdiction, and Glacier will pay no
interest on amounts owed to stockholders for shares of Mountain West
Common Stock.
1.11 STOCK OPTION AGREEMENT. As a condition to the execution of this
Agreement, Glacier and Mountain West have executed a Stock Option
Agreement, dated the same date as this Agreement.
SECTION 2
CLOSING OF THE TRANSACTION
2.1 CLOSING. Closing will occur on the Effective Date. If Closing does not
occur on or before March 31, 2000 ("Termination Date"), either Glacier
or Mountain West may terminate this Agreement in accordance with Section
7. Unless Glacier and Mountain West agree upon another date, the
Effective Date will be a date selected by Glacier within 30 calendar
days after the following, but no sooner than January 17, 2000:
(a) each condition precedent set forth in Section 5 has been either
fulfilled or waived; and
(b) each approval required by Section 5 has been granted, and all
applicable waiting periods have expired.
2.2 EVENTS OF CLOSING. On the Effective Date, all properly executed
documents required by this Agreement will be delivered to the proper
party in form consistent with this Agreement. If any party fails to
deliver a required document on the Effective Date or otherwise defaults
under this Agreement on or before the Effective Date, then the
Transaction will not occur unless the adversely affected party waives
the default.
2.3 PLACE OF CLOSING. Unless Glacier and Mountain West agree otherwise,
Closing will occur on the Effective Date at Glacier's corporate office,
49 Commons Loop, Kalispell, Montana.
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SECTION 3
REPRESENTATIONS
3.1 REPRESENTATIONS OF GLACIER AND MOUNTAIN WEST. Subject to Subsection 3.3
and except as expressly set forth in Schedule 1, Glacier (and as
appropriate, New Bank) represents to Mountain West, and Mountain West
represents to Glacier and New Bank, the following:
3.1.1 CORPORATE ORGANIZATION AND QUALIFICATION.
(a) It is a corporation duly organized and validly existing
under the state laws of either Idaho or Delaware (as
applicable), and its activities do not require it to be
qualified in any jurisdiction other than Montana (for
Glacier) and Idaho (for Mountain West).
(b) It has the requisite corporate power and authority to own
or lease its properties and assets and to carry on its
businesses as they are now being conducted.
(c) It has made available to the other party to this Agreement
a complete and correct copy of its certificate or articles
of incorporation and bylaws, each as amended to date and
currently in full force and effect.
3.1.2 SUBSIDIARIES.
(a) With respect to Mountain West only, Schedule 3 lists all
of its Subsidiaries and its percentage ownership of these
Subsidiaries, as of the date of this Agreement. In this
Agreement, the term "Subsidiary" with respect to a party
means any corporation, partnership, financial institution,
trust company, or other entity owned or controlled by that
party or any of its subsidiaries or affiliates (or owned
or controlled by that party together with one or more of
its subsidiaries or affiliates). A Subsidiary is
considered to be owned or controlled by a party if that
party or any of its Subsidiaries (individually or together
with the party) directly or indirectly owns, controls, or
has the ability to exercise 50% or more of the voting
power of the Subsidiary.
(b) Each of its Subsidiaries is a corporation duly organized
and validly existing under Montana or Idaho law, as the
case may be, and is qualified to do business and in good
standing in each jurisdiction where the property owned,
leased, or operated, or the business conducted by the
Subsidiary, requires this qualification.
(c) Each of its Subsidiaries has the requisite corporate power
and authority to own or lease its properties and assets
and to carry on its business as it is now being conducted.
3.1.3 CAPITAL STOCK.
(a) Glacier. Glacier represents:
(1) on the date this Agreement was signed, Glacier's
authorized capital stock consists of 16 million
shares divided into two classes: (i) 15 million
shares of common stock, par value $.01 per share
("Company Common Stock"), 9,537,123 shares of
which are issued and outstanding and (ii) 1 million
shares of blank-check preferred stock, par value
$.01 per share, none of which is outstanding
("Glacier Preferred Stock");
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(2) options or rights to acquire not more than an
aggregate of 615,739 Company Common Stock
shares (subject to adjustment on the terms set
forth in the Glacier Stock Plans) are outstanding
under the stock option plans listed in Schedule 4
("Glacier Stock Plans");
(3) No Company Common Stock shares are reserved for
issuance, other than the shares reserved for
issuance under the Glacier Stock Plans, and Glacier
has no shares of Glacier Preferred Stock reserved
for issuance;
(4) all outstanding shares of Company Common Stock have
been duly authorized and validly issued and are
fully paid and nonassessable;
(5) all outstanding shares of capital stock of each of
Glacier's Subsidiaries owned by Glacier or a
Subsidiary of Glacier have been duly authorized and
validly issued and are fully paid and
nonassessable, except to the extent any assessment
is required under federal law, and are owned by
Glacier or a Subsidiary of Glacier free and clear
of all liens, pledges, security interests, claims,
proxies, preemptive or subscriptive rights or other
encumbrances or restrictions of any kind
(collectively, "Liens"); and
(6) except as set forth in this Agreement or in the
Glacier Stock Plans, there are no preemptive rights
or any outstanding subscriptions, options,
warrants, rights, convertible securities, or other
agreements or commitments of Glacier or any of its
Subsidiaries of any character relating to the
issued or unissued capital stock or other equity
securities of Glacier (including those relating to
the issuance, sale, purchase, redemption,
conversion, exchange, registration, voting or
transfer of such stock or securities).
(b) Mountain West. Mountain West represents:
(1) Schedule 2 contains a complete list of all of its
banking offices.
(2) as of the date of this Agreement, Mountain West's
authorized capital stock consists of (i) 1,500,000
shares of common stock, $2.50 par value ("Bank
Common Stock"), 715,472 shares of which are issued
and outstanding,
(3) options or rights to acquire not more than an
aggregate of 115,019 Bank Common Stock shares
(subject to adjustment on the terms set forth in
the Mountain West Stock Plans) are outstanding
under the stock option plans listed in Schedule 4
("Mountain West Stock Plans");
(4) no Bank Common Stock shares are reserved for
issuance, other than the shares reserved for
issuance under the Mountain West Stock Plan;
(5) all outstanding Mountain West Common Stock shares
have been duly authorized and validly issued and
are fully paid and nonassessable, except to the
extent of any assessment required under (beta)
26-1113 of the Idaho Statutes;
(6) all outstanding shares of capital stock of each of
Mountain West's Subsidiaries have been duly
authorized and validly issued and are fully paid
and nonassessable, and, except as otherwise
provided in this Agreement, at Closing
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will be owned by Mountain West or a Subsidiary of
Mountain West free and clear of all Liens;
(7) There are no preemptive rights or any outstanding
subscriptions, options, warrants, rights,
convertible securities, or other agreements or
commitments of Mountain West or any of its
Subsidiaries of any character relating to the
issued or unissued capital stock or other equity
securities of Mountain West or any of its
Subsidiaries (including those relating to the
issuance, sale, purchase, redemption, conversion,
exchange, registration, voting or transfer of such
stock or securities);
(8) it (alone or together with any of its Subsidiaries)
owns all of the shares of capital stock (or 100% of
any other applicable form of ownership interest if
the Subsidiary is not a corporation) of each of its
Subsidiaries free and clear of all encumbrances.
3.1.4 CORPORATE AUTHORITY.
(a) It has the requisite corporate power and authority and has
taken all corporate action necessary in order to execute
and deliver this Agreement, subject (in Mountain West's
case) only to the approval by Mountain West's stockholders
of the plan of Merger contained in this Agreement to the
extent required by Section 26-904 of the Idaho Statutes,
to complete the Transaction.
(b) This Agreement is a valid and legally binding agreement of
it, enforceable in accordance with the terms of this
Agreement.
3.1.5 REPORTS AND FINANCIAL STATEMENTS.
(a) Filing of Reports. Since January 1, 1996, it and each of
its Subsidiaries has filed all reports and statements,
together with any required amendments to these reports and
statements, that it was required to file with (1) the
Securities and Exchange Commission ("SEC"), (2) the
Federal Reserve Board, (3) the FDIC, (4) the Office of
Thrift Supervision ("OTS") and (5) any other applicable
federal or state banking, insurance, securities, or other
regulatory authorities. Each of these reports and
statements, including the related financial statements and
exhibits, complied (or will comply, in the case of reports
or statements filed after the date of this Agreement) as
to form in all material respects with all applicable
statutes, rules and regulations as of their respective
dates (and, in the case of reports or statements filed
before the date of this Agreement, without giving effect
to any amendments or modifications filed after the date of
this Agreement).
(b) Delivery to Other Party of Reports. It has delivered to
the other party a copy of each registration statement,
offering circular, report, definitive proxy statement or
information statement under the Securities Act of 1933, as
amended, ("Securities Act"), the Securities Exchange Act
of 1934, as amended, ("Exchange Act"), and state
securities and "Blue Sky" laws (collectively, the
"Securities Laws") filed, used or circulated by it with
respect to periods since January 1, 1996, through the date
of this Agreement. It will promptly deliver to the other
party each such registration statement, offering circular,
report, definitive proxy statement or information
statement filed, used or circulated after the date of this
Agreement (collectively, its "Reports"), each in the form
(including
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related exhibits and amendments) filed with the SEC or the
FDIC (or if not so filed, in the form used or circulated).
(c) Compliance with Securities Laws. As of their respective
dates (and without giving effect to any amendments or
modifications filed after the date of this Agreement),
each of the Reports, including the related financial
statements, exhibits and schedules, filed, used or
circulated before the date of this Agreement complied (and
each of the Reports filed after the date of this
Agreement, will comply) in all material respects with
applicable Securities Laws, and did not (or in the case of
reports, statements, or circulars filed after the date of
this Agreement, will not) contain any untrue statement of
a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which
they were made, not misleading.
(d) Financial Statements. Each of its balance sheets included
in the Financial Statements fairly presents (or, in the
case of Financial Statements for periods ending on a date
following the date of this Agreement, will fairly present)
the consolidated financial position of it and its
Subsidiaries as of the date of the balance sheet. Each of
the consolidated statements of income, cash flows and
stockholders' equity included in the Financial Statements
fairly presents (or, in the case of Financial Statements
for periods ending on a date following the date of this
Agreement, will fairly present) the consolidated results
of operations, retained earnings and cash flows, as the
case may be, of it and its Subsidiaries for the periods
set forth in these statements (subject, in the case of
unaudited statements, to normal year-end audit
adjustments), in each case in accordance with generally
accepted accounting principles, consistently applied
("GAAP"), except as may be noted in these statements.
(1) "Financial Statements" means: (i) in Glacier's
case, the Glacier Financial Statements (or for
periods ending on a date following the date of this
Agreement, the Subsequent Glacier Financial
Statements); and (ii) in Mountain West's case, the
Mountain West Financial Statements (or for periods
ending on a date following the date of this
Agreement, the Subsequent Mountain West Financial
Statements).
(2) "Glacier Financial Statements" means Glacier's (i)
audited consolidated statements of financial
condition as of December 31, 1998 and 1997, and the
related audited statements of income, cashflows and
changes in stockholders' equity for each of the
years ended December 31, 1998 and 1997; and (ii)
unaudited consolidated statements of financial
condition as of the end of each fiscal quarter
following December 31, 1998 but preceding the date
of this Agreement, and the related unaudited
statements of income, cashflows and changes in
stockholders' equity for each such quarter.
(3) "Subsequent Glacier Financial Statements" means
unaudited balance sheets and related statements of
income and stockholders' equity for each of the
fiscal quarters ending after the date of this
Agreement and before Closing.
(4) "Mountain West Financial Statements" means audited
statements of financial condition as of March 31,
1999, 1998 and 1997, and the related audited
statements of income, cashflows and changes in
stockholders' equity for each of the years ended
March 31, 1999, 1998 and 1997; and (ii) unaudited
consolidated
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statements of financial condition as of the end of
each fiscal quarter following March 31, 1999 but
preceding the date of this Agreement, and the
related unaudited statements of income, cashflows
and changes in stockholders' equity for each such
quarter.
(5) "Subsequent Mountain West Financial Statements"
means unaudited balance sheets and related
statements of income and stockholders' equity for
each of Mountain West's fiscal quarters ending
after the date of this Agreement and before
Closing.
3.1.6 ABSENCE OF CERTAIN EVENTS AND CHANGES. Except as disclosed in its
Financial Statements and Reports, since December 31, 1998 (for
Glacier) and March 31, 1999 (for Mountain West): (1) it and its
Subsidiaries have conducted their respective businesses only in
the ordinary and usual course of the businesses and (2) no change
or development or combination of changes or developments has
occurred that, individually or in the aggregate, is reasonably
likely to result in a Material Adverse Effect with respect to it
or its Subsidiaries. For purposes of this Agreement, "Material
Adverse Effect" with respect to any corporation means an effect
that: (1) is materially adverse to the business, financial
condition, results of operations or prospects of the corporation
and its Subsidiaries taken as a whole; (2) significantly and
adversely affects the ability of the corporation to consummate
the transactions contemplated by this Agreement by the
Termination Date or to perform its material obligations under
this Agreement; or (3) enables any persons to prevent the
consummation by the Termination Date of the transactions
contemplated by this Agreement. No Material Adverse Effect will
be deemed to have occurred on the basis of any effect resulting
from actions or omissions of the corporation taken with the
explicit prior consent of the other party to this Agreement.
3.1.7 MATERIAL AGREEMENTS.
(a) Except for the Glacier and Mountain West Stock Plans,
respectively, and arrangements made after the date and in
accordance with the terms of this Agreement, it and its
Subsidiaries are not bound by any material contract (as
defined in Item 601(b)(10) of Regulation S-K under the
Securities Act) that: (1) is to be performed after the
date of this Agreement and (2) has not been filed with or
incorporated by reference in its Reports or set forth in
Schedule 5.
(b) Neither it nor any of its Subsidiaries is in default under
any contract, agreement, commitment, arrangement, lease,
insurance policy, or other instrument.
3.1.8 KNOWLEDGE AS TO CONDITIONS. Its President, Chief Executive
Officer, and Chief Financial Officer (collectively, "Executive
Officers") know of no reason the Regulatory Approvals and, to the
extent necessary, any other approvals, authorizations, filings,
registrations, and notices should not be obtained without the
imposition of any condition or restriction that is reasonably
likely to have a Material Adverse Effect with respect to it, its
Subsidiaries, or the Combined Bank, or the opinion of the tax
experts referred to in Subsection 5.2.13.
3.1.9 BROKERS AND FINDERS. Neither it, its Subsidiaries, nor any of
their respective officers, directors or employees has employed
any broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the
transactions contemplated in this Agreement.
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3.2 MOUNTAIN WEST'S ADDITIONAL REPRESENTATIONS. Subject to Subsection 3.3
and except as expressly set forth in Schedule 1, Mountain West
represents to Glacier, the following:
3.2.1 LOAN AND LEASE LOSSES. Its Executive Officers know of no reason
why the allowance for loan and lease losses shown in the balance
sheets included in the Financial Statements for the periods ended
December 31, 1998, March 31, 1999, and June 30, 1999, was not
adequate as of those dates, respectively, to provide for
estimable and probable losses, net of recoveries relating to
loans not previously charged off, inherent in its loan portfolio.
3.2.2 NO STOCK OPTION PLANS. Neither it nor any of its Subsidiaries has
adopted any stock option plans or granted any options or rights
to acquire any shares of Mountain West Common Stock or capital
stock or other ownership interest of any Mountain West Subsidiary
except as expressly set forth in Schedule 4.
3.2.3 GOVERNMENTAL FILINGS; NO VIOLATIONS.
(a) Filings. Other than the Regulatory Approvals and other
than as required under the Securities Act, the Exchange
Act, and state securities and "Blue Sky" laws, no notices,
reports or other filings are required to be made by it
with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by it
from, any governmental or regulatory authority, agency,
court, commission or other entity, domestic or foreign
("Governmental Entity"), in connection with the execution,
delivery or performance of this Agreement by it and the
consummation by it of the Transaction.
(b) Violations. The execution, delivery and performance of
this Agreement does not and will not, and the consummation
by it of the Transaction will not, constitute or result
in: (1) a breach or violation of, or a default under, its
articles of incorporation or bylaws, or the comparable
governing instruments of any of its Subsidiaries; (2) a
breach or violation of, or a default under, or the
acceleration of or the creation of a Lien (with or without
the giving of notice, the lapse of time or both) under,
any provision of any agreement, lease, contract, note,
mortgage, indenture, arrangement or other obligation
("Contracts") of it or any of its Subsidiaries; or (3) a
violation of any law, rule, ordinance or regulation or
judgment, decree, order, award, or governmental or
non-governmental permit or license to which it or any of
its Subsidiaries is subject; or (4) any change in the
rights or obligations of any party under any of the
Contracts. Schedule 6 contains a list of all consents it
or its Subsidiaries must obtain from third parties under
any Contracts before consummation of the Transaction.
3.2.4 ASSET CLASSIFICATION.
(a) Schedule 7 sets forth a list, accurate and complete as of
June 30, 1999, except as otherwise expressly noted in
Schedule 7, and separated by category of classification or
criticism ("Asset Classification"), of the aggregate
amounts of loans, extensions of credit and other assets of
it and its Subsidiaries that have been criticized or
classified by any Governmental Entity, by any outside
auditor, or by any internal audit.
(b) Except as shown on Schedule 7, no amounts of loans,
extensions of credit or other assets that have been
classified or criticized by any representative of any
Governmental Entity as "Other Assets Especially
Mentioned," "Substandard," "Doubtful," "Loss" or words of
similar effect are excluded from the amounts disclosed in
the Asset Classification, other
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than amounts of loans, extensions of credit or other
assets that were paid off or charged off by it or its
Subsidiaries before the date of this Agreement.
3.2.5 INVESTMENTS. Schedule 8 lists all investments (except investments
in securities issued by federal state or local government or any
subdivision or agency thereof and investments in Subsidiaries)
made by it or any of its Subsidiaries in an amount greater than
$25,000 or which represent an ownership interest of more than 5%
in any corporation, company, partnership, or other entity. All
investments comply with all applicable laws and regulations.
3.2.6 PROPERTIES.
(a) Except as disclosed or reserved against in its Financial
Statements or in Schedule 9, it and its Subsidiaries have
good and marketable title, free and clear of all Liens
(other than Liens for current taxes not yet delinquent or
pledges to secure deposits) to all of the properties and
assets, tangible or intangible, reflected in its Reports
as being owned or leased by it or its Subsidiaries as of
the date of this Agreement.
(b) To the knowledge of its Executive Officers, all buildings
and all fixtures, equipment and other property and assets
that are material to its business on a consolidated basis
and are held under leases or subleases by it or its
Subsidiaries are held under valid leases or subleases,
enforceable in accordance with their respective terms
(except as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws
affecting creditors' rights generally or by general equity
principles).
(c) Schedule 10 lists all its and its Subsidiaries' existing
branches and offices and all new branches or offices it or
any of its Subsidiaries' has applied to establish or
purchase, along with the cost to establish or purchase
those branches.
(d) Mountain West has provided to Glacier copies of existing
title policies held in its files, and no exceptions,
reservations, or encumbrances have arisen or been created
since the date of issuance of those policies.
3.2.7 ANTI-TAKEOVER PROVISIONS. It and each of its Subsidiaries have
taken all necessary action to exempt the Transaction and this
Agreement from (a) all applicable Idaho State law anti-takeover
provisions, if any, and (b) any takeover-related provisions of
its articles of incorporation or bylaws.
3.2.8 COMPLIANCE WITH LAWS. Except as disclosed in Schedule 11, it and
each of its Subsidiaries:
(a) are in compliance, in the conduct of their businesses,
with all applicable federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments,
orders or decrees, including the Bank Secrecy Act, the
Truth in Lending Act, the Equal Credit Opportunity Act,
the Fair Housing Act, the Community Reinvestment Act, the
Home Mortgage Disclosure Act and all applicable fair
lending laws or other laws relating to discrimination;
(b) have all permits, licenses, certificates of authority,
orders, and approvals of, and have made all filings,
applications, and registrations with, federal, state,
local, and foreign governmental or regulatory bodies
(including the Federal Reserve, FDIC and OTS) that
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are required in order to permit them to carry on their
businesses as they are presently conducted;
(c) have received since January 1, 1996, no notification or
communication from any Governmental Entity (including any
bank, insurance and securities regulatory authorities) or
its staff (1) asserting a failure to comply with any of
the statutes, regulations or ordinances that such
Governmental Entity enforces, (2) threatening to revoke
any license, franchise, permit or governmental
authorization, or (3) threatening or contemplating
revocation or limitation of, or that would have the effect
of revoking or limiting, FDIC deposit insurance (nor, to
the knowledge of its Executive Officers, do any grounds
for any of the foregoing exist); and
(d) are not required to notify any federal banking agency
before adding directors to its board of directors or
employing senior executives.
3.2.9 LITIGATION. Except as disclosed in its Financial Statements or in
Schedule 12, before the date of this Agreement:
(a) no criminal or administrative investigations or hearings,
before or by any Governmental Entity, or civil, criminal
or administrative actions, suits, claims or proceedings,
before or by any person (including any Governmental
Entity) are pending or, to the knowledge of its Executive
Officers, threatened, against it or any of its
Subsidiaries (including under the Truth in Lending Act,
the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage
Disclosure Act, or any other fair lending law or other law
relating to discrimination); and
(b) neither it nor any of its Subsidiaries (nor any officer,
director, controlling person or property of it or any of
its Subsidiaries) is a party to or is subject to any
order, decree, agreement, memorandum of understanding or
similar arrangement with, or a commitment letter or
similar submission to, any Governmental Entity charged
with the supervision or regulation of depository
institutions or engaged in the insurance of deposits
(including the FDIC) or the supervision or regulation of
it or of its Subsidiaries, and neither it nor any of its
Subsidiaries has been advised by any such Governmental
Entity that such Governmental Entity is contemplating
issuing or requesting (or is considering the
appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment
letter or similar submission.
3.2.10 TAXES. For purposes of this Subsection 3.2.10, "Tax" includes any
tax or similar governmental charge, impost, or levy (including
income taxes, franchise taxes, transfer taxes or fees, stamp
taxes, sales taxes, use taxes, excise taxes, ad valorem taxes,
withholding taxes, worker's compensation, payroll taxes,
unemployment insurance, social security, minimum taxes, or
windfall profits taxes), together with any related liabilities,
penalties, fines, additions to tax, or interest, imposed by the
United States or any state, county, provincial, local or foreign
government or subdivision or agency of the United States.
(a) All federal, state and local Tax returns, including all
information returns, it and its Subsidiaries are required
to file have been timely filed or requests for extensions
have been timely filed. If any extensions were filed, they
have been or will be granted by Closing and will not have
expired. All filed returns are complete and accurate in
all material respects.
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(b) Except as disclosed in its Financial Statements:
(1) all taxes attributable to it or any of its
Subsidiaries that are or were due or payable
(without regard to whether such taxes have been
assessed) have been paid in full or have been
adequately provided for in its Financial Statements
in accordance with GAAP;
(2) adequate provision in accordance with GAAP has been
made in its Financial Statements relating to all
Taxes for the periods covered by such Financial
Statements that were not yet due and payable as of
the date of this Agreement, regardless of whether
the liability for such Taxes is disputed;
(3) as of the date of this Agreement and except as
disclosed in its Financial Statements, there is no
outstanding audit examination, deficiency, refund,
litigation or outstanding waiver or agreement
extending the applicable statute of limitations for
the assessment or collection of any Taxes for any
period with respect to any Taxes of it or its
Subsidiaries;
(4) all Taxes with respect to completed and settled
examinations or concluded litigation relating to it
or any of its Subsidiaries have been paid in full
or have been recorded on its Financial Statements
(in accordance with GAAP);
(5) neither it nor any of its Subsidiaries is a party
to a Tax sharing or similar agreement or any
agreement under which it or any of its Subsidiaries
has indemnified any party (other than it or one of
its Subsidiaries) with respect to Taxes; and
(6) the proper and accurate amounts have been withheld
from all employees (and timely paid to the
appropriate Governmental Entity or set aside in an
account for these purposes) for all periods through
the Effective Date in compliance with all Tax
withholding provisions of applicable federal,
state, local and foreign laws (including income,
social security and employment tax withholding for
all types of compensation).
3.2.11 INSURANCE. It and each of its Subsidiaries has taken all
requisite action (including the making of claims and the giving
of notices) under its directors' and officers' liability
insurance policy or policies in order to preserve all rights
under such policies with respect to all matters known to it
(other than matters arising in connection with, and the
transactions contemplated by, this Agreement). Schedule 13 lists
all directors' and officers' liability insurance policies and
other insurance policies maintained by it or its Subsidiaries.
3.2.12 LABOR MATTERS. Neither it nor any of its Subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract
or other agreement or understanding with any labor union or labor
organization. Neither it nor any of its Subsidiaries is the
subject of any proceeding: (1) asserting that it or any of its
Subsidiaries has committed an unfair labor practice or (2)
seeking to compel it or any of its Subsidiaries to bargain with
any labor organization as to wages or conditions of employment.
No strike involving it or any of its Subsidiaries is pending or,
to the knowledge of its Executive Officers, threatened. Its
Executive Officers are not aware of any activity involving its or
any of its Subsidiaries' employees seeking to certify a
collective bargaining unit or engaging in any other
organizational activity.
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3.2.13 YEAR 2000 COMPLIANCE. It and its Subsidiaries are Year 2000
Compliant and have received "Satisfactory" ratings by the
appropriate banking regulatory authorities. For purposes of this
Agreement, "Year 2000 Compliant" means that Mountain West's
Information Technology is designed to be used prior to, during,
and after the calendar Year 2000 A.D., and the Information
Technology used during each such time period will accurately
receive, provide and process date/time data (including, but not
limited to, calculating, comparing and sequencing) from, into and
between the twentieth and twenty-first centuries, including the
years 1999 and 2000, and leap year calculations and will not
malfunction, cease to function, or provide invalid or incorrect
results as a result of date/time data, to the extent that other
Information Technology, used in combination with the Information
Technology being acquired, properly exchanges date/time data with
it. For purposes of this Agreement, "Information Technology"
includes computer software, computer firmware, computer hardware
(whether general or specific purpose), and other similar or
related automated or computerized items that are used or relied
on by Mountain West or any if its Subsidiaries in the conduct of
their businesses.
3.2.14 EMPLOYEE BENEFITS.
(a) For purposes of this Agreement, "Plan" or "Plans",
individually or collectively, means any "employee benefit
plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, ("ERISA"), as
amended, maintained by Mountain West or any of its
Subsidiaries, as the case may be. Mountain West and its
Subsidiaries are not now nor have they ever been
contributing employers to or sponsors of a multi-employer
plan or a single employer plan subject to Title IV of
ERISA.
(b) Schedule 14 sets forth a list, as of the date of this
Agreement, of (1) all Plans, stock purchase plans,
restricted stock and stock option plans, and other
deferred compensation arrangements, (2) all other material
employee benefit plans that cover employees or former
employees of it and its Subsidiaries (its "Compensation
Plans"). True and complete copies of the Compensation
Plans (and, as applicable, copies of summary plan
descriptions, annual reports on Form 5500, actuarial
reports and reports under Financial Accounting Standards
Board Statement No. 106 relating to such Compensation
Plans) covering current or former employees or directors
of it or its Subsidiaries (its "Employees"), including
Plans and related amendments, have been made available to
Glacier.
(c) All Plans (other than "multi-employer plans" within the
meaning of ERISA Sections 3(37) or 4001(a)(3)), to the
extent subject to ERISA, are in substantial compliance
with ERISA. Each Plan, that is an "employee pension
benefit plan" within the meaning of ERISA Section 3(2)
("Pension Plan") and that is intended to be qualified
under IRC Section 401(a), has received a favorable
determination letter from the Internal Revenue Service,
and it is not aware of any circumstances likely to result
in revocation of any such favorable determination letter.
No litigation relating to Plans is pending or, to the
knowledge of its Executive Officers, threatened. Neither
it nor any of its Subsidiaries has engaged in a
transaction with respect to any Plan that could subject it
or its Subsidiaries to a Tax or penalty imposed by either
IRC Section 4975 or ERISA Section 502(i).
(d) All material contributions it or any of its Subsidiaries
are or were required to make under the terms of any Plans
have been timely made or have been reflected in its
Financial Statements. No Plan of it or its subsidiaries
has an "accumulated funding deficiency" (whether or not
waived) within the meaning of IRC Section 412 or ERISA
Section 302.
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Neither it nor any of its Subsidiaries has provided, or is
required to provide, security to any Pension Plan under
IRC Section 401(a)(29), IRC Section 412(f)(3), or ERISA
Sections 306, 307 or 4204.
(e) Except as disclosed in its Financial Statements, neither
it nor its Subsidiaries have any obligations for retiree
health and life benefits.
(f) No restrictions exist on the rights of it or its
Subsidiaries to amend or terminate any Plan without
incurring liability under the Plan in addition to normal
liabilities for benefits.
(g) Except as disclosed in its Financial Statements or as
provided in a Schedule to this Agreement, the transactions
contemplated by this Agreement and the Stock Plans will
not result in: (1) vesting, acceleration, or increase of
any amounts payable under any Compensation Plan, (2) any
material increase in benefits under any Compensation Plan
or (3) payment of any severance or similar compensation
under any Compensation Plan.
3.2.15 ENVIRONMENTAL MATTERS.
(a) For purposes of this Subsection 3.2.15, the following
definitions apply:
(1) "Subject Property" with respect to a party means (i)
all real property at which the businesses of it or
its Subsidiaries have been conducted, and any
property where under any Environmental Law it or any
of its Subsidiaries is deemed to be the owner or
operator of the property; (ii) any facility in which
it or its Subsidiaries participates in the
management, including participating in the
management of the owner or operator of the property;
and (iii) all other real property that, for purposes
of any Environmental Law, it or any of its
Subsidiaries otherwise could be deemed to be an
owner or operator of or as otherwise having control
over.
(2) "Environmental Laws" means any federal, state, local
or foreign law, regulation, agency policy, order,
decree, judgment, judicial opinion, or any agreement
with any Governmental Entity, presently in effect or
subsequently adopted relating to: (i) the
manufacture, generation, transport, use, treatment,
storage, recycling, disposal, release, threatened
release or presence of Hazardous Substances, or (ii)
the preservation, restoration or protection of the
environment, natural resources or human health.
(3) "Hazardous Substances" means any hazardous or toxic
substance, material or waste that is regulated by
any local governmental authority, any state
government or the United States Government,
including any material or substance that is (a)
defined as a "hazardous substance" in 42 USC Section
9601(14), (b) defined as a "pollutant or
contaminant" in 42 USC Section 9604(a)(2), or (c)
defined as a "hazardous waste" in 42 USC Section
6903(5).
(b) It and each of its Subsidiaries and the Subject Property
are, and have been, in compliance with all applicable
Environmental Laws, and no circumstances exist that with
the passage of time or the giving of notice would be
reasonably likely to result in noncompliance with such
Environmental Laws.
(c) None of the following, and no reasonable basis for any of
the following, exists: pending or threatened claims,
actions, investigations, notices of non-compliance,
information
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requests or notices of potential responsibility or
proceedings involving it or any of its Subsidiaries or any
Subject Property, relating to:
(1) an asserted liability of it or any of its
Subsidiaries or any prior owner, occupier or user
of Subject Property under any applicable
Environmental Law or the terms and conditions of
any permit, license, authority, settlement,
agreement, decree or other obligation arising under
any applicable Environmental Law;
(2) the handling, storage, use, transportation, removal
or disposal of Hazardous Substances;
(3) the actual or threatened discharge, release or
emission of Hazardous Substances from, on or under
or within Subject Property into the air, water,
surface water, ground water, land surface or
subsurface strata; or
(4) personal injuries or damage to property related to
or arising out of exposure to Hazardous Substances.
(d) No storage tanks underground or otherwise are present on
the Subject Property or, if present, none of such tanks
are leaking and each of them is in full compliance with
all applicable Environmental Laws. With respect to any
Subject Property, it and its Subsidiaries do not own,
possess or control any PCBs, PCB-contaminated fluids,
wastes or equipment, or any material amount of asbestos or
asbestos-containing material. No Hazardous Substances have
been used, handled, stored, discharged, released or
emitted, or are threatened to be discharged, released or
emitted, at or on any Subject Property, except for those
types and quantities of Hazardous Substances typically
used in an office environment and that have not created
conditions requiring remediation under any applicable
Environmental Law.
(e) Except for the investigation or monitoring by the
Environmental Protection Agency or similar state agencies
in the ordinary course, no part of the Subject Property
has been or is scheduled for investigation or monitoring
under any applicable Environmental Law.
3.3 EXCEPTIONS TO REPRESENTATIONS.
3.3.1 DISCLOSURE OF EXCEPTIONS. Each exception set forth in a Schedule
is disclosed only for purposes of the representations referenced
in that exception; but the following conditions apply:
(a) no exception is required to be set forth in a Schedule if
its absence would not result in the related representation
being found untrue or incorrect under the standard
established by Subsection 3.3.2; and
(b) the mere inclusion of an exception in a Schedule is not an
admission by a party that such exception represents a
material fact, material set of facts, or material event or
would result in a Material Adverse Effect with respect to
that party.
3.3.2 NATURE OF EXCEPTIONS. No representation contained in Subsections
3.1 or 3.2 will be found untrue or incorrect and no party to this
Agreement will have breached a representation due to the
following: the existence of any fact, set of facts, or event, if
the fact or event individually or taken together with other facts
or events would not, or, in the case of Subsection 3.2.9, is not
reasonably likely to, have a Material Adverse Effect with respect
to such party.
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SECTION 4
CONDUCT AND TRANSACTIONS
BEFORE CLOSING
4.1 CONDUCT OF MOUNTAIN WEST'S BUSINESS BEFORE CLOSING. Before Closing,
Mountain West promises as follows:
4.1.1 AVAILABILITY OF MOUNTAIN WEST'S BOOKS, RECORDS AND PROPERTIES.
(a) Mountain West will make its, and cause its Subsidiaries to
make their, books, records, properties, contracts and
documents available at all reasonable times to Glacier and
its counsel, accountants and other representatives. These
items will be open for inspection, audit and direct
verification of: (1) loan or deposit balances, (2)
collateral receipts and (3) any other transactions or
documentation Glacier may find reasonably relevant to the
Transaction. Mountain West will, and will cause its
Subsidiaries to, cooperate fully in any such inspection,
audit, or direct verification procedures, and Mountain
West will, and will cause its Subsidiaries to, make
available all information reasonably required by or on
behalf of Glacier.
(b) At Glacier's request, Mountain West will request any third
parties involved in the preparation or review of (1)
Mountain West Financial Statements, (2) Subsequent
Mountain West Financial Statements, or (3) any audits of
Mountain West's operations, loan portfolios or other
assets, to disclose to Glacier the work papers or any
similar materials related to these items.
4.1.2 ORDINARY AND USUAL COURSE. Mountain West will, and will cause its
Subsidiaries to, conduct business only in the ordinary and usual
course and, without the prior written consent of Glacier, will
not, and will not allow its Subsidiaries to, do any of the
following:
(a) effect any stock split or other recapitalization with
respect to Mountain West Common Stock or the capital stock
of a Mountain West Subsidiary, or issue, pledge, redeem,
or encumber in any way any shares of Mountain West's or a
Mountain West Subsidiary's capital stock, except shares
issued pursuant to the exercise of Mountain West Stock
Options; or grant any option or other right to shares of
Mountain West's or a Mountain West Subsidiary's capital
stock;
(b) declare or pay any dividend, or make any other
distribution, either directly or indirectly, with respect
to Mountain West Common Stock or the capital stock of any
Mountain West Subsidiary;
(c) acquire, sell, transfer, assign, encumber or otherwise
dispose of assets or make any commitment with respect to
its assets other than in the ordinary and usual course of
business;
(d) solicit or accept deposit accounts of a different type
from accounts previously accepted by it or at rates
materially in excess of rates previously paid by it,
except to reflect changes in prevailing interest rates, or
incur any indebtedness greater than $25,000 (except for
borrowings from the Federal Home Loan Bank in the ordinary
course of business and consistent with past practices);
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(e) acquire an ownership interest or a leasehold interest in
any Property or any other real property, whether by
foreclosure or otherwise, without: (1) making an
appropriate environmental evaluation in advance of
obtaining the interest and providing the evaluation to
Glacier and (2) (without giving effect to the introductory
paragraph of this Subsection 4.1.2) providing Glacier with
prompt written notice as required by Subsection 4.8.
(f) subject to the exercise of its board of directors'
fiduciary duties and on the advice of counsel, enter into
or recommend the adoption by Mountain West's stockholders
of any agreement involving a possible merger or other
business combination or asset sale by Mountain West not
involving the Transaction;
(g) enter into, renew, or terminate any contracts (including
real property leases and data or item processing
agreements) with or for a term of one-year or more, except
for its contracts of deposit and agreements to lend money
not otherwise restricted under this Agreement and (1)
entered into in the ordinary course of business, (2)
consistent with past practices, and (3) providing for not
less (in the case of loans) or more (in the case of
deposits) than prevailing market rates of interest;
(h) enter into or amend any contract (other than contracts for
deposits or agreements to lend money not otherwise
restricted by this Agreement) calling for a payment by it
of more than $25,000, unless the contract may be
terminated without cause or penalty upon 30 days notice or
less;
(i) enter into any personal services contract with any person
or firm, except contracts, agreements, or arrangements for
legal, accounting, investment advisory, or tax services
entered into directly to facilitate the Transaction;
(j) (1) sell any securities, whether held for investment or
sale, other than in the ordinary course of business or
sell any securities, whether held for investment or sale,
even in the ordinary course of business, if the aggregate
gain realized from all sales after the date of this
Agreement would be more than $60,000 or (2) transfer any
investment securities between portfolios of securities
available for sale and portfolios of securities to be held
to maturity;
(k) amend its articles of incorporation, bylaws, or other
formation agreements, or convert its charter or form of
entity;
(l) implement or adopt any material changes in its operations,
policies, or procedures, including loan loss reserve
policies, unless the changes are requested by Glacier or
are necessary or advisable, on the advice of legal
counsel, to comply with applicable laws, regulations, or
regulatory policies;
(m) implement or adopt any change in its accounting
principles, practices or methods, other than as may be
required (1) by GAAP, (2) for tax purposes, or (3) to take
advantage of any beneficial tax or accounting methods;
(n) other than in accordance with binding commitments existing
on the date of this Agreement, make any capital
expenditures in excess of $10,000 per project or related
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series of projects or $25,000 in the aggregate, except for
expenses reasonably related to completion of the
Transaction, which expenses may not exceed $60,000; or
(o) enter into any other transaction or make any expenditure
other than in the ordinary and usual course of its
business and made or entered into in a manner consistent
with its well-established practices or as required by this
Agreement.
4.1.3 CONDUCT REGARDING REPRESENTATIONS. Mountain West will not do or
cause to be done anything that would cause any representation in
Subsection 3.1 or 3.2 to be untrue at Closing, except as
otherwise contemplated or required by this Agreement or consented
to in writing by Glacier.
4.1.4 MAINTENANCE OF PROPERTIES. Mountain West will maintain its
properties and equipment (and related insurance or its
equivalent) in accordance with good business practice.
4.1.5 PRESERVATION OF BUSINESS ORGANIZATION. Mountain West will use
all reasonable efforts to:
(a) preserve its business organization;
(b) retain the services of present management; and
(c) preserve the goodwill of suppliers, customers and others
with whom it has business relationships.
4.1.6 SENIOR MANAGEMENT. Except for (1) changes consistent with past
practice and (2) the hiring of a commercial loan officer in
Boise, Mountain West will not make any change, including hiring
of replacements, with respect to present management personnel
having the rank of vice-president or higher.
4.1.7 COMPENSATION AND EMPLOYMENT AGREEMENTS. Mountain West will not
permit any increase in the current or deferred compensation
payable or to become payable by Mountain West to any of its
directors, officers, employees, agents, or consultants other than
normal increments in compensation in accordance with Mountain
West's past practices with respect to the timing and amounts of
such increments. Except as contemplated in this Agreement,
Mountain West will not commit to, execute or deliver any
employment agreement with any party not terminable upon two
weeks' notice and without expense.
4.1.8 UPDATE OF FINANCIAL STATEMENTS. Mountain West will promptly
deliver its Financial Statements to Glacier. Mountain West will
deliver Subsequent Mountain West Financial Statements to Glacier
by the earlier of: (1) 5 days after Mountain West has prepared
and issued them or (2) 60 days after year-end for year-end
statements and 30 days after the end of the quarter for quarterly
statements. The Subsequent Mountain West Financial Statements:
(a) will be prepared from the books and records of Mountain
West;
(b) will present fairly the financial position and operating
results of Mountain West at the times indicated and for
the periods covered;
(c) will be prepared in accordance with GAAP (except for the
absence of notes) and with the regulations promulgated by
applicable regulatory authorities, to the extent then
applicable, subject to normal year-end adjustments; and
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(d) will reflect all Mountain West's liabilities, contingent
or otherwise, on the respective dates and for the
respective periods covered, except for liabilities: (1)
not required to be so reflected in accordance with GAAP or
(2) not significant in amount.
4.1.9 NO SOLICITATION. Neither Mountain West nor any of its officers or
directors, directly or indirectly, will solicit, encourage,
entertain, or facilitate any other proposals or inquiries for an
acquisition of the shares or assets of Mountain West or its
Subsidiaries or enter into discussions concerning any such
acquisition, except as otherwise required to comply with the
fiduciary responsibilities of Mountain West's board of directors.
No such party will make available to any person not affiliated
with Mountain West or Glacier any information about its business
or organization that is not either routinely made available to
the public generally or required by law.
4.1.10 TITLE POLICIES. No later than 30 days after the execution of this
Agreement, Mountain West will provide Glacier with title reports
issued by a title insurance company reasonably satisfactory to
Glacier. These title reports must show unencumbered fee simple
title or vendee's interest to all real Property owned by Mountain
West or any of its Subsidiaries and unencumbered leasehold
interests in all real Property leased by Mountain West or any of
its Subsidiaries, and these title reports may contain only such
exceptions, reservations, and encumbrances as may be consented to
in writing by Glacier, which consent Glacier may not unreasonably
withhold. At Closing, Mountain West will provide Glacier with
update endorsements, dated as of the Effective Date, to the title
policies for each Property owned by it or any of its
Subsidiaries. For purposes of this Agreement, "Property" includes
any property that Mountain West or any of its Subsidiaries owns
or leases, other than other real estate owned.
4.1.11 REVIEW OF LOANS. Mountain West will permit Glacier to conduct an
examination of Mountain West's loans to determine credit quality
and the adequacy of Mountain West's allowance for loan losses.
Glacier will have continued access to Mountain West's loans
through Closing to update the examination. At Glacier's
reasonable request, Mountain West will provide Glacier with
current reports updating the information set forth in Schedule 7.
4.2 REGISTRATION STATEMENT.
4.2.1 PREPARATION OF REGISTRATION STATEMENT.
(a) A Registration Statement on Form S-4 ("Registration
Statement") will be filed by Glacier with the SEC under
the Securities Act for registration of the Glacier Shares,
and the parties will prepare a related prospectus/proxy
statement ("Prospectus/Proxy Statement") to be mailed
together with any amendments and supplements to Mountain
West's stockholders.
(b) The parties will cooperate with each other in preparing
the Registration Statement and Prospectus/Proxy Statement,
and will use their best efforts to: (1) file the
Registration Statement with the SEC within 60 days
following the date on which this Agreement is executed,
and (2) obtain the clearance of the SEC, any appropriate
state securities regulators and any other required
regulatory approvals, to issue the Prospectus/Proxy
Statement.
(c) Nothing will be included in the Registration Statement or
the Prospectus/Proxy Statement or any proxy solicitation
materials with respect to any party to this Agreement
unless approved by that party, which approval will not be
unreasonably withheld.
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(d) Glacier will pay all costs associated with the preparation
by Glacier's counsel and the filing of the Registration
Statement. Mountain West will pay all costs associated
with the review and preparation by Mountain West's counsel
of the Registration Statement and the Prospectus/Proxy.
Mountain West will pay the costs associated with the
printing and mailing of the Prospectus/Proxy Statement to
its stockholders and any other direct costs incurred by it
in connection with the Prospectus/Proxy Statement.
4.2.2 SUBMISSION TO STOCKHOLDERS.
(a) Glacier and Mountain West will submit the Prospectus/Proxy
Statement to, and will use their best efforts in good
faith to obtain the prompt approval of the
Prospectus/Proxy Statement by, all applicable regulatory
authorities. The parties will provide each other with
copies of such submissions for review.
(b) Mountain West will promptly take the actions necessary in
accordance with applicable law and its Articles of
Incorporation and Bylaws to convene a stockholders'
meeting to consider the approval of this Agreement and to
authorize the transactions contemplated by this Agreement.
This stockholders' meeting will be held on the earliest
practical date after the date the Prospectus/Proxy
Statement may first be sent to Mountain West's
stockholders without objection by applicable governmental
authorities; but Mountain West will have at least 20
calendar days to solicit proxies. Except as otherwise
required to comply with the fiduciary responsibilities of
its board of directors, Mountain West's board of directors
and officers will recommend approval of the Transaction to
Mountain West's stockholders.
4.3 ACCOUNTING TREATMENT.
4.3.1 POOLING OF INTERESTS. The parties intend the Merger to be treated
as a "pooling of interests" for accounting purposes. From the
date of this Agreement through the Effective Date, neither
Glacier nor Mountain West nor any of their respective
Subsidiaries or other affiliates (a) will knowingly take any
action or enter into any contract, agreement, commitment or
arrangement that would jeopardize the treatment of the Merger as
a "pooling of interests;" or (b) will knowingly fail to take any
action that would preserve the treatment of the Merger as a
"pooling of interests." No action or omission by either party
will constitute a breach of this Subsection 4.3.1 if the action
is permitted or required under this Agreement or is made with the
other party's written consent, or as required by applicable laws
or regulations.
4.3.2 AFFILIATE LIST. Certain persons may be deemed "affiliates" of
Mountain West under Securities Act Rule 145, the SEC's Accounting
Series Releases ("ASR") 130 and 135, or other rules and releases
related to "pooling of interests" accounting treatment. Within
thirty days following the date this Agreement is signed, Mountain
West will deliver to Glacier, after consultation with legal
counsel, a list of names and addresses of Mountain West's
"affiliates" with respect to the Transaction within the meaning
of Rule 145 or ASR 130 and 135. By the Effective Date, Mountain
West will deliver, or cause to be delivered, to Glacier a letter
from each of these "affiliates," and any additional person who
becomes an "affiliate" before the Effective Date and after the
date of the list, dated as of the date of its delivery and in the
form attached as Exhibit C.
4.3.3 RESTRICTIVE LEGENDS. Glacier will place a restrictive legend on
all certificates representing Glacier Shares to be received by an
"affiliate," so as to preclude their transfer or disposition in
violation of the affiliate letters. Glacier will also instruct
its transfer agent not to permit the transfer of those shares,
and to take any other steps reasonably necessary to ensure
compliance
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with the Securities Act Rule 145 or the SEC's ASR 130 and 135 or
other rules and releases related to "pooling of interests"
accounting treatment.
4.3.4 RETENTION OF CERTIFICATES. Except as otherwise permitted in
Exhibit A, by a date at least 30 days before the Effective Date,
all stock certificates evidencing ownership of Mountain West
Common Stock by "affiliates" will be delivered to Mountain West.
Mountain West (before the Effective Date) and Glacier (after the
Effective Date) will retain those certificates, and subsequently
the certificates representing Glacier shares for which they are
exchanged, until financial results covering at least 30 days of
combined operations for Glacier following the Effective Date have
been published, at which time the certificates will be released.
4.4 SUBMISSION TO REGULATORY AUTHORITIES. Representatives of Glacier, at
Glacier's expense, will prepare and file with applicable regulatory
agencies, applications for approvals, waivers or other actions their
counsel finds necessary or desirable in order to consummate the
Transaction. Glacier will provide copies of these applications for
Mountain West's review. These applications and filings are expected to
include:
(a) any necessary applications to the Federal Reserve and the FDIC; and
(b) any filings required under the Idaho Bank Act;
4.5 ANNOUNCEMENTS. The parties will cooperate and consult with each other in
the development and distribution of all news releases and other public
information disclosures with respect to this Agreement or the
Transaction, unless otherwise required by law.
4.6 CONSENTS. Glacier and Mountain West will use their best efforts to
obtain the consent or approval of any person, organization or other
entity whose consent or approval is required in order to consummate the
Transaction.
4.7 FURTHER ACTIONS. Glacier and Mountain West, respectively, in the name
and on behalf of those respective parties, will use their best efforts
in good faith to make all such arrangements, do or cause to be done all
such acts and things, and execute and deliver all such certificates and
other instruments and documents as may be reasonably necessary or
appropriate in order to consummate the Transaction as promptly as
practicable.
4.8 NOTICE. Mountain West will provide Glacier with prompt written notice of
the following:
(a) any events, individually or in the aggregate, that could have a
Material Adverse Effect with respect to Mountain West;
(b) the commencement of any proceeding against Mountain West, or any
of its Subsidiaries or affiliates, by or before any court or
governmental agency that, individually or in the aggregate, might
have a Material Adverse Effect with respect to Mountain West; or
(c) any acquisition of an ownership or leasehold interest in real
property, other than an acquisition in good faith of real
property to satisfy a debt previously contracted for.
4.9 CONFIDENTIALITY. Glacier and Mountain West each will hold in confidence
all nonpublic information obtained from the other in connection with the
Transaction, other than information that: (1) is required by law to be
disclosed; (2) is otherwise available on a nonconfidential basis; (3)
has become public without fault of the disclosing party; or (4) is
necessary to the defense of one of the parties in a legal or
administrative action brought against that party by the other party. If
the Transaction is not completed,
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Glacier and Mountain West will: (1) each return to the others all
confidential documents obtained from them and (2) not use any nonpublic
information obtained under this Agreement or in connection with the
Transaction.
4.10 UPDATE OF FINANCIAL STATEMENTS. Glacier will promptly deliver its
Financial Statements to Mountain West. Glacier will deliver Subsequent
Glacier Financial Statements to Mountain West by the earlier of: (1) 5
days after Glacier prepares and issues them or (2) 60 days after
year-end for year-end statements and 30 days after the end of the
quarter for quarterly statements. The Subsequent Glacier Financial
Statements will:
(a) be prepared from the books and records of Glacier;
(b) present fairly the financial position and operating results of
Glacier at the times indicated and for the periods covered;
(c) be prepared in accordance with GAAP (except for the absence of
notes) and with the regulations promulgated by applicable
regulatory authorities, to the extent then applicable, subject to
normal year-end adjustments; and
(d) reflect all liabilities, contingent or otherwise, of Glacier on
the respective dates and for the respective periods covered,
except for liabilities not required to be so reflected in
accordance with GAAP or not significant in amount.
4.11 AVAILABILITY OF GLACIER'S BOOKS, RECORDS AND PROPERTIES. Glacier will
make available to Mountain West true and correct copies of its
Certificate of Incorporation and Bylaws. At Mountain West's reasonable
request, Glacier will also provide Mountain West with copies of: (1)
reports filed with the SEC or banking regulators, (2) Glacier's stock
option plans, and (3) any other information that the parties agree upon.
SECTION 5
APPROVALS AND CONDITIONS
5.1 REQUIRED APPROVALS. The obligations of the parties to this Agreement are
subject to the approval of the Agreement and the Transaction by all
appropriate regulatory agencies having jurisdiction with respect to the
Transaction.
5.2 CONDITIONS TO GLACIER'S OBLIGATIONS. All Glacier's obligations under
this Agreement are subject to satisfaction of the following conditions
at or before Closing:
5.2.1 REPRESENTATIONS. Mountain West's representations in this
Agreement and in any certificate or other instrument delivered in
connection with this Agreement are true and correct in all
material respects at Closing (except to the extent that they
expressly relate to an earlier date, in which case they are true
in all material respects as of that earlier date). These
representations have the same force and effect as if they had
been made at Closing. Mountain West has delivered to Glacierits
certificate, executed by a duly authorized officer of Mountain
West and dated as of Closing, stating that these representations
comply with this Subsection 5.2.1.
5.2.2 COMPLIANCE. Mountain West has performed and complied with all
material terms, covenants and conditions of this Agreement.
Mountain West has delivered to Glacier its certificate, executed
by a duly authorized officer of Mountain West and dated as of
Closing, stating that Mountain West is in compliance with this
Subsection 5.2.2.
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5.2.3 EQUITY CAPITAL REQUIREMENT. The Tangible Equity Capital,
determined in accordance with GAAP, of Mountain West as of the
Effective Date is at least $6.3 million. Mountain West's
certificate referred to in Subsection 5.2.2 must confirm that
this condition is satisfied. "Tangible Equity Capital" means
common stock, paid in capital, retained earnings, and minus
goodwill and any other intangible assets, without giving effect
to any impact from gains or losses on available for sale
securities.
5.2.4 TRANSACTION FEES. Mountain West's Transaction Fees have not
exceeded $60,000. "Transaction Fees" means all costs and expenses
incurred by Mountain West or owed or paid by Mountain West to
third parties in connection with the preparation, negotiation and
execution of this Agreement and related documents and the
consummation of the Transaction, including expenses incurred by
Mountain West in connection with obtaining approvals for the
Transaction from regulators and stockholders, not including
exercise of options or any expenses incurred under Subsection
4.1.10.
5.2.5 TRANSACTION FEES STATEMENTS. Mountain West has delivered to
Glacier a statement, in a form reasonably satisfactory to
Glacier, from each third party to whom Mountain West has paid or
owes Transaction Fees. Each statement must set forth the total
costs and expenses paid or owing to the third party in connection
with the Transaction's consummation. Mountain West has delivered
to Glacier its certificate, executed by a duly authorized officer
of Mountain West and dated as of Closing, stating the total
Transaction Fees incurred by Mountain West and certifying that
Mountain West is in compliance with Subsection 5.2.4 and this
Subsection 5.2.5.
5.2.6 NO MATERIAL ADVERSE EFFECT. No damage, destruction, or loss
(whether or not covered by insurance) or other event or sequence
of events has occurred which, individually or in the aggregate,
has had or potentially may have a Material Adverse Effect with
respect to Mountain West. Mountain West's certificate referred to
in Subsection 5.2.1 states that the conditions identified in this
Subsection 5.2.6 are satisfied.
5.2.7 FINANCIAL CONDITION. The following are true, and Mountain West's
certificate referred to in Subsection 5.2.1 confirms the truth of
the following:
(a) Mountain West's allowance for possible loan and lease
losses at Closing was and is adequate to absorb the
anticipated loan and lease losses (taking into account any
recommendations made by Mountain West's certified public
accountants);
(b) the reserves set aside for the contingent liabilities
reflected in the Subsequent Mountain West Financial
Statements are adequate to absorb all reasonably
anticipated losses; and
(c) Mountain West's deposits at Closing, excluding brokered
deposits and jumbo certificates of deposit, total at least
$69 million.
5.2.8 NO CHANGE IN LOAN REVIEW. Mountain West has provided to Glacier
the reports reasonably requested by Glacier under Subsection
4.1.11, and neither these reports nor any examinations conducted
by Glacier under Subsection 4.1.11 reveal a material adverse
change in either: (1) the information set forth in Schedule 7 or
(2) information revealed during Glacier's previous examinations
of the Mountain West's loans.
5.2.9 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding has been
commenced or threatened by any governmental agency to restrain or
prohibit or invalidate the Transaction.
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5.2.10 APPROVAL BY COUNSEL. All actions, proceedings, instruments, and
documents required in connection with this Agreement, the
Transaction, and all other related legal matters have been
approved by Glacier's counsel.
5.2.11 RECEIPT OF TITLE POLICY. Glacier has received all title insurance
reports and update endorsements required under Subsection 4.1.10.
5.2.12 CORPORATE AND STOCKHOLDER ACTION. Mountain West's board of
directors and stockholders, respectively, have approved the
Transaction.
5.2.13 TAX OPINION. Glacier has, at Glacier's expense, obtained from
Graham & Dunn, P.C. and delivered to Mountain West, an opinion
addressed to Mountain West and in form and substance reasonably
satisfactory to Mountain West and its counsel, to the effect that
consummation of the Transaction will not result in a taxable
event for Mountain West or Glacier, and otherwise will have each
of the effects specified below:
(a) The Transaction will qualify as a reorganization within
the meaning of IRC Section 368(a)(1)(A).
(b) Under IRC Section 354(a)(i), Mountain West's stockholders
who, in accordance with Section 1, exchange their Mountain
West Common Stock shares solely for Glacier Common Stock
shares will not recognize gain or loss on the exchange.
(c) Cash payments to Mountain West's stockholders in lieu of a
fractional share of Glacier Common Stock will be treated
as distributions in redemption of the fractional share
interest, subject to the limitations of IRC Section 302.
5.2.14 OPINION OF COUNSEL. Mountain West has obtained from Lukins &
Annis, P.S., and delivered to Glacier an opinion of counsel,
substantially in the form attached to this Agreement as Exhibit
D.
5.2.15 CASH PAID. The aggregate of the cash paid for fractional shares
and Dissenting Shares to holders of Mountain West Common Stock
under this Agreement and applicable law will not exceed 10% of
the cash value of the Exchange Ratio, as it may be adjusted under
this Agreement.
5.2.16 AFFILIATE LETTERS. Glacier has received the affiliate list and
letters specified in Subsection 4.3.2.
5.2.17 REGISTRATION STATEMENT. The Registration Statement, as it may
have been amended, required in connection with the Glacier Shares
to be issued to stockholders under Subsection 1.6, and as
described in Subsection 4.2, has become effective, and no stop
order suspending the effectiveness of such Registration Statement
has been issued or remains in effect, and no proceedings for that
purpose have been initiated or threatened by the SEC the basis
for which still exists.
5.2.18 CONSENTS. Mountain West has obtained the consents as indicated in
Schedule 6.
5.2.19 FAIRNESS OPINIONS. Glacier has received from Columbia, updated
fairness opinions (to be delivered by Mountain West to Glacier at
Mountain West's expense), dated as of or immediately before
Mountain West mails the Prospectus/Proxy Statement to its
stockholders and immediately before Closing, to the effect that
the financial terms of the Transaction are financially fair to
Mountain West's stockholders. Glacier will provide Mountain
West's investment advisor with any information reasonably
requested for the purpose of issuing a fairness opinion.
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5.2.20 ACCOUNTING TREATMENT. It has been determined to Glacier's
satisfaction that the Transaction will be treated for accounting
purposes as a "pooling of interests" in accordance with APB
Opinion No. 16, and Glacier has received a letter to this effect
from KPMG Peat Marwick LLP, certified public accountants.
5.2.21 SOLICITATION OF EMPLOYEES. Neither any member of Mountain West's
board of directors nor any entity with which any such director is
affiliated has solicited any employee of Mountain West or Glacier
with the intention of causing the employee to terminate her
employment with Mountain West or Glacier, as the case may be.
5.2.22 DIRECTOR APPOINTMENT. Effective as of Closing, Mountain West has
appointed Michael J. Blodnick to serve on Mountain West's board
of directors
5.2.23 OTHER MATTERS. Glacier has received any other opinions,
certificates, and documents that Glacier reasonably requests in
connection with this Agreement and the Transaction.
5.3 CONDITIONS TO MOUNTAIN WEST'S OBLIGATIONS. All Mountain West's
obligations under this Agreement are subject to satisfaction of the
following conditions at or before Closing:
5.3.1 REPRESENTATIONS. Glacier's representations and warranties in this
Agreement and in any certificate or other instrument delivered in
connection with this Agreement are true and correct in all
material respects at Closing (except to the extent that they
expressly relate to an earlier date, in which case they are true
in all material respects as of that earlier date). These
representations and warranties have the same force and effect as
if they had been made at Closing. Glacier has delivered to
Mountain West its certificate, executed by a duly authorized
officer of Glacier and dated as of Closing, stating that these
representations and warranties comply with this Subsection 5.3.1.
5.3.2 COMPLIANCE. Glacier has performed and complied in all material
respects with all terms, covenants and conditions of this
Agreement. Glacier has delivered to Mountain West its
certificate, executed by a duly authorized officer of Glacier and
dated as of Closing, stating that Glacier is in compliance with
this Subsection 5.3.2.
5.3.3 NO MATERIAL ADVERSE EFFECT. No damage, destruction, loss or other
event or sequence of events has occurred which, individually or
in the aggregate, has had or potentially may have a Material
Adverse Effect with respect to Glacier. Glacier's certificate
referred to in Subsection 5.3.1 states that the conditions
identified in this Subsection 5.3.3 are satisfied.
5.3.4 NO GOVERNMENTAL PROCEEDINGS. No action or proceeding has been
commenced or threatened by any governmental agency to restrain,
prohibit or invalidate the Transaction.
5.3.5 CORPORATE AND STOCKHOLDER ACTION. Glacier's board of directors
and Mountain West's stockholders have each approved the
Transaction.
5.3.6 TAX OPINION. The tax opinion specified in Subsection 5.2.13 has
been delivered to Mountain West.
5.3.7 OPINION OF COUNSEL. Glacier has obtained from Graham & Dunn, P.C.
and delivered to Mountain West an opinion, addressed to Mountain
West, substantially in the form attached to this Agreement as
Exhibit E.
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5.3.8 FAIRNESS OPINION. Mountain West has received from Columbia an
updated fairness opinion, dated as of or immediately before
Mountain West mails the Prospectus/Proxy Statement to its
stockholders, to the effect that the financial terms of the
Transaction are financially fair to Mountain West's stockholders.
5.3.9 CASH PAID. The aggregate of the cash paid to holders of Mountain
West Common Stock under this Agreement and applicable law will
not exceed 10% of the cash value of the Exchange Ratio, as it may
be adjusted under this Agreement.
5.3.10 REGISTRATION STATEMENT. The Registration Statement, as it may
have been amended, required in connection with the Glacier Shares
to be issued to stockholders under Subsection 1.6, and as
described in Subsection 4.2, has become effective, and no stop
order suspending the effectiveness of such Registration Statement
has been issued or remains in effect, and no proceedings for that
purpose have been initiated or threatened by the SEC the basis
for which still exists.
5.3.11 DIRECTOR APPOINTMENT. Effective as of Closing, Glacier has
appointed Jon W. Hippler to serve on Glacier's board of
directors.
SECTION 6
DIRECTORS, OFFICERS AND EMPLOYEES
6.1 DIRECTORS. As a condition to the execution of this Agreement, each
member of Mountain West's board of directors have entered into the
written agreements described in Recital F with Glacier and Mountain West
on or before the date this Agreement is signed. The director
noncompetition agreements will take effect on the Effective Date.
6.2 EMPLOYMENT AGREEMENT. As a condition to the execution of this Agreement,
Mountain West has entered into an employment agreement, effective as of
the Effective Date, with Jon W. Hippler, Mountain West's current
President and Chief Executive Officer. It is also anticipated that
Mountain West will enter into employment agreements with Robert Beck,
Diane Reed, Ronn C. Rich and Paula Smyly. As part of these employment
agreements, all such individuals will waive all rights they may have
under any previous employment agreements with Mountain West.
6.3 EMPLOYEES. Glacier presently intends to allow Mountain West's employees
who are employed with Mountain West following the Transaction
("Continuing Employees") to participate in certain employee benefit
plans in which employees of Glacier currently participate. Glacier
intends to grant Continuing Employees credit for prior service with
Mountain West for purposes of determining eligibility and vesting.
Benefits for Continuing Employees will begin accruing under Glacier's
plans as soon as practicable after Closing. This expression of intent is
not a contract with Mountain West's employees and will not be construed
to create a contract or employment right with Mountain West's employees.
6.4 INDEMNIFICATION.
6.4.1 Glacier agrees that from and after the Effective Time until 3
years following the Effective Date, Glacier will indemnify and
hold harmless each present and former director and officer of
Mountain West, determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to matters existing
or occurring at or prior to the Effective Time, whether asserted
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or claimed prior to, at or after the Effective Time, to the
fullest extent that Mountain West would have been permitted under
Idaho law and the articles of incorporation or bylaws of Mountain
West in effect on the date of this Agreement to indemnify such
person (and Glacier will also advance expenses as incurred to the
fullest extent permitted under applicable law; provided, that the
person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such
person is not entitled to indemnification).
6.4.2 To the extent that paragraph (a) will not serve to indemnify and
hold harmless an Indemnified Party, for a period of three years
after the Effective Time, Glacier agrees that it will, subject to
the terms set forth herein, indemnify and hold harmless, to the
fullest extent permitted under applicable law (and Glacier will
also advance expenses as incurred to the fullest extent permitted
under applicable law, provided, that the person to whom expenses
are advanced provides an undertaking to repay such advances if it
is ultimately determined that such person is not entitled to
indemnification), each Indemnified Party against any Costs
incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or
investigative, arising out of or pertaining to the transactions
contemplated by this Agreement. In the event any claim or claims
are asserted or made within such three-year period, all rights to
indemnification in respect of any such claim or claims will
continue until final disposition of any and all such claims.
6.4.3 Any Indemnified Party wishing to claim indemnification under
Subsection 6.4.1 or 6.4.2, upon learning of any such claim,
action, suit, proceeding or investigation, will promptly notify
Glacier, but the failure to so notify will not relieve Glacier of
any liability it may have to such Indemnified Party if such
failure does not materially prejudice Glacier. In the event of
any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), Glacier
will have the right to assume the defense thereof and Glacier
will not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently
incurred by such Indemnified Parties in connection with the
defense thereof, except that, if Glacier elects not to assume
such defense or counsel for the Indemnified Parties advises that
there are issues which raise conflicts of interest between
Glacier and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Glacier will pay all
reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received. If such
indemnity is not available with respect to any Indemnified Party,
then Glacier and the Indemnified Party will contribute to the
amount payable in such proportion as is appropriate to reflect
relative faults and benefits.
6.5 EMPLOYEE BENEFIT ISSUES.
6.5.1 COMPARABILITY OF BENEFITS. Glacier confirms to Mountain West its
present intention to provide Continuing Employees with employee
benefit programs which, in the aggregate, are generally
competitive with employee benefit programs offered by financial
institutions of comparable size located in Glacier's and Mountain
West's market area.
6.5.2 TERMINATION AND TRANSFER/MERGER OF PLANS. As soon as practicable
after Closing, all employee benefit plans of Mountain West and
its Subsidiaries will be terminated and the interests of
Continuing Employees in those plans will be transferred or merged
into Glacier's employee benefit plans.
6.5.3 NO CONTRACT CREATED. Nothing in this Agreement gives any employee
of Mountain West or its Subsidiaries a right to continuing
employment.
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SECTION 7
TERMINATION OF AGREEMENT AND
ABANDONMENT OF TRANSACTION
7.1 TERMINATION BY REASON OF LAPSE OF TIME. If Closing does not occur before
the Termination Date, either Glacier or Mountain West may terminate this
Agreement and the Transaction if all of the following conditions are
present:
(a) the terminating party's board of directors decides to terminate
by a majority vote of its members;
(b) the terminating party delivers to the other party written notice
that its board of directors has voted in favor of termination;
and
(c) the failure to consummate the Transaction by the Termination Date
is not due to a breach by the party seeking termination of any of
its obligations, covenants, or representations in this Agreement.
7.2 OTHER GROUNDS FOR TERMINATION. This Agreement and the Transaction may be
terminated at any time before Closing (whether before or after
applicable approval of this Agreement by Mountain West's stockholders,
unless otherwise provided) as follows:
7.2.1 MUTUAL CONSENT. By mutual consent of Mountain West and Glacier,
if the boards of directors of each party agrees to terminate by a
majority vote of its members.
7.2.2 MOUNTAIN WEST'S CONDITIONS NOT MET. By Glacier's board of
directors if, by March 31, 2000, any condition set forth in
Subsections 5.1 or 5.2 has not been satisfied.
7.2.3 GLACIER'S CONDITIONS NOT MET. By Mountain West's board of
directors if, by March 31, 2000, any condition set forth in
Subsections 5.1 or 5.3 has not been satisfied.
7.2.4 MOUNTAIN WEST FAILS TO RECOMMEND STOCKHOLDER APPROVAL OR OPTION
BECOMES EXERCISABLE. By Glacier's board of directors before
Mountain West's stockholders approve the Transaction, if Mountain
West's board of directors: (a) fails to recommend to its
stockholders the approval of the Transaction or (b) modifies,
withdraws or changes in a manner adverse to Glacier its
recommendation to stockholders to approve the Transaction.
7.2.5 IMPRACTICABILITY. By either Glacier or Mountain West, upon
written notice given to the other party, if the board of
directors of the party seeking termination under this Subsection
7.2.5 has determined in its sole judgment, made in good faith and
after due consideration and consultation with counsel, that the
Transaction has become inadvisable or impracticable by reason of
the institution of litigation by the federal government or the
government of the States of Idaho or Montana to restrain or
invalidate the Transaction or this Agreement.
7.3 MOUNTAIN WEST TERMINATION FEE. Mountain West acknowledges that Glacier
has incurred expenses, direct and indirect, in negotiating and executing
this Agreement and in taking steps to effect Transaction. Accordingly,
Mountain West will pay to Glacier $200,000, if (1) this Agreement
terminates because Mountain West does not use all reasonable efforts to
consummate the Transaction in accordance with the terms of this
Agreement; (2) Mountain West terminates this Agreement for any reason
other than the grounds for termination set forth in Subsections 7.1,
7.2.1, 7.2.3 or 7.2.5; or (3) Glacier terminates this Agreement under
Subsections 7.2.2 (other then for failure of a condition set forth in
Subsections 5.1, 5.2.10, 5.2.13, 5.2.17, 5.2.19 or 5.2.20) or 7.2.4. If
this termination fee becomes payable, it will be
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payable on Glacier's demand and must be paid by Mountain West within 3
business days of the date Glacier makes the demand. Glacier's rights
under the Stock Option Agreement are in addition to this Subsection 7.3,
and this Subsection 7.3 does not limit or restrict these rights or the
circumstances under which Glacier may exercise the Option.
7.4 GLACIER TERMINATION FEE. Due to expenses, direct and indirect, incurred
by Mountain West in negotiating and executing this Agreement and in
taking steps to effect the Transaction, Glacier will pay to Mountain
West $100,000 if (1) Glacier terminates this Agreement for any reason
other than the grounds for termination set forth in Subsections 7.1,
7.2.1, 7.2.2, 7.2.4 or 7.2.5 or (2) Mountain West terminates this
Agreement under Subsection 7.2.3 (other than for failure of a condition
set forth in 5.1, 5.3.4, 5.3.6, 5.3.8, 5.3.9, 5.3.10, or 5.3.11, unless
the failure of any of those conditions is due to Glacier's fault). If
this termination fee becomes payable, it will be payable on Mountain
West's demand and must be paid by Glacier within 3 business days of the
date Mountain West makes the demand.
7.5 COST ALLOCATION UPON TERMINATION. In connection with the termination of
this Agreement under this Subsection 7.5, except as provided in
Subsections 7.3 and 7.4, Glacier and Mountain West will each pay their
own out-of-pocket costs incurred in connection with this Agreement, and
will have no other liability to the other party.
SECTION 8
MISCELLANEOUS
8.1 NOTICES. Any notice, request, instruction or other document given under
this Agreement must be in writing and must either be delivered
personally or via facsimile transmission or be sent by registered or
certified mail, postage prepaid, and addressed as follows (or to any
other address or person representing any party as designated by that
party through written notice to the other party):
Glacier Glacier Bancorp, Inc.
49 Commons Loop
Kalispell, MT 59901
Attn: Michael J. Blodnick
Stephen M. Klein, Esq.
Graham & Dunn, P.C.
with a copy to: 1420 Fifth Avenue, 33rd Floor
Seattle, WA 98101-2390
Mountain West Mountain West Bank
P.O. Box 1059
125 Ironwood Drive
Coeur d'Alene, ID 83816
Attn: Jon W. Hippler
with a copy to: Wayne Sweney, Esq.
Lukins & Annis, P.S.
250 NW Blvd., Suite 102
Coeur d'Alene, ID 83814
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<PAGE> 148
8.2 WAIVERS AND EXTENSIONS. Subject to Section 9, Glacier or Mountain West
may grant waivers or extensions to the other party, but only through a
written instrument executed by the Chief Executive Officer or President
of the party granting the waiver or extension. Waivers or extensions
which do not comply with the preceding sentence are not effective. In
accordance with this Section 8, a party may extend the time for the
performance of any of the obligations or other acts of any other party,
and may waive:
(a) any inaccuracies of any other party in the representations and
warranties contained in this Agreement or in any document
delivered in connection with this Agreement;
(b) compliance with any of the covenants of any other party; and
(c) any other party's performance of any obligations under this
Agreement and any other condition precedent set out in Section 5.
8.3 GENERAL INTERPRETATION. Except as otherwise expressly provided in this
Agreement or unless the context clearly requires otherwise: (1) the
defined terms defined in this Agreement include the plural as well as
the singular and (2) references in this Agreement to Sections,
Subsections, Schedules, and Exhibits refer to Sections and Subsections
of and Schedules and Exhibits to this Agreement. Whenever the words
"include", "includes", or "including" are used in this Agreement, the
parties intend them to be interpreted as if they are followed by the
words "without limitation." All accounting terms used in this Agreement
that are not expressly defined in this Agreement have the respective
meanings given to them in accordance with GAAP.
8.4 CONSTRUCTION AND EXECUTION IN COUNTERPARTS. Except as otherwise
expressly provided in this Agreement, this Agreement: (1) contains the
parties' entire understanding, and no modification or amendment of its
terms or conditions will be effective unless in writing and signed by
the parties, or their respective duly authorized agents; (2) will not be
interpreted by reference to any of the titles or headings to the
Sections or Subsections, which have been inserted for convenience only
and are not deemed a substantive part of this Agreement; (3) includes
all amendments to this Agreement, each of which is made a part of this
Agreement by this reference; and (4) may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
taken together will constitute one and the same document.
8.5 SURVIVAL OF REPRESENTATIONS AND COVENANTS. The representations and
covenants in this Agreement will not survive Closing or termination of
this Agreement, except that (1) Subsection 4.9 (confidentiality),
Subsections 7.3 and 7.4 (termination fee), and Subsection 7.5 (expense
allocation) will survive termination and Closing, and (2) the covenants
in this Agreement that impose duties or obligations on the parties
following Closing will survive Closing.
8.6 ATTORNEYS' FEES AND COSTS. In the event of any dispute or litigation
with respect to the terms and conditions or enforcement of rights or
obligations arising by reason of this Agreement or the Transaction, the
prevailing party in any such litigation will be entitled to
reimbursement from the other party for its costs and expenses, including
reasonable judicial and extra-judicial attorneys' fees, expenses and
disbursements, and fees, costs and expenses relating to any mediation or
appeal.
8.7 ARBITRATION. At either party's request, the parties must submit any
dispute, controversy or claim arising out of or in connection with, or
relating to, this Agreement or any breach or alleged breach of this
Agreement, to arbitration under the American Arbitration Association's
rules then in effect (or under any other form of arbitration mutually
acceptable to the parties). A single arbitrator agreed on by the parties
will conduct the arbitration. If the parties cannot agree on a single
arbitrator, each party must select one
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<PAGE> 149
arbitrator and those two arbitrators will select a third arbitrator.
This third arbitrator will hear the dispute. The arbitrator's decision
is final (except as otherwise specifically provided by law) and binds
the parties, and either party may request any court having jurisdiction
to enter a judgment and to enforce the arbitrator's decision. The
arbitrator will provide the parties with a written decision naming the
substantially prevailing party in the action. This prevailing party is
entitled to reimbursement from the other party for its costs and
expenses, including reasonable attorneys' fees.
8.8 GOVERNING LAW AND VENUE. This Agreement will be governed by and
construed in accordance with Montana law, except to the extent that
certain matters may be governed by federal law. The parties must bring
any legal proceeding arising out of this Agreement in Flathead County,
Montana or in the U.S. District Court for the District of Montana.
8.9 SEVERABILITY. If a court determines that any term of this Agreement is
invalid or unenforceable under applicable law, the remainder of this
Agreement is not affected, and each remaining term is valid and
enforceable to the fullest extent permitted by law.
SECTION 9
AMENDMENTS
At any time before the Effective Date, whether before or after the
parties have obtained any applicable stockholder approvals of the Transaction,
the boards of directors of Glacier and Mountain West may: (1) amend or modify
this Agreement or any attached Exhibit or Schedule and (2) grant waivers or time
extensions in accordance with this Section 9. But, after Mountain West's
stockholders have approved this Agreement, the parties' boards of directors may
not without Mountain West stockholder approval amend or waive any provision of
this Agreement if the amendment or waiver would reduce the amount or change the
form of consideration Mountain West stockholders will receive in the
Transaction. All amendments, modifications, extensions and waivers must be in
writing and signed by the party agreeing to the amendment, modification,
extension or waiver. Failure by any party to insist on strict compliance by the
other party with any of its obligations, agreements or conditions under this
Agreement, does not, without a writing, operate as a waiver or estoppel with
respect to that or any other obligation, agreement, or condition.
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
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<PAGE> 150
Signed as of September 9, 1999:
GLACIER BANCORP, INC.
By /s/ Michael J. Blodnick
--------------------------------------
Name: Michael J. Blodnick
Title: President and CEO
MOUNTAIN WEST BANK
By /s/ John W. Hippler
--------------------------------------
Name: Jon W. Hippler
Title: President and CEO
35
<PAGE> 151
STATE OF MONTANA )
) ss.
COUNTY OF FLATHEAD )
On this 9th day of September, 1999, before me personally appeared
Michael J. Blodnick, to me known to be the President and Chief Executive Officer
of GLACIER BANCORP, INC., the corporation that executed the foregoing
instrument, who acknowledged said instrument to be the free and voluntary act
and deed of said corporation, for the uses and purposes mentioned there, and who
stated on oath that he was authorized to execute said instrument, and that the
seal affixed (if any) was the official seal of said corporation.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal to
this document as of the day and year first written above.
/s/ LeeAnn Wardinsky
---------------------------------------------
NOTARY PUBLIC in and for the State of Montana,
residing at Kalispell
----------------------------------.
Title: Executive Secretary
---------------------------------------.
My commission expires: 7-21-03
----------------------.
STATE OF WASHINGTON )
) ss.
COUNTY OF SPOKANE )
On this 8th day of September, 1999, before me personally appeared Jon W.
Hippler, to me known to be the President and Chief Executive Officer of MOUNTAIN
WEST BANK, the corporation that executed the foregoing instrument, who
acknowledged said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes mentioned there, and who stated on oath
that he was authorized to execute said instrument, and that the seal affixed (if
any) was the official seal of said corporation.
IN WITNESS OF THE FOREGOING, I have set my hand and official seal to
this document as of the day and year first written above.
/s/ Jody Hamilton
---------------------------------------------
NOTARY PUBLIC in and for the State of WA,
residing at Spokane
----------------------------------.
Title:
---------------------------------------.
My commission expires: 12/18/00
----------------------.
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APPENDIX B
IDAHO CODE TITLE 26
BANKS AND BANKING
CHAPTER 9
CONSOLIDATION, SALE AND REORGANIZATION
26-909. DISSENTING STOCKHOLDERS.
(1) A dissenting stockholder of a state bank shall be entitled to receive the
value in cash of only those shares which were voted against a merger to
result in a state bank, against the conversion of a state bank into a
national bank or against a sale of all or substantially all of the state
bank's assets, and only if written demand thereupon is made to the
resulting state or national bank at any time within thirty (30) days after
the effective date of the merger or conversion accompanied by the surrender
of the stock certificates. The value of such shares will be determined, as
of the date of the stockholders' meeting approving the merger or
conversion, by three (3) appraisers, one (1) to be selected by the vote of
the owners of two-thirds (2/3) of the shares involved at a meeting called
by the director on ten (10) days' notice, one (1) by the board of directors
of the resulting state or national bank, and the third by the two (2) so
chosen. The valuation agreed upon by any two (2) appraisers shall govern.
If any necessary appraiser is not appointed within sixty (60) days after
the effective date of the merger or conversion, the director shall make the
necessary appointment, or if the appraisal is not completed within ninety
(90) days after the merger or conversion becomes effective, the director
shall cause an appraisal to be made.
(2) The merger agreement may fix an amount which the merging banks consider to
be the fair market value of the shares of a merging or a converting bank at
the time of the stockholders' meeting approving the merger or conversion,
which the resulting bank will pay dissenting stockholders of that bank
entitled to payment in cash. The amount due under such accepted offer or
under the appraisal shall constitute a debt of the resulting state or
national bank.
(3) The expenses of appraisal shall be paid by the resulting state bank except
when the value fixed by the appraiser does not exceed the value fixed by
the merger agreement in which case one-half (1/2) of the expenses shall be
paid by the resulting bank and one-half (1/2) by the dissenting
stockholders requesting the appraisal in proportion to their respective
holdings.
<PAGE> 153
APPENDIX C
December 15, 1999
Board of Directors
Mountain West Bank
125 Ironwood Drive
Coeur d'Alene, ID 83814
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, to the shareholders of Mountain West Bank ("MWB") of the
consideration to be received by such shareholders pursuant to the terms of the
Merger Agreement and Plan of Merger, dated September 7, 1999, (the "Agreement")
between MWB and Glacier Bancorp, Inc. ("GBCI").
In connection with the proposed merger transaction (the "Merger")
whereby MWB will merge into GBCI, each issued and outstanding share of MWB
common stock (along with its associated rights) at the effective time of the
Merger (other than (i) shares of holders of which are exercising appraisal
rights pursuant to applicable law and (ii) shares held directly by or indirectly
by the Bank other than shares held in a fiduciary capacity or in satisfaction of
a debt previously contracted) shall be exchanged in a 100% stock transaction
(the Merger "Consideration"). Each share of MWB common stock and preferred stock
will receive 1.18 shares of GBCI common stock. With the 20 day average of the
closing price of GBCI November 16, 1999 through December 14, 1999 of $16.98, the
estimated value is $20.04 per share.
Columbia Financial Advisors, Inc. ("CFAI") as a part of its investment
banking services, is periodically engaged in the valuation of banks and advises
the directors, officers and shareholders of both public and private banks and
thrift institutions with respect to the fairness, from a financial point of
view, of the consideration to be received in transactions such as that proposed
by the Agreement. With particular regard to our qualifications for rendering an
opinion as to the fairness, from a financial point of view, of the Consideration
to be received by holders of the shares from GBCI pursuant to the Merger, CFAI
has advised Idaho, Montana, Washington and Oregon community banks regarding
fairness of capital transactions. MWB has agreed to pay CFAI a fee for this
opinion letter.
<PAGE> 154
Board of Directors
Mountain West Bank
December 15, 1999
In connection with rendering this opinion, we have, among other things:
(I) reviewed the Agreement; (ii) reviewed MWB's financial information for the
twelve months ended December 31, 1998 and for the nine months ended September
30, 1999; (iii) reviewed certain internal financial analyses and certain other
forecasts for MWB prepared by and reviewed with the management of MWB; (iv)
conducted interviews with senior management of MWB regarding the past and
current business operations, results thereof, financial condition and future
prospects of MWB; (v) reviewed the current market environment generally and the
banking environment in particular; (vi) reviewed the prices paid in certain
recent mergers and acquisitions in the banking industry on a regional basis;
(vii) reviewed GBCI's audited financial information for the fiscal year ended
December 31, 1998 and for the quarter ended September 30, 1999, including the
Forms 10-KSB and 10-QSB filed with the U.S. Securities and Exchange Commission;
(ix) reviewed the price ranges and dividend history for GBCI common stock; (x)
and reviewed such other information, studies and analyses and performed such
other investigations and took into account such other matters as we deemed
appropriate.
In conducting our review and arriving at our opinion, we have relied on
the accuracy and completeness of all information supplied or otherwise made
available to us, and we have not independently verified such information nor
have we undertaken an independent appraisal of the assets or liabilities of the
MWB or GBCI. With respect to the financial forecasts referred to above, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgment of the senior management of MWB. This
opinion is necessarily based upon circumstances and conditions as they exist and
can be evaluated as of the date of this letter. We have not been authorized to
solicit and did not solicit other entities for purposes of a business
combination with MWB.
This opinion is based upon the information available to us and facts
and circumstances as they exist and are subject to evaluation on the date
hereof. We are not expressing any opinion herein as to the prices at which
shares of GBCI Common Stock have traded or may trade at any future date.
This opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote with
respect to the merger.
In reliance upon and subject to the foregoing, it is our opinion that,
as of the date hereof, the Merger Consideration to be received by the
shareholders of MWB pursuant to the Agreement is fair, from a financial point of
view, to the shareholders of MWB.
<PAGE> 155
Board of Directors
Mountain West Bank
December 15, 1999
We hereby consent to the reference to our firm in the proxy statement
or prospectus related to the merger transaction and to the inclusion of our
opinion as an exhibit to the proxy statement or prospectus related to the merger
transaction.
Very truly yours,
COLUMBIA FINANCIAL ADVISORS, INC.
By: /s/ ROBERT J. ROGOWSKI
---------------------------
Robert J. Rogowski
Principal
