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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended: DECEMBER 31, 1999.
[ ] Transition Report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period:
COMMISSION FILE NO. 000-25295
FIRSTIER CORPORATION
(Name of small business issuer in its charter)
COLORADO 47-0484682
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11210 HURON 80234
NORTHGLENN, COLORADO (Zip code)
(Address of principal executive offices)
(303) 451-1010
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
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<CAPTION>
Title of each class Name of each exchange on which registered
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<S> <C>
9.375% Cumulative Preferred Securities American Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Exchange Act:
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes [ ] No [x]
The issuer's revenues for its most recent fiscal year: $27,183,000
At March 28, 2000, there were 7,579,667 shares of common stock outstanding. The
common stock is not publicly traded.
DOCUMENTS INCORPORATED BY REFERENCE:
Transitional Small Business Disclosure Format: Yes [ ] No [x]
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FIRSTIER CORPORATION
FORM 10-KSB
INDEX
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Forward Looking Statement 3
Item 1. Business 3
Item 2. Description of Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Market for Common Equity and Related Stockholder Matters 16
Item 6. Management's Discussion and Analysis or Plan of Operation 16
Item 7. Financial Statements 31
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 31
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act 32
Item 10. Executive Compensation 34
Item 11. Security Ownership of Certain Beneficial Owners and
Management 35
Item 12. Certain Relationships and Related Transactions 37
Item 13. Exhibits and Reports on Form 8-K 38
Signatures 41
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PART I
FORWARD-LOOKING STATEMENTS
Information contained in this Form 10-KSB contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which can be identified by the use of words such as "may," "will," "believes,"
"are finalizing," "goal," "objective(s)," "is (are)," "is scheduled for
completion," "plans to," "anticipates," "would likely," or variations thereon or
comparable terminology. In addition, all statements other than statements of
historical facts that address activities, events or developments that we expect,
believe or anticipate, will or may occur in the future, and other such matters,
are forward-looking statements.
Our future results may vary materially from those anticipated by management, and
may be affected by various trends and factors which are beyond our control.
These risks include, among other factors disclosed elsewhere herein, the
competitive banking environment in which we operate, risks relating to our
growth strategy, changes in general economic conditions and interest rates,
rapid or unexpected changes in technologies and other uncertain business
conditions that affect our business.
ITEM 1. BUSINESS.
GENERAL
FirsTier Corporation, a multi-bank holding company headquartered in the
metropolitan Denver, Colorado area, owns two full service community banks
located in Colorado and Nebraska. Our Colorado bank has 15 banking locations
dispersed throughout the Front Range area of Colorado, which includes the
metropolitan areas of Denver, Boulder, Colorado Springs, Fort Collins and their
surrounding communities. Our Nebraska bank has two banking locations in western
and central Nebraska located along the state's main highway, Interstate 80. Our
community banking philosophy emphasizes relationship banking for small to
mid-sized businesses and consumers. To provide high quality personalized service
to our customers, each of our branches acts as a separate community bank with
significant local decision making authority. While customer-related activities
are decentralized, support functions, such as credit administration, loan
review, data processing, accounting and investments are centralized to take
advantage of economies of scale. As of December 31, 1999, we had total assets of
$706.8 million, loans of $615.6 million, deposits of $602.0 million and
stockholders' equity of $25.7 million.
We have grown significantly since 1995, principally through the establishment of
start-up branches. These branches have typically been established in high growth
segments of the Front Range area of Colorado. Consolidation within the Colorado
banking community has increased the availability of seasoned banking personnel
and has afforded us the opportunity to staff our branches with experienced
commercial lenders who have existing customer relationships. In addition, we
have gained access to attractive banking locations due to the consolidation of
financial institutions in Colorado. Both the availability of experienced banking
personnel and attractive locations have enabled our start-up branches to reach
profitability generally within one year of opening.
GROWTH STRATEGY
Our goal is to continue to expand our franchise while maintaining a profitable,
customer-focused financial institution. We believe that our senior management
and systems infrastructure are adequate to support growth without incurring
proportionate increases in general, administrative and other non-interest
expenses and, furthermore, that current economic conditions in the Front Range
area of Colorado provide us with opportunities for growth. Historically, our
branch expansion has been focused on adding new branches and fostering existing
branch growth. Although we may consider acquisitions of smaller financial
institutions from time to time, external growth is a secondary priority due to
the significant premiums currently being paid to acquire financial institutions
in our market areas.
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NEW BRANCHES. In 1999, our Colorado bank opened branches in downtown Denver,
Longmont, Arvada, Colorado Springs, Parker, and central Boulder, Colorado. In
2000, we anticipate opening a loan production office in Denver for our Colorado
Bank.
We review branch opportunities on an ongoing basis using a systematic approach.
We first review locations, market area demographics and the availability of
seasoned bank professionals. We then formulate projections for potential branch
locations based on the past results of our branches. Based upon these
projections, we determine whether to proceed to open a branch. An integral part
of our branch strategy is recruiting key personnel to manage and operate our new
branches. We generally will not proceed with a new branch until we have
identified a qualified manager with a loyal customer following. We believe that,
by focusing on individuals who are established in their communities and who are
experienced in offering banking products and services, we are able to enhance
our market position and shorten the time required for new branches to become
profitable. We have been able to hire experienced, highly capable bankers who
prefer the autonomy and decision making opportunities provided to them in a
community banking environment. Also, due to the availability of bank branch
locations in Colorado resulting from consolidation within the banking industry,
we have often selected a branch site where a branch of a former bank was
located. We believe that our branching strategy capitalizes on the significant
economic growth in our Colorado market area, and also provides for the needs of
businesses and consumers for full service community banking.
INTERNAL GROWTH. We believe that our largest sources of internal growth come
through our intensive solicitation policy implemented by branch presidents and
lending officers, and by referrals from customers. We believe the primary reason
for referrals is positive customer feedback regarding our customer service and
response time. We believe that a large part of our loan and asset growth to date
has resulted from pre-existing relationships between customers and lending
officers and senior management recruited by us. We also believe that economic
expansion in the Front Range area of Colorado contributes significantly to our
internal growth.
The Colorado banking market in which we operate is dominated by large national
and regional financial institutions. This dominance was achieved through the
purchase of Colorado-based financial institutions over the past several years,
which resulted in a significant consolidation of the Colorado banking industry.
We believe that small to mid-sized businesses often are not adequately served by
large banks, nor are these businesses of sufficient size to be a focus of large
banks, and that individuals frequently have difficulty in finding personalized
banking services. Many of these customers seek a banking relationship with a
smaller and significantly more service oriented community banking organization
such as us. We have designed our operational systems and branch offices to
enable us to provide superior customer service. We believe that our banking
locations are small enough to facilitate personalized services and decision
making, yet of sufficient size to meet most customers' needs.
OPERATING STRATEGY
Our operating strategy is to continue to provide high quality community banking
services to our customers and to increase market share through the active
solicitation of business with existing and new customers, repeat business,
referrals from customers and continuation of selected promotional strategies. We
will continue to implement our operating strategy by:
o Assembling an Experienced Banking Team. We focus on attracting and
retaining high quality personnel. Most of our senior lending personnel
have previous work experience with larger banking organizations and
community banks operating in the Front Range area of Colorado, and have
been attracted to our community banking culture and decentralized
banking approach. We believe that hiring experienced managers reduces
the risks associated with pursuing our operating strategy.
o Maximizing Operational Efficiencies. We seek to maximize operational
and support efficiencies while maintaining high quality customer
service. We use recently developed technology to provide customer
support. Various management and administrative functions are
consolidated, including credit administration
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and servicing, investment management, and accounting, enabling branch
personnel to better focus on customer service and business development.
o Developing Active Marketing Programs. We focus on our active
solicitation program to obtain new business, as well as to augment
products and services that satisfy our customers' needs. Our marketing
programs also use local print and promotional materials in each
location, and we sponsor community events in branch areas.
o Providing High Quality Customer Service. We believe that our ability to
offer high quality customer service provides us with a competitive
advantage over many regional banks that operate in our market areas.
Customer service is emphasized in all aspects of our operations and is
a key component of our employee training programs.
o Maintaining a High Level of Asset Quality. Maintaining a high level of
asset quality is an integral part of our operations. We believe that
our loan underwriting criteria are relatively conservative in nature.
In addition, in administering our loans we follow policies designed for
early identification and resolution of problem credits.
HISTORY
We were organized under Nebraska law in 1963 by our founder and Chairman, Joel
H. Wiens, to purchase our first community bank, Firstate Bank, in Kimball,
Nebraska. In 1993, we began our Colorado banking operation through the purchase
of a bank in Northglenn, Colorado, which we renamed Firstate Bank of Colorado.
In 1995, we began our Colorado expansion through establishing start-up branches
in areas of the Front Range of Colorado that we believed were well situated for
deposit and loan growth. In addition to our branch startups, we purchased a
two-branch savings bank in 1997 that has been assimilated into our Colorado
bank. In September 1999, we changed our name from First Western Corp. to
FirsTier Corporation and moved our state of incorporation to Colorado. We also
changed the name of our Colorado bank to FirsTier Bank, and we intend to change
the name of our Nebraska Bank to FirsTier Bank in the future.
OUR BANKS
Our Colorado bank is a Colorado state chartered bank with total assets of $625.7
million, net loans of $554.4 million and total deposits of $537.3 million as of
December 31, 1999. Our Nebraska bank is a Nebraska state chartered bank with
total assets of $77.5 million, net loans of $58.3 million and total deposits of
$65.8 million as of December 31, 1999.
The following table presents information about each of our branch banking
locations.
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<CAPTION>
BANKING LOCATION YEAR OPENED OR ACQUIRED TOTAL ASSETS AT DECEMBER 31, 1999
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(IN THOUSANDS)
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COLORADO BANK:
Denver Metro Area:
Northglenn 1993 $ 107,422
Thornton 1995 16,575
Cherry Creek 1995 53,850
Westminster 1996 36,877
Denver Tech Center 1998 53,036
Downtown Denver 1999 17,093
Arvada 1999 3,273
Parker 1999 22,670
655 Broadway * --
</TABLE>
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<S> <C> <C>
Boulder Metro Area:
Boulder/Gunbarrel(1) 1997 73,891
Lafayette 1998 40,058
Longmont 1999 26,699
Central Boulder 1999 25,561
Northern Colorado Area:
Greeley(1) 1997 38,953
Loveland 1998 21,848
Fort Collins 1998 26,826
Colorado Springs Metro Area:
Colorado Springs (2) 1999 8,884
NEBRASKA BANK:
Kimball 1963 64,489
Elm Creek 1992 13,000
</TABLE>
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* Scheduled to open early 2000 as a loan production office.
(1) Acquired in 1997.
(2) Opened in May 1999 as a loan production and converted into a full
service branch of our Colorado bank during the fourth quarter of 1999.
PRIMARY MARKET AREAS
Our primary market areas include the Front Range area of Colorado and, to a
lesser extent, western and central Nebraska. The Front Range area is the most
densely populated area in the Rocky Mountain region. As of July 1999, total
population for the area was approximately 3.3 million. The area has experienced
rapid growth over the past several years, with a net population growth of over
600,000 persons since 1990. The Front Range area lies along the eastern edge of
the Rocky Mountains and covers the 10 county area from Pueblo through Fort
Collins, including the Denver and Boulder metropolitan areas. Denver is the
business center of metropolitan Denver and contains a number of newer industrial
and office parks. Boulder has one of the highest concentrations of small
businesses and affluent individuals in the Rocky Mountain region. The population
of Douglas County, where our Parker branch is located, has grown 160% since
1990. Northern Colorado, which encompasses Greeley, Loveland and Fort Collins,
has experienced rapid growth, with nonagricultural employment increasing by over
50% from 1990 through 1999. Employment in the Front Range area is broadly
diversified across the manufacturing, construction, financial services,
wholesale and retail trade, tourism, transportation, communications, technology,
cable television, and government sectors. As of January 2000, the non-seasonally
adjusted unemployment in the Front Range area was approximately 2.7%, which was
below the national average. In 1998, Colorado achieved the thirteenth straight
year of employment growth, with nonagricultural employment increasing 3.7%
during 1999 to approximately 2.17 million. Our Nebraska market area includes the
Nebraska Panhandle, as well as the fringes of southeastern Wyoming and the
northeastern corner of Colorado, with service providers and agriculture being
the primary businesses.
LENDING ACTIVITIES
GENERAL. We provide a broad range of commercial and retail lending services,
including commercial and residential real estate loans, construction loans,
commercial loans and installment loans. Our primary lending focus is on
commercial lending for small to mid-sized businesses with borrowing needs of one
to $10 million. Loans in excess of $5 million are participated primarily to
other financial institutions in our market areas. As of December 31, 1999,
substantially all of our outstanding loans were to customers within our primary
market area.
Interest rates charged on loans vary with the degree of risk, the term, the
underwriting and the servicing costs, the principal amount and the extent of
other banking relationships, and are further subject to competitive pressures,
money market rates, the availability of funds and government regulations.
CREDIT PROCEDURES AND REVIEW. We follow a uniform credit policy established by
our board of directors which contains underwriting and loan administration
criteria, including levels of loan authority, loan types, credit criteria,
concentration limits, loan review and grading and related matters. Our credit
policies are reviewed by our board of
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directors at least once a year. Most of our loans are secured and are supported
by personal guarantees. We address credit risk through internal credit policies
and procedures, including officer and customer lending limits, a multi-layered
loan approval process for loans above a loan officer's lending limits, periodic
document examinations, justification for any exceptions to credit policies, loan
review and concentration monitoring. We also provide ongoing loan officer
training and review, obtain outside independent loan reviews, operate a
centralized processing, document preparation and servicing center for loans and
manage problem assets centrally.
We maintain a loan committee approach to commercial lending, which we believe
yields positive results in both responsiveness to customer needs and asset
quality. We have two regional loan committees comprised of our senior officers
and the senior lending officers of our banks. Each loan committee meets once a
week.
Lending decisions are initially made at the branch level, with loan limits
varying based on a loan officer's experience. Loan limits for unsecured loans
are set at low levels. Loan limits for secured loans for any one lending officer
range from $15,000 to $150,000. However, loan limits for our lending officers
can be aggregated with the lending limit of a more senior officer of the branch.
No single branch has the authority to make unsecured loans over $8,000 or
secured loans over $235,000. For loan amounts above the maximum of a branch,
loan limits can be aggregated with loan limits of other presidents and senior
credit officers of other branches up to $500,000. All loans over $500,000
require approval of one of our regional loan committees.
Under applicable federal and state law, permissible loans to one borrower at
December 31, 1999 were limited to an aggregate of $7.8 million for our Colorado
bank and $1.0 million for our Nebraska bank. However, loan amounts are limited
by us at $4.0 million for the Colorado bank and $1.0 million for the Nebraska
bank. To accommodate customers whose financing needs exceed applicable lending
limits, we participate loans between our banks and we occasionally participate
loans to our affiliates. We also sell loan participations to unaffiliated
financial institutions. All loan participations are sold by us on a nonrecourse
basis. We generally retain the servicing rights on loan participations sold. In
addition, we may purchase loan participations from other banks. We use the same
analysis in deciding whether or not to purchase a participation in a loan as we
would in deciding whether to originate the same loan. The purchase of a
significant amount of loan participations by us could decrease our control over
the magnitude of risk in our loan portfolio because we are not able to control
the ongoing relationship with the borrower after purchasing the participation.
In the ordinary course of business, we enter into various types of transactions
that include commitments to extend credit. We apply the same credit standards to
these commitments as we apply to other lending activities and include these
commitments in our lending risk evaluations. Our exposure to credit loss under
commitments to extend credit is represented by the amount of these commitments.
REAL ESTATE LOANS. Our real estate loans are loans in which real estate serves
as either the primary or secondary source of collateral. Loans of this type are
also supported in most cases by personal guarantees of the business owners. The
real estate that serves as collateral for these loans includes residential first
mortgages, residential second mortgages or commercial mortgages. These loans may
range in maturity from one to five years, with many of the loans maturing in one
year. The interest rates on these loans may be either fixed or floating, with a
substantial percentage involving floating interest rates.
We generally restrict our commercial mortgage lending activities to
owner-occupied properties or investment properties that are owned by customers
with whom we have a current banking relationship. The properties securing our
commercial mortgage loans include multi-family properties, office buildings and
warehouse buildings. Commercial mortgage loans are made with either fixed or
floating interest rates, with maturities ranging from three to seven years.
Substantially all of our commercial mortgage loans are first mortgage loans. In
most cases, we also secure these loans with a personal guarantee of the property
owner. Our underwriting standards generally require that a commercial mortgage
loan not exceed 75% of the appraised value of the property securing the loan. In
addition, we also make commercial mortgage loans that are supported by the Small
Business Administration and are secured by first mortgages. The amount of any of
these loans does not exceed 50% of the appraised value of the
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property securing the loans. The loans typically have terms of five to 15 years
and have floating interest rates.
To a limited extent, we extend financing to individuals who may be considered
subprime credits. As of December 31, 1999, the outstanding balance of these
loans was $2.3 million. These loans are secured primarily by real estate and are
underwritten under more stringent criteria than loans to our other customers.
The collateral for these loans is generally a residential second mortgage. Our
underwriting standards require that the aggregate loan balance to appraised
value does not exceed 85%. The average size of this type of loan is $19,000, the
maturity is generally 15 years and the interest rates are fixed.
CONSTRUCTION LOANS. We provide financing to residential developers that we
believe have demonstrated a record of accurately projecting completion dates and
budgeting expenses. We provide loans for the construction of both presold
projects and projects built prior to the location of a specific buyer, although
loans for projects built prior to a buyer's commitment to purchase are made on a
selective basis with more stringent underwriting criteria. Residential
construction loans have maturities of nine to 12 months, have origination fees,
are collateralized by first liens on the real estate and have floating interest
rates. In addition, in most instances, these loans are accompanied by a personal
guarantee either from the builder, in the case of a residence that is not
presold, or the homeowner who is building a residence. In connection with making
loans for a specific buyer, we require that a permanent financing commitment be
in place. We monitor construction draws monthly and inspect property to ensure
that construction is progressing as specified. Our underwriting standards
generally require that the principal amount of the loan be no more than 75% of
the appraised value of a completed presold residential construction project.
Values are determined by approved, independent appraisers.
We also originate loans to finance the construction of multi-family, office,
industrial and tax credit projects. These projects are predominately owned by
the user of the property or are undertaken by developers who maintain an ongoing
banking relationship with us and who demonstrate sufficient financial net worth
and income. Our underwriting standards generally require that the principal
amount of these loans be no more than 75% of the appraised value. These loans
are collateralized by first liens on the real estate and usually mature within
18 months. We generally receive origination fees in connection with these loans.
We require personal guarantees on these loans from the borrower or the
borrower's owner. From time to time, we will make commercial construction loans
to builders prior to identification of a specific buyer. Our underwriting
criteria for this type of loan is more stringent than for an owner occupied or
presold commercial building.
We selectively provide loans for the acquisition and development of land for
residential and commercial building projects by developers who have a
demonstrated ability to complete land development projects in a timely and
economical manner and who maintain an ongoing banking relationship with us. We
also extend these loans to large regional builders who have significant net
worth. These loans are collateralized by first liens on the real estate, range
in maturity from 18 to 36 months, carry floating interest rates and are often
accompanied by personal guarantees. Our underwriting standards generally require
that the principal amount of these loans be no more than 50% of the appraised
value for undeveloped land and 65% of the appraised value where improvements
have been installed.
RESIDENTIAL MORTGAGE LOANS. We have a residential mortgage lending department
that originates first mortgages. Our strategy is to earn fee income, including
fees from selling the servicing rights to mortgages, in connection with mortgage
originating. Accordingly, we generally do not retain residential mortgage loans
in our loan portfolio. Rather, residential mortgage loans at any particular date
are classified as held for sale. Once we originate a residential mortgage loan,
we sell it to one of our six mortgage buyers with which we have resale
contracts. We underwrite our residential mortgage loans under standards set
forth in our mortgage resale contracts, thereby allowing the sale of the
residential mortgages to our mortgage buyers to occur shortly after these loans
are made. Most of the residential mortgages we underwrite are sold within two to
three weeks after the loans are made.
COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS. These loans consist primarily of
loans to businesses for various purposes, including revolving lines of credit
and equipment financing. These loans generally mature within one year, have
adjustable interest rates and are secured by inventory, accounts receivable,
livestock, crops, machinery or other
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commercial assets. We also extend equipment loans that typically have terms of
three to five years, carry fixed interest rates and are secured by the
equipment.
CONSUMER LOANS. We provide a broad range of consumer loans to customers,
including installment loans, personal lines of credit, debit cards, home equity
loans and automobile loans. In order to improve customer service, continuity and
customer retention, management of commercial banking customers often work with
the same loan officer who handles their commercial banking relationship.
Installment loans to individuals, which are not secured by real estate,
generally have terms of two to five years and bear interest at fixed rates.
These loans are usually secured by motor vehicles, investment securities or
other personal assets.
DEPOSIT ACTIVITIES
We offer a wide range of deposit products including regular checking, checking
with interest, money market accounts, regular savings accounts, certificates of
deposit, IRAs and corporate cash management and debit cards. Deposits at our
banks are insured by the Federal Deposit Insurance Corporation up to statutory
limits. In addition to our banking locations, we also provide additional access
for our customers through on-line internet banking, telephone banking, Visa
debit cards and 20 automatic teller machines. In addition, our banks offer
investment products for individuals and businesses. We recently began a private
banking division that offers highly personalized services to a select group of
clients primarily through the Internet.
COMPETITION
The banking business in the Front Range area of Colorado is highly competitive
and is currently dominated by a number of large regional financial institutions,
including Wells Fargo & Company, U.S. Bancorp Inc., Banc One Corporation, Zions
Bancorporation and KeyCorp. In addition to these regional banks, there are a
number of community banks that operate in the area, including Colorado Business
Bank, Guaranty Bank and Trust Company, Colorado State Bank & Trust, First Bank
Holding Company of Colorado and Union Bank and Trust. Our Nebraska bank competes
with First National Bank of Omaha and American National Bank in Kimball,
Nebraska. We compete for loans and deposits with other commercial banks,
including those listed above, savings and loan associations, finance companies,
insurance companies, credit unions and mortgage bankers. In addition to the
traditional financial institutions, we also compete for loans with brokerage and
investment banking companies, non-financial institutions, including retail
stores that maintain their own credit programs, and governmental agencies that
make available low cost or guaranteed loans to certain borrowers. Particularly
in times of high interest rates, we also face significant competition for
deposits from sellers of short-term money market securities and other corporate
and government securities.
By virtue of their larger capital bases or their affiliation with larger
multi-bank holding companies, many of our competitors have substantially greater
capital resources and lending limits than we do. As a result, we may experience
greater competition in our primary service areas. Our business, financial
condition, results of operations and cash flows may be adversely affected by an
increase in competition. Moreover, recently enacted and proposed legislation has
focused on expanding the ability of participants in the banking industry to
engage in other lines of business. The enactment of this legislation could put
us at a competitive disadvantage because we may not have the capital to
participate in other lines of business to the same extent as more highly
capitalized bank holding companies.
We compete for loans and deposits principally through the scope and quality of
the services we provide. We believe that our personalized service enables us to
compete favorably with larger financial institutions in our target market of
small to medium-sized businesses. We actively solicit deposit related clients
and compete for deposits by offering customers personal attention and superior
service.
We face competition for our personnel. We compete by emphasizing branch autonomy
and our community banking philosophy. Management believes that we are able to
compete for personnel effectively in our market areas.
We will also face competition in the acquisitions of suitable branch sites. Many
of our competitors have substantially greater resources than we do and may be
able to offer greater consideration for branch sites or to locate banking sites
more effectively.
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SUPERVISION AND REGULATION
GOVERNMENT REGULATION
We and our banks are extensively regulated under federal, Colorado and Nebraska
law. These laws and regulations are primarily intended to protect depositors and
the deposit insurance fund of the Federal Deposit Insurance Corporation, not our
shareholders. The following information is qualified in its entirety by
reference to the particular statutory and regulatory provisions. Any change in
applicable laws, regulations or regulatory policies may have a material effect
on our business, operations and prospects.
FIRSTIER
GENERAL. We are a bank holding company registered under the Bank Holding Company
Act of 1956 and are subject to regulation, supervision and examination by the
Federal Reserve. We are required to file an annual report and the other reports
as the Federal Reserve now requires or may require.
FINANCIAL MODERNIZATION LEGISLATION
The Gramm-Leach-Bliley Act ("GLBA"), enacted on November 12, 1999, expands the
bank holding company act framework to permit bank holding companies with
subsidiary banks meeting certain capital and management requirements to elect to
become "financial holding companies." A bank holding company may become a
financial holding company if each of its subsidiary banks is well capitalized
under the FDICIA prompt corrective action provisions, is well managed, and has
at least a satisfactory rating under the Community Reinvestment Act (CRA) by
filing a declaration that the bank holding company wishes to become a financial
holding company. We do not intend to become a financial holding company at this
time nor are we qualified to do so. Beginning March 2000, financial holding
companies may engage in a full range of financial activities, including not only
banking, insurance and securities activities, but also merchant banking and
additional activities determined to be "financial in nature." The GLBA also
provides that the list of permissible activities will be expanded as necessary
for a financial holding company to keep abreast of competitive and technological
change.
Although it preserves the Federal Reserve as the umbrella supervisor of
financial holding companies, the GLBA adopts an administrative approach to
regulation that defers to the actions and paperwork requirements of the
"functional" regulators of insurers, broker-dealers, investment companies and
banks. Thus, the various state and federal regulators of financial holding
company's operating subsidiaries would retain their jurisdiction and authority
over such operating entities. As the umbrella supervisor, however, the Federal
Reserve has the potential to affect the operations and activities of financial
holding companies' subsidiaries through its power over the financial holding
company parent. In addition, the GLBA contains numerous trigger points related
to legal noncompliance and other serious problems affecting bank affiliates that
could lead to direct Federal Reserve involvement and to the possible exercise of
remedial authority affecting both financial holding companies and their
affiliated operating companies. The GLBA contains restrictions on financial
institutions regarding the sharing of customer nonpublic personal information
with non-affiliated third parties unless the customer has had an opportunity to
opt out of the disclosure. The act also imposes periodic disclosure requirements
concerning a financial institution's policies and practices regarding data
sharing with affiliated and non-affiliated parties.
ACQUISITIONS. As a bank holding company, we are required to obtain the prior
approval of the Federal Reserve before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of a bank or bank holding company.
The Federal Reserve will not approve any acquisition, merger or consolidation
that would have a substantial anti-competitive result, unless the
anti-competitive effects of the proposed transaction are outweighed by a greater
public interest in meeting the needs and convenience of the public. The Federal
Reserve also considers managerial, capital and other financial factors in acting
on acquisition or merger applications.
10
<PAGE> 11
PERMISSIBLE ACTIVITIES. Subject to limited exceptions, a bank holding company
may not engage in, or acquire direct or indirect control of more than 5% of the
voting shares of any company engaged in a non-banking activity, unless this
activity has been determined by the Federal Reserve to be closely related to
banking or managing banks. The Federal Reserve has identified specific
non-banking activities in which a bank holding company may engage with notice
to, or prior approval by, the Federal Reserve.
CAPITAL ADEQUACY. The Federal Reserve monitors the regulatory capital adequacy
of bank holding companies. As discussed below, our banks are also subject to the
regulatory capital adequacy requirements of the Federal Deposit Insurance
Corporation and Colorado and Nebraska regulations, as applicable. The Federal
Reserve uses a combination of risk-based guidelines and leverage ratios to
evaluate our regulatory capital adequacy.
The Federal Reserve has adopted a system using risk-based capital adequacy
guidelines to evaluate the regulatory capital adequacy of bank holding companies
on a consolidated basis. Under the risk-based capital guidelines, different
categories of assets are assigned different risk weights, based generally on the
perceived credit risk of the asset. These risk weights are multiplied by
corresponding asset balances to determine a risk-weighted asset base. Some off
balance sheet items, such as loan commitments in excess of one year, mortgage
loans sold with recourse and letters of credit, are added to the risk-weighted
asset base by converting them to a balance sheet equivalent and assigning to
them the appropriate risk weight. For purposes of the regulatory risk-based
capital guidelines, total capital is defined as the sum of tier 1 and tier 2
capital elements, with tier 2 capital being limited to 100% of tier 1 capital.
For bank holding companies, tier 1 capital generally includes common
shareholders' equity, perpetual preferred stock and minority interests in
consolidated subsidiaries less the unamortized balance of intangible assets. No
more than 25% of tier 1 capital may be comprised of cumulative preferred stock,
such as the trust preferred securities. Tier 2, also known as Secondary Capital,
capital generally includes certain forms of perpetual preferred stock, as well
as maturing capital instruments and the allowance for loan losses, limited to
1.25% of risk-weighted assets. The regulatory guidelines generally require a
minimum ratio of total capital to risk-weighted assets of 8% to be adequately
capitalized, of which at least 4% should be in the form of tier 1 capital.
In addition to the risk-based capital guidelines, the Federal Reserve and the
Federal Deposit Insurance Corporation use a leverage ratio as an additional tool
to evaluate the capital adequacy of banks and bank holding companies. The
leverage ratio is defined as a company's tier 1 capital divided by its average
assets. The current minimum required leverage ratio is 4%.
The table below presents our ratios of (1) total capital to risk-weighted
assets, (2) tier 1 capital to risk-weighted assets and (3) tier 1 capital to
average assets, at December 31, 1999.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
RATIO ACTUAL MINIMUM REQUIRED
----- ------ ----------------
<S> <C> <C>
Total capital to risk-weighted assets ............................. 8.23% 8.00%
Tier 1 capital to risk-weighted assets ............................ 5.16 4.00
Tier 1 capital to average assets .................................. 5.15 4.00
</TABLE>
THE BANKS
GENERAL. The deposits are insured by the Federal Deposit Insurance Corporation,
and both banks are subject to supervision and regulation by the Federal Deposit
Insurance Corporation. In addition, the Colorado bank is regulated by the
Colorado Division of Banking and the Nebraska bank is regulated by the Nebraska
Department of Banking and Finance.
PERMISSIBLE ACTIVITIES. No bank formed under Colorado or Nebraska law may engage
in any activity not permitted for national banks, unless the institution
complies with applicable capital requirements and the Federal Deposit Insurance
Corporation determines that the activity poses no significant risk to the Bank
Insurance Fund. Neither our Colorado bank nor our Nebraska bank are presently
involved in the types of activities covered by this limitation.
11
<PAGE> 12
COMMUNITY REINVESTMENT ACT. Enacted in 1977, the federal Community Reinvestment
Act has become significant to financial institutions, including their holding
companies. The Community Reinvestment Act currently allows regulators to turn
down an applicant seeking to make an acquisition or establish a branch unless it
has performed satisfactorily under the Community Reinvestment Act. Satisfactory
performance means meeting adequately the credit needs of the communities the
applicant serves. The applicable federal regulators regularly conduct Community
Reinvestment Act examinations to assess the performance of financial
institutions. During the last examination, ratings of satisfactory were received
by our Colorado bank and our Nebraska bank. As a result, management believes
that our banks' performance under Community Reinvestment Act will not impede
regulatory approvals of any proposed acquisitions or branching opportunities.
DIVIDEND RESTRICTIONS. Dividends paid by our banks provide substantially all of
our operating cash flow. Under Colorado and Nebraska law, the approval of the
principal regulator is required prior to the declaration of any dividend by a
bank if the total of all dividends declared in any calendar year exceeds the
total of its net profits of that year combined with its retained net profits for
the preceding two years. In addition, a bank cannot pay a dividend if it will
cause its bank to be undercapitalized.
EXAMINATIONS. Our banks are examined from time to time by the Federal Deposit
Insurance Corporation. Based upon an evaluation, the examining regulator may
revalue the assets of an insured institution and require that it establish
specific reserves to compensate for the difference between the value determined
by the regulator and the book value of the assets. The Colorado Division of
Banking and the Nebraska Department of Banking and Finance also conduct
examinations of state-chartered banks. Both of these regulators may accept the
results of a federal examination in lieu of conducting an independent
examination. Both the Colorado and Nebraska banking regulators have the
authority to revalue the assets of a state-chartered institution and require it
to establish reserves.
CAPITAL ADEQUACY. The Federal Deposit Insurance Corporation has adopted
regulations establishing minimum requirements for the capital adequacy of
insured institutions. The requirements address both risk-based capital and
leverage capital, with risk-based assets and tier 1 and tier 2 capital being
determined in basically the same manner as described above for bank holding
companies. The Federal Deposit Insurance Corporation may establish higher
minimum requirements if, for example, a bank has previously received special
attention or has a high susceptibility to interest rate risk.
The Federal Deposit Insurance Corporation risk-based capital guidelines require
state non-member banks to have a ratio of tier 1 capital to risk-weighted assets
of 4% and a ratio of total capital to risk-weighted assets of 8%.
The Federal Deposit Insurance Corporation leverage guidelines require that state
banks maintain tier 1 capital of no less than 3% and up to 5% of average assets.
The applicable guideline for our banks is estimated to be 4%. Banks with
regulatory capital ratios below the required minimum are subject to
administrative actions, including the termination of deposit insurance upon
notice and hearing, or a temporary suspension of insurance without a hearing in
the event the institution has no tangible capital.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999
--------------------
COLORADO BANK NEBRASKA BANK
------------- -------------
MINIMUM MINIMUM
RATIO ACTUAL REQUIRED ACTUAL REQUIRED
----- ------ -------- ------- --------
<S> <C> <C> <C> <C>
Total capital to risk-weighted assets ........................... 9.09% 8.00% 14.15% 8.00%
Tier 1 capital to risk-weighted assets .......................... 8.33 4.00 12.90 4.00
Tier 1 capital to average assets ................................ 8.33 4.00 10.81 4.00
</TABLE>
Banking regulators have adopted regulations that define five capital levels:
well capitalized; adequately capitalized; undercapitalized; significantly
undercapitalized; and critically undercapitalized. An institution is critically
undercapitalized if it has a tangible equity to total assets ratio that is equal
to or less than 2%. An institution is well capitalized if it has a total
risk-based capital ratio of 10% or greater, a tier 1 risk-based capital ratio of
6% or greater and a tier 1 capital leverage ratio of 5% or greater, and the
institution is not subject to an order, written agreement,
12
<PAGE> 13
capital directive, or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure. An institution is adequately
capitalized if it has a total risk-based capital ratio of not less than 8%, a
tier 1 risk-based capital ratio not less than 4% and a leverage ratio of not
less than 4%. Under these regulations, as of December 31, 1999, our Colorado
bank was adequately capitalized and our Nebraska bank was well capitalized.
The Federal Deposit Insurance Corporation Improvement Act requires the federal
banking regulators to take prompt corrective action to resolve the problems of
depository institutions, including capital-deficient institutions. In addition
to requiring the submission of a capital restoration plan, the Federal Deposit
Insurance Corporation Improvement Act contains broad restrictions on activities
of undercapitalized institutions involving asset growth, acquisitions, branch
establishment, and expansion into new lines of business. With limited
exceptions, an insured depository institution is prohibited from making capital
distributions, including dividends, and is prohibited from paying management
fees to control persons if the institution would be undercapitalized after any
distribution or payment.
As an institution's capital decreases, the powers of the federal banking
regulators become greater. A significantly undercapitalized institution is
subject to mandated capital raising activities, restrictions on interest rates
paid and transactions with affiliates, removal of management, and other
restrictions. The regulators have limited discretion in dealing with a
critically undercapitalized institution and are generally required to appoint a
receiver or conservator if the capital deficiency is not corrected promptly.
If the Federal Deposit Insurance Corporation incurs losses in connection with
the failure of an insured institution or in assisting an insured institution, it
can hold commonly controlled, insured depository institutions liable for the
losses. This liability to the Federal Deposit Insurance Corporation will have
priority over obligations to the institution's shareholders and affiliates.
SAFETY AND SOUNDNESS STANDARDS. The federal regulators have adopted uniform
standards for the safe and sound operation of financial institutions. The
regulators require banks to maintain internal controls, information systems and
internal audit systems that are appropriate for the size, nature and scope of
the institution's business. The regulators also require certain standards to be
observed in loan documentation, credit underwriting, interest rate risk
exposure, and asset growth.
REAL ESTATE LENDING EVALUATIONS. The federal regulators have adopted uniform
standards for evaluations of loans secured by real estate or made to finance
improvements to real estate. Banks are required to establish and maintain
written internal real estate lending policies consistent with safe and sound
banking practices and appropriate to the size of the institution and the nature
and scope of its operations. The regulations establish loan to value ratio
limitations on real estate loans, which generally are equal to or less than the
loan to value limitations established by our banks.
DEPOSIT INSURANCE PREMIUMS. The assessment schedule for banks ranges from 0 to
27 cents per $100 of deposits subject to Bank Insurance Fund assessments, based
on each institution's risk classification. Our banks' insured deposits are
subject to assessment payable to the Bank Insurance Fund. An institution's risk
classification is based on an assignment of the institution by the Federal
Deposit Insurance Corporation as of December 31 of each year to one of three
capital groups and to one of three supervisory subgroups. The capital groups are
well capitalized, adequately capitalized and undercapitalized. The three
supervisory subgroups are Group A, for financially solid institutions with only
a few minor weaknesses, Group B, for those institutions with weaknesses which,
if uncorrected could cause substantial deterioration of the institution and
increase the risk to the deposit insurance fund, and Group C, for those
institutions with a substantial probability of loss to the Bank Insurance Fund
absent effective corrective action. Currently, our Colorado bank is in the
adequately capitalized classification and has a Group A supervisory subgroup
rating, and our Nebraska bank is in the well capitalized classification and also
has a Group A supervisory subgroup rating.
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<PAGE> 14
TRANSACTIONS WITH AFFILIATES AND INSIDERS AND OTHER LENDING RESTRICTIONS. Our
banks are subject to the provisions of Section 23A of the Federal Reserve Act,
which places both quantitative and qualitative limits on extensions of credit
and certain other transactions with affiliates. Section 23B of the Federal
Reserve Act also applies to our banks and requires, among other things, that
transactions with affiliates be on terms that are at least as favorable as those
prevailing at the time for comparable transactions with non-affiliates. A
similar restriction applies to extensions of credit made by our banks to any of
their executive officers, directors, and certain principal shareholders.
Finally, our banks are governed by state limits on the amount that may be loaned
to any one borrower.
INTERSTATE BANKING LEGISLATION. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, which became effective September 1995, has eliminated
many of the historical barriers to the acquisition of banks by out-of-state bank
holding companies. This law facilitates the interstate expansion and
consolidation of banking organizations by permitting:
o bank holding companies that are adequately capitalized and managed to
acquire banks located in states outside their home states regardless of
whether acquisitions are authorized under the laws of the host state;
o the interstate merger of banks, subject to the right of individual
states either to pass legislation providing for earlier effectiveness
of mergers or to opt out of this authority prior to that date;
o banks to establish new branches on an interstate basis provided that
this action is specifically authorized by the law of the host state;
o foreign banks to establish, with approval of the appropriate regulators
in the United States, branches outside their home states to the same
extent that national or state banks located in that state would be
authorized to do so; and
o banks to receive deposits, renew time deposits, close loans, service
loans and receive payments on loans and other obligations as agent for
any bank or thrift affiliate, whether the affiliate is located in the
same or different state.
Our banks do not currently have any plans to take any actions permitted by this
law.
BRANCH BANKING IN COLORADO. Since July 1, 1993, Colorado has permitted any
"financial institution" to convert any "affiliate financial institution" into a
branch. Since August 1, 1991 but prior to July 1, 1993, the conversion rights
had been subject to percentage limitations, which percentage limitations ceased
on June 30, 1993. Colorado's branch banking statute defines "financial
institution" as any bank, bank holding company, industrial bank, industrial bank
holding company, savings and loan association, federal savings bank, or thrift
holding company. Colorado's branch banking statute defines "affiliate financial
institution" as any bank, industrial bank, or savings and loan association which
has its principal place in Colorado and is controlled by a financial
institution. Since January 1, 1997, Colorado has permitted any bank, industrial
bank, or savings and loan association, to the extent it has its principal place
of business in Colorado, to establish one or more "de novo" branches anywhere in
Colorado upon 30 days' written notice to the appropriate regulatory authority.
Also since January 1, 1997, any bank, industrial bank, or savings and loan
association that has its principal place of business in Colorado and had its
charter approved or conditionally or preliminarily approved on or after April 1,
1991, may be converted into a branch of any bank, industrial bank, or savings
and loan association upon 30 days' written notice to the appropriate regulatory
authority.
Colorado law provides that no financial institution that acquires any other
financial institution may convert the acquired institution into a branch if it
would result in the acquiring institution controlling more than 25% of the
aggregate of all deposits in all banks, savings and loan associations, federal
savings banks, and other financial institutions in Colorado that are federally
insured.
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<PAGE> 15
CHANGING REGULATORY STRUCTURE
The laws and regulations affecting banks and bank holding companies are in a
state of flux. The rules and the regulatory agencies in this area have changed
significantly over recent years, and there is reason to expect that similar
changes will continue in the future. It is not possible to predict the outcome
of these changes.
One of the major additional burdens imposed on the banking industry is the
increased authority of federal agencies to regulate the activities of federal
and state banks and their holding companies. The Federal Reserve, the
Comptroller of the Currency and the Federal Deposit Insurance Corporation have
extensive authority to police unsafe or unsound practices and violations of
applicable laws and regulations by depository institutions and their holding
companies. These agencies can assess civil money penalties and other laws have
expanded the agencies' authority in recent years, and the agencies have not yet
fully tested the limits of their powers. In addition, the Colorado Division of
Banking and the Nebraska Department of Banking and Finance possess broad
enforcement powers to address violations of their banking laws by banks
chartered in each respective state.
EFFECT OF ECONOMIC ENVIRONMENT
The policies of regulatory authorities, including the monetary policy of the
Federal Reserve, have a significant effect on the operating results of bank
holding companies and their subsidiaries. Among the means available to the
Federal Reserve to affect the money supply are open market operations in U.S.
Government securities, changes in the discount rate on member bank borrowings,
and changes in reserve requirements against member bank deposits. These means
are used in varying combinations to influence overall growth and distribution of
bank loans, investments and deposits, and their use may affect interest rates
charged on loans or paid on deposits.
The Federal Reserve's monetary policies have materially affected the operating
results of commercial banks in the past and are expected to continue to do so in
the future. The nature of future monetary policies and the effect of these
policies on our business and earnings cannot be predicted.
ITEM 2. PROPERTIES.
Our principal offices, and those of our Colorado bank, are located in a two
story, 14,000 square foot building we own at 11210 Huron Street, Northglenn,
Colorado. We also own our Thornton, Cherry Creek, Loveland, Fort Collins,
Longmont, Arvada, Kimball and Elm Creek land and bank buildings. All of our
other banking location offices are leased or will be leased under long-term
agreements with unaffiliated third parties. These leases typically have five to
10 year terms, with options to extend at market rates. With the exception of our
principal offices, our banking locations range in size from 1,500 square feet to
8,500 square feet. We also lease a 6,000 square foot operations facility next to
our Thornton branch from a partnership owned by three of our officers and
directors. See "Item 12 -- Certain Relationships and Related Transactions." All
of our properties are in good working condition. Total payments for our leased
facilities are expected to be $948,000 for 2000.
ITEM 3. LEGAL PROCEEDINGS.
We are from time to time parties to various legal actions arising in the normal
course of business. Our management believes that there is no proceeding
threatened or pending against us or any of our subsidiaries which, if determined
against us, would have a material negative effect on our consolidated financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of our security holders during the
fourth quarter of 1999.
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<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Our common stock is not publicly traded. We have never declared or paid any
dividends on our common stock. We do not anticipate paying any cash dividends in
the foreseeable future. We currently intend to retain any future earnings to
finance the development and expansion of our business. Any future determination
to pay cash dividends will be at the discretion of the board of directors and
will be based upon our financial condition, operating results, capital
requirements, regulatory constraints and such other factors as the board of
directors deems relevant. Securities issued by our subsidiary, FW Capital I, are
traded on the American Stock Exchange under symbol, FWT.Pr.A.
Colorado law permits us to pay dividends on our common stock when we are solvent
and when dividend payments would not render us insolvent. Our ability to pay
cash dividends largely depends on the amount of cash dividends paid to us by our
subsidiary banks. Capital distributions, including dividends by financial
institutions such as our subsidiary banks, are subject to restrictions tied to
each institution's earnings and capital. Generally, without prior regulatory
approval, our subsidiary banks cannot pay dividends during any calendar year in
excess of the sum of their earnings during that year and the two previous years,
less any other distributions during that period. See "Item 1 -- Supervision and
Regulation."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements and related notes included elsewhere in this report. Our
future operating results may be affected by various trends and factors which are
beyond our control. Past results and trends may not be reliable indicators of
future results or trends. With the exception of historical information, the
matters discussed below include forward-looking statements that involve risks
and uncertainties.
Overview
We have experienced significant growth since 1995 primarily due to our start-up
branch expansion strategy. Total assets have increased to $706.8 million as of
December 31, 1999, from $367.2 million as of December 31,1998 and $227.6 million
as of December 31, 1997. Net income was $5.1 million for the twelve months ended
December 31, 1999 and $3.4 million for the year ended December 31, 1998 and $2.5
million for 1997. We have increased our net income while opening new branches
and absorbing branch start up costs. Our new branches typically take up to one
year to achieve profitability. Our return on average common equity was 21.66%
for 1999, 17.94% for 1998 and 16.31% for 1997. Our return on average assets was
0.97% for 1999, 1.18% for 1998 and 1.35% for 1997. The decrease in our return on
average assets since 1996 primarily has been attributable to our significant
asset growth and a change in our deposit funding mix. Our return on average
assets has been further negatively impacted by loan loss allowance increases,
which we have incurred since the fourth quarter of 1998, and the first quarter
of 1999 when we implemented our revised loan loss reserve methodology.
Results of Operations
Net Interest Income. Our net income is derived primarily from net interest
income. Net interest income is the difference between interest income,
principally from loans, investment securities and funds sold, and interest
expense, principally on customer deposits and other interest-bearing
liabilities. Changes in net interest income result from changes in volume, net
interest spread and net interest margin. Volume refers to the average dollar
levels of earning assets and interest-bearing liabilities. Net interest spread
refers to the difference between the average yield on earning assets and the
average cost of interest-bearing liabilities. Net interest margin refers to net
interest income divided by average earning assets and is influenced by the level
and relative mix of earning assets and interest-bearing liabilities and their
yields and rates.
The following table presents the average balances, net interest income and
expense and average yields and rates for our earning assets and interest-bearing
liabilities for the indicated periods on a tax equivalent basis assuming a 34%
tax rate.
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<PAGE> 17
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998
--------------------------------- ------------------------------
Interest Average Interest Average
Average earned or yield or Average earned or yield or
balance paid cost balance paid cost
------- --------- -------- ------- --------- --------
(Dollar in Thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Investment securities
Taxable $ 22,190 $ 1,220 5.50% $ 22,797 $ 1,224 5.37%
Tax exempt (tax equivalent) 8,393 678 8.08 8,917 758 8.50
Funds sold and interest-bearing
deposits 12,823 735 5.73 16,147 870 5.39
Loans held for sale 1,839 121 6.58 3,327 193 5.80
Loans(1) 126,914 13,739 10.83 218,214 23,967 10.98
Allowance for loan losses (1,176) -- (1,507) --
-------- --------- -------- ---------
Total earning assets $170,983 $ 16,493 9.65% $267,895 $ 27,012 10.08%
-------- --------- -------- -------- --------- -------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Demand, interest bearing $ 23,097 $ 630 2.73% $ 31,240 $ 987 3.16%
Savings 18,897 795 4.21 23,657 1,043 4.41
Certificates of deposit:
Under $100,000 72,229 4,412 6.11 126,396 7,751 6.13
$100,000 and over 19,500 1,149 5.89 35,349 2,103 5.95
-------- --------- -------- -------- --------- -------
Total interest-bearing deposits 133,723 6,986 5.22 216,642 11,884 5.49
Federal Home Loan Bank
borrowings, federal funds purchased and
securities sold under agreements to
repurchase 7,031 382 5.43 10,703 571 5.33
Company obligated
mandatorily redeemable
preferred securities of
subsidiary trust -- -- -- -- -- --
Note payable 1,500 113 7.53 3,846 299 7.77
-------- --------- -------- ---------
Total interest-bearing
liabilities $142,254 7,481 5.26% $231,191 12,754 5.52%
-------- --------- -------- ---------
Net interest income
(tax equivalent) $ 9,012 $ 14,258
--------- ---------
Net interest margin 5.27 5.32
Net interest spread 4.39% 4.56%
Ratio of average interest-bearing
liabilities to average earning assets 83.20% 86.30%
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1999
------------------------------
Interest Average
Average earned or yield or
balance paid cost
------- --------- --------
<S> <C> <C> <C>
EARNING ASSETS:
Investment securities
Taxable $ 33,911 $ 1,866 5.50%
Tax exempt (tax equivalent) 8,775 783 8.92
Funds sold and interest-bearing
deposits 12,418 600 4.83
Loans held for sale 3,472 228 6.57
Loans(1) 428,107 44,527 10.40
Allowance for loan losses (3,572) --
-------- ---------
Total earning assets $483,111 $ 48,004 9.94%
-------- --------- --------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Demand, interest bearing $ 68,652 $ 2,710 3.95%
Savings 32,077 1,430 4.46
Certificates of deposit:
Under $100,000 231,845 13,280 5.73
$100,000 and over 60,216 3,499 5.81
-------- --------- --------
Total interest-bearing deposits 392,790 20,919 5.33
Federal Home Loan Bank
borrowings, federal funds purchased and
securities sold under agreements to
repurchase 19,424 1,090 5.61
Company obligated
mandatorily redeemable
preferred securities of
subsidiary trust 20,117 1,886 9.38
Note payable 4,155 355 8.54
-------- ---------
Total interest-bearing
liabilities $436,486 24,250 5.56%
-------- --------
Net interest income
(tax equivalent) $ 23,754
--------
Net interest margin 4.92
Net interest spread 4.38%
Ratio of average interest-bearing
liabilities to average earning assets 90.35%
</TABLE>
- ---------------------------
(1) Loans are net of unearned loan fees. Non-accrual loans are included in
average loans outstanding. Loan fees included in interest income were $5.0
million for 1999, $2.4 million for 1998, and $1.2 million for 1997.
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<PAGE> 18
Net interest income increased $9.5 million, or 66.6%, to $23.8 million for the
twelve months ended December 31, 1999 compared to $14.3 million for the same
period in 1998. Interest income increased $21.0 million, or 77.7%, to $48.0
million for the twelve months ended December 31, 1999 compared to $27.0 million
for same period in 1998. The interest income increase was primarily due to
higher balances of earning assets. Average earning assets increased $215.2
million, or 80.3%, to $483.1 million for the twelve months ended December 31,
1999 from $267.9 million for the same period in 1998. The majority of the
increase in earning assets was attributable to a $209.9 million increase in
average loans outstanding. A large portion of the loans in our loan portfolio
have floating rates and are tied to the prime rate. As a result of up to a 0.75%
decrease in the average prime lending rate over the twelve month period, the
average yield on earning assets decreased to 10.40% for the twelve months ended
December 31, 1999 from 10.98% for the same period in 1998.
Interest expense increased $11.5 million, or 90.1%, to $24.3 million for the
twelve months ended December 31, 1999 compared to $12.8 million for the same
period in 1998. The increase was due to an increase in interest-bearing
deposits, principally in certificates of deposit. Average balances of
certificates of deposit under $100,000 increased $105.4 million, or 83.4%, to
$231.8 million for the twelve months ended December 31,1999 from $126.4 million
for the same period in 1998. This increase was due to growth at our banks, as
well as promotional campaigns. Average balances of certificates of deposit of
$100,000 and over increased $24.9 million, or 70.3%, to $60.2 million for the
twelve months ended December 31, 1999, from $35.3 million for the same period in
1998. The increase in certificates of deposit of $100,000 and over was due
primarily to promotional campaigns. The increase in the average note payable to
$4.2 million for the twelve months ended December 31, 1999 from $3.8 million for
the same period in 1998 was due to the payoff of our line of credit in February
1999 and the subsequent reborrowing on the line of credit commencing in June
1999. The source of payment on our line of credit was proceeds from our public
offering of trust preferred securities completed in February 1999. The cost of
interest-bearing liabilities for the twelve months ended December 31, 1999,
increased to 5.56 % compared to 5.52% for the same period in 1998 primarily due
to a change in mix of interest-bearing liabilities, including issuance of $23.0
million of our trust preferred securities in February 1999 and an increase in
the rates paid on interest-bearing demand accounts to 3.95% from 3.16% partially
offset by a reduction in costs of certificates of deposit.
Net interest income increased $5.3 million, or 58.2%, to $14.3 million for 1998
compared to $9.0 million in 1997.
Interest income increased $10.5 million, or 63.8%, to $27.0 million for 1998
compared to $16.5 million in 1997. The 1998 increases compared to 1997 resulted
primarily from an increase of $96.9 million in average earning assets, or 56.7%,
to $267.9 million in 1998 from $171.0 million in 1997. The majority of the asset
growth in 1998 compared to 1997 was due to growth in our loan portfolio. Average
loans in 1998 increased $91.3 million, or 71.9%, to $218.2 million from $126.9
million in 1997. The average yield on earning assets increased to 10.08% in 1998
from 9.65% in 1997. This increase resulted from increased percentages of our
loan portfolio in the real estate and construction categories.
Interest expense in 1998 increased $5.3 million, or 70.5%, to $12.8 million from
$7.5 million in 1997. The increase in 1998 from 1997 was due to a $82.9 million
increase, or a 62.0% increase, in average deposits. The majority of this growth
was realized in the certificate of deposit categories. The cost of
interest-bearing liabilities was 5.52% for 1998 and 5.26% for 1997. This
increase was due principally to increases in certificates of deposit as a
percentage of total liabilities and increased rates paid on certificates of
deposit.
The following table illustrates, for the periods indicated, the changes in net
interest income on a tax-equivalent basis due to changes in volume and changes
in interest rates. Changes in net interest income due to both volume and rate
have been allocated to volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
18
<PAGE> 19
<TABLE>
<CAPTION>
Year ended December 31, 1997 Year ended December 31, 1998
compared to 1998 compared to 1999
----------------------------- ------------------------------
Increase (decrease) in net Increase (decrease) in net
interest income due to interest income due to
change in change in
Volume Rate Total Volume Rate Total
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS:
Investment securities
Taxable $ 32 $ (28) $ 4 $ 612 $ 30 $ 642
Tax exempt (tax equivalent) 45 35 80 (13) 38 25
Funds sold and interest-bearing
deposits 179 (44) 135 (180) (90) (270)
Loans held for sale 86 (14) 72 10 25 35
Loans 10,032 196 10,228 21,831 (1,271) 20,560
-------- -------- -------- -------- -------- --------
Total earning assets 10,374 145 10,519 22,260 (1,268) 20,992
-------- -------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Demand, interest bearing 257 100 357 1,477 246 1,723
Savings 210 38 248 375 12 387
Certificates of deposit:
Under $100,000 3,323 16 3,339 6,040 (511) 5,529
$100,000 and over 942 11 953 1,445 (49) 1,396
Federal Home Loan Bank
borrowings, federal funds
purchased and securities
sold under agreements to
repurchase 196 (7) 189 489 30 519
Company obligated
mandatorily redeemable
preferred securities of
subsidiary trust -- -- -- 1,886 -- 1,886
Note payable 182 4 186 26 30 56
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities 5,110 162 5,272 11,738 (242) 11,496
-------- -------- -------- -------- -------- --------
Net increase (decrease) in net
interest income (tax equivalent) $ 5,264 $ (17) $ 5,247 $ 10,520 $ (1,024) $ 9,496
======== ======== ======== ======== ======== ========
</TABLE>
PROVISION FOR LOAN LOSSES. In response to a sustained significant growth rate in
our loan portfolio, we reviewed and revised our methodology for estimating the
adequacy of the allowance for loan losses in the fourth quarter of 1998. The
methodology was further revised in the first quarter of 1999. We believe this
new methodology will permit a closer match between period provisions for loan
losses and period loan originations. Key components of this revised methodology
included:
o estimation of inherent losses due to increasing growth in period
loan origination;
o estimated collectibility and prior loss experience of loans and
commitments to extend credit;
o changes in the nature and volume of the loan portfolio;
o quality of the overall loan portfolio;
o loan concentrations;
o specific problem loans and commitments; and
o current economic conditions that may affect a borrower's ability to
pay.
During the twelve months ended December 31, 1999, the provision for loan losses
increased $2.1 million, or 196%, to $3.2 million from $1.1 million in the same
period in 1998. During 1998, the provision for loan losses increased $950,000,
or 679%, from $140,000 in 1997. We anticipate continuing increases period over
period in the provision for loan losses in response to growth in our loan
portfolio and other factors as management deems appropriate.
19
<PAGE> 20
NON-INTEREST INCOME. The following table presents our non-interest income for
the indicated periods.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Fees for customer services $ 761 $ 1,015 $ 1,998
Net gains from sale of loans 625 1,036 816
Commissions and fees from
brokerage activities 29 220 315
Investment securities
transactions, net -- (4) --
Other operating income 293 573 566
------- ------- -------
Total non-interest income $ 1,708 $ 2,840 $ 3,695
======= ======= =======
</TABLE>
During the twelve months ended December 31, 1999, total non-interest income
increased $855,000, or 30.1%, to $3.7 million from $2.8 million for the
comparable period in 1998. Non-interest income for 1998 compared to 1997
increased by $1.1 million, or 66.3%. The increases for these periods were due
primarily to additional customer accounts at our branches, continued demand for
residential mortgages that were originated and sold by us into the secondary
market and the expansion of our investment brokerage services into additional
branch locations.
NON-INTEREST EXPENSES. The following table presents non-interest expenses for
the indicated periods.
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1998 1999
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Salaries and employee benefits $ 3,296 $ 5,489 $ 8,669
Net occupancy expense
of premises 989 1,616 2,333
Purchased services 842 1,342 1,790
Office supplies 182 318 491
Minority interest in income of
consolidated subsidiaries 101 111 --
Other operating expenses 1,134 1,783 2,988
------- ------- -------
Total non-interest expenses $ 6,544 $10,659 $16,271
======= ======= =======
</TABLE>
During the twelve months ended December 31, 1999, total non-interest expenses
increased $5.6 million, or 52.7%, to $16.3 million from $10.7 million in the
same 1998 period, primarily as a result of staff, facility and operating
expenses associated with operating six additional branch locations. Salaries and
employee benefits increased by $3.2 million due to staffing of new branch
locations, additions of corporate overhead and increases in the volume of
commission-based mortgage lending. The increase in net occupancy expenses was a
direct result of the increased number of branches. Purchased services included
outside services, primarily data processing, purchased by us to conduct
operations. Expenses for purchased services increased as a result of additional
branches. During 1998, total non-interest expenses increased $4.1 million, or
62.9%, to $10.7 million from $6.5 million in 1997, with increases occurring
among the various components due primarily to the establishment of additional
branches and other internally generated growth.
INCOME TAX EXPENSE. Our consolidated income tax rate varies from statutory rates
principally due to interest income from tax-exempt securities. The provision for
income taxes increased by $900,000 to $2.6 million for the twelve months ended
December 31, 1999 from $1.7 million for the comparable period in 1998. We
recorded income tax expenses of $1.3 million in 1997.
20
<PAGE> 21
FINANCIAL CONDITION
LOAN PORTFOLIO COMPOSITION. The following table presents the composition of our
loan portfolio by type of loan at the dates indicated. Management believes that
the balance sheet information as of the dates indicated should be read in
conjunction with the average balance information in the tables above under "--
Results of Operations -- Net Interest Income."
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
---------------- ---------------- ----------------- ---------------- ----------------
Amount % Amount % Amount % Amount % Amount %
------- ------ ------- ------ -------- ------ -------- ----- -------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural(1) $22,331 49.8% $27,343 40.3% $ 41,500 25.3% $ 51,990 18.1% $ 82,982 13.5%
Construction * -- 10,062 14.8 37,235 22.7 85,782 29.8 135,367 22.0
Real estate 18,880 42.1 25,946 38.2 79,499 48.4 141,955 49.3 388,078 63.0
Installment loans to
individuals 4,234 9.5 5,226 7.7 7,693 4.7 11,057 3.8 16,335 2.7
Other 236 0.5 332 0.5 132 0.0 91 0.0 308 0.1
------- ------ ------- ------ -------- ------ -------- ----- -------- -----
Gross loans receivable 45,681 101.9 68,909 101.5 166,059 101.1 290,875 101.0 623,070 101.3
Less unearned loan fees (101) (0.2) (158) (0.2) (432) (0.3) (886) (0.3) (2,121) (0.4)
------- ------ ------- ------ -------- ------ -------- ----- -------- -----
Subtotal 45,580 101.7 68,751 101.3 165,627 100.8 289,989 100.7 620,949 100.9
Less allowance for loan losses (767) (1.7) (851) (1.3) (1,321) (0.8) (2,187) (0.7) (5,322) (0.9)
------- ------ ------- ------ -------- ------ -------- ----- -------- -----
Net loans receivable $44,813 100.0% $67,900 100.0% $164,306 100.0% $287,802 100.0% $615,627 100.0%
======= ====== ======= ====== ======== ====== ======== ===== ======== =====
</TABLE>
- ----------------------
* In 1995, construction loans were not classified separately from real estate
loans.
(1) Agricultural loan balances were $17.7 million at December 31, 1999, $14.7
million at December 31, 1998 and $13.9 million at December 31, 1997.
Net loans receivable of $615.6 million as of December 31, 1999 were $327.8
million, or 114%, greater than net loans receivable of $287.8 million as of
December 31, 1998. Our two primary categories of loans, real estate loans and
construction loans, which constituted 85.0% of net loans receivable as of
December 31, 1999, in the aggregate increased as a percentage of total loans in
the periods indicated. The aggregate of real estate and construction loans
totaled $523.4 million as of December 31, 1999, $295.7 million, or 130%, over
the $227.7 million balance as of December 31, 1998, which in turn was $111.0
million, or 95.1%, greater than these loans as of December 31, 1997. The
significant loan portfolio growth over the indicated periods was due primarily
to our strategy of branch expansion and hiring and retaining experienced bank
personnel who possessed existing customer relationships.
Historically, we have had a high loan to deposit ratio. At December 31, 1999,
net loans totaled 102% of total deposits and 87.1% of total assets. At December
31, 1998, net loans totaled 90.1% of total deposits and 78.4% of total assets.
LOAN MATURITIES. The following tables present loans by maturity in each major
category of our portfolio at the dates indicated. Unearned loan fee income has
been matched with its respective loan categories and assigned to maturity
categories consistent with the underlying loans. Actual maturities may differ
from the contractual maturities shown below as a result of renewals and
prepayments. Loan renewals are evaluated in the same manner as new credit
applications. Additional information regarding our real estate loan portfolio is
provided in "Business -- Lending Activities." A significant portion of our loan
portfolio has maturities of one year or less. In the event these loans are
renewed, they are subject to the same credit evaluation and other underwriting
criteria as are new loan applications, and are subject to new terms and
conditions as deemed appropriate by our lending personnel.
21
<PAGE> 22
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------
Over One Year Through
Five Years Over Five Years
----------------------- -----------------------
One Year Fixed Floating Fixed Floating
or less Rate Rate Rate Rate Total
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 28,120 $ 4,832 $ 14,487 $ 569 $ 3,982 $ 51,990
Construction 74,211 280 10,955 -- -- 85,446
Real estate 26,454 20,906 52,062 3,190 38,793 141,405
Installment loans to individuals
and other 1,060 4,739 4,315 518 516 11,148
-------- -------- -------- -------- -------- --------
Total loans $129,845 $ 30,757 $ 81,819 $ 4,277 $ 43,291 $289,989
======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------------------------------
Over One Year Through
Five Years Over Five Years
----------------------- -----------------------
One Year Fixed Floating Fixed Floating
or less Rate Rate Rate Rate Total
-------- -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 50,132 $ 9,190 $ 18,724 $ 850 $ 4,086 $ 82,982
Construction 117,722 6,349 8,292 -- 2,452 134,815
Real estate 130,358 38,565 94,530 14,555 108,501 386,509
Installment loans to individuals
and other 2,529 7,096 6,425 220 373 16,643
-------- ------- -------- ------- -------- --------
Total loans $300,741 $61,200 $127,971 $15,625 $115,412 $620,949
======== ======= ======== ======= ======== ========
</TABLE>
NON-PERFORMING ASSETS. Non-performing assets consist of loans 90 days or more
delinquent and still accruing interest, non-accrual loans, restructured loans
and other real estate. When, in the opinion of management, a reasonable doubt
exists as to the collectibility of interest, regardless of the delinquency
status of a loan, the accrual of interest income is discontinued and accrued but
unpaid interest is reversed through a charge to current year's earnings. While a
loan is on non-accrual status, interest income is recognized only upon receipt
and then only if, in the judgment of management, there is no reasonable doubt as
to the collectibility of the principal balance. Loans 90 days or more delinquent
generally are placed on non-accrual status, unless the loan is in the process of
collection and management determines that full collection of principal and
accrued interest is probable.
Restructured loans are those for which concessions, including the reduction of
interest rates below a rate otherwise available to the borrower or the deferral
of interest or principal, have been granted due to the borrower's weakened
financial condition. Interest on restructured loans is accrued at the
restructured rates when it is anticipated that no loss of original principal
will occur. We did not have any restructured loans as of the dates indicated in
the table below.
22
<PAGE> 23
The following table presents information concerning non-performing assets at the
dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1996 1997 1998 1999
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-performing assets:
Non-accrual loans $ 110 $ 93 $ 484 $ 635 $ 962
Other loans 90 days past due 28 22 744 288 78
------ ------ ------ ------ ------
Total non-performing loans 138 115 1,228 923 1,040
Other real estate -- 10 141 172 91
------ ------ ------ ------ ------
Total non-performing assets $ 138 $ 125 $1,369 $1,095 $1,131
====== ====== ====== ====== ======
Ratio of total non-performing
loans to total loans 0.30% 0.17% 0.74% 0.32% 0.17%
Ratio of total non-performing
assets to total loans plus
other real estate 0.30 0.18 0.83 0.38 0.18
Ratio of non-performing assets
to total assets 0.14 0.10 0.60 0.30 0.16
</TABLE>
As of each of the dates in the table above, there were no significant amount of
loans excluded from non-performing loans, where known information about possible
credit problems of borrowers caused management to have serious doubts as to the
ability of the borrowers to comply with the present loan repayment terms and
which may have resulted in the loans becoming non-performing.
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses represents
management's recognition of the risks of extending credit and its evaluation of
the quality of the loan portfolio. The allowance for loan losses is established
and maintained through a provision for loan losses charged to income. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely or, with respect to consumer
installment loans, according to an established delinquency schedule. The
allowance is an amount that management believes will be adequate to absorb
losses inherent in existing loans and commitments to extend credit, based on
evaluations of the collectibility and prior loss experience of loans and
commitments to extend credit. The evaluations also take into consideration such
factors as changes in the nature and volume of the loan portfolio, the overall
portfolio quality, loan concentrations, specific problem loans and commitments,
and current and anticipated economic conditions that may affect a borrower's
ability to pay.
23
<PAGE> 24
The following table presents information regarding changes in the allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1996 1997 1998 1999
------- -------- --------- -------- --------
(Dollars in thousands)
<S> <C> <C> <S> <S> <S>
Average total loans $41,964 $ 54,515 $ 126,914 $218,214 $428,107
======= ======== ========= ======== ========
Total loans at end of period $45,580 $ 68,751 $ 165,627 $289,989 $620,949
======= ======== ========= ======== ========
Allowance for loan losses at
beginning of period $ 870 $ 767 $ 851 $ 1,321 $ 2,187
Charge-offs:
Commercial, financial and
agricultural 232 9 -- 344 136
Construction -- -- -- -- --
Real estate 14 10 -- -- 5
Installment loans to individuals 28 3 58 54 48
------- -------- --------- -------- --------
Total charge-offs 274 22 58 398 189
------- -------- --------- -------- --------
Recoveries:
Commercial, financial and
agricultural 52 86 94 51 80
Construction -- -- -- -- --
Real estate -- -- 10 101 1
Installment loans to individuals 19 5 7 22 13
------- -------- --------- -------- --------
Total recoveries 71 91 111 174 94
------- -------- --------- -------- --------
Net charge-offs (recoveries) 203 (69) (53) 224 95
Provision for loan losses 100 15 140 1,090 3,230
Allowance for loan losses balance
of purchased financial
institution(1) -- -- 277 -- --
------- -------- --------- -------- --------
Allowance for loan losses at end
of period $ 767 $ 851 $ 1,321 $ 2,187 $ 5,322
======= ======== ========= ======== ========
Ratio of net charge-offs (recoveries)
to average total loans 0.48% (0.13)% (0.04)% 0.10% 0.02%
Allowance for loan losses to total
loans at end of period 1.68% 1.24% 0.80% 0.75% 0.86%
Allowance for loan losses to
Non-performing loans 556% 739% 108% 237% 512%
</TABLE>
- ---------------
(1) In February 1997, we acquired 100% of First Northern Savings Bank,
including approximately $30 million in loans. There were no purchase
accounting adjustments recorded regarding the allowance for loan losses
in connection with this transaction.
The following table presents an allocation of the allowance for loan losses by
loan category as of the dates indicated. Portions of the allowance for loan
losses have been allocated to categories based on an analysis of the status of
particular loans; however, the majority of the allowance is used as a single
unallocated allowance available for all loans. The allocation table should not
be interpreted as an indication of the specific amounts, by loan classification,
to be charged to the allowance for loan losses. Management believes that the
table may be a useful device for assessing the adequacy of the allowance for
loan losses as a whole. The table has been derived in part by applying
historical loan loss ratios to both internally classified loans and the
portfolio as a whole in determining the allocation of the loan losses
attributable to each category of loans.
24
<PAGE> 25
<TABLE>
<CAPTION>
December 31,
1995 1996 1997
----------------------- ------------------------ --------------------------
(Dollars in thousands)
Loans in Loans in Loans in
category category category
as a as a as a
percentage percentage percentage
of Total of Total of Total
Amount of Gross Amount of Gross Amount of Gross
Allowance Loans Allowance Loans Allowance Loans
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial,
financial
and agricultural $ 20 48.9% $ 2 39.9% $ 16 25.0%
Construction * -- -- 14.7 68 22.4
Real estate -- 41.3 19 37.8 47 47.9
Installment loans
to individuals -- 9.8 8 7.6 33 4.7
Unallocated 747 -- 822 -- 1,157 --
---- ----- ---- ----- ------ -----
Total allowance $767 100.0% $851 100.0% $1,321 100.0%
==== ===== ==== ===== ====== =====
<CAPTION>
December 31,
1998 1999
------------------------ -------------------------
(Dollars in thousands)
Loans in Loans in
category category
as a as a
percentage percentage
of Total of Total
Amount of Gross Amount of Gross
Allowance Loans Allowance Loans
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Commercial,
financial
and agricultural $ 158 17.9% $ 238 13.4%
Construction 10 29.5 230 21.7
Real estate 29 48.8 92 62.2
Installment loans
to individuals 12 3.8 49 2.7
Unallocated 1,978 -- 4,713 --
------ ----- ------ -----
Total allowance $2,187 100.0% $5,322 100.0%
====== ===== ====== =====
</TABLE>
- ---------------
* In 1995, construction loans were not classified separately from real estate
loans.
The total allowance for loan losses balance at December 31, 1999 was $5.3
million or 512% of non-performing loans, and the portion of the loan loss
allowance directly allocated to specific loan categories was 58.6% of
non-performing loans. The total allowance for loan losses balance at December
31, 1998 was $2.2 million or 237% of non-performing loans, and the portion of
the loan loss allowance directly allocated to specific loan categories was 22.6%
of non-performing loans.
INVESTMENTS. Our investment policy is designed to ensure liquidity for cash flow
requirements; to help manage interest rate risk; to ensure collateral is
available for public deposits, Federal Home Loan Bank advances and repurchase
agreements; and to manage asset quality diversification. The asset/liability
committees of each of our banks are responsible for implementing our investment
strategy, including ongoing review of the performance of the investment
portfolio, market values, market conditions, current economic conditions,
profitability, capital ratios, liquidity needs and collateral positions with the
Federal Home Loan Bank.
Our investment portfolio at December 31, 1999 was comprised of U.S. Treasury and
U.S. agency bonds and bills and general obligation and revenue municipal bonds.
The portfolio also included equity securities comprised of Federal Home Loan
Bank stock, correspondent bank stock and the stock of a small number of publicly
held bank holding companies. The portfolio contained no derivatives, structured
notes or similar instruments classified as high-risk securities as defined by
the Federal Financial Institutions Examinations Council.
25
<PAGE> 26
The following table presents the estimated fair value of the available-for-sale
securities and the amortized cost basis of held-to-maturity securities in our
investment portfolio by type as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
1997 1998 1999
------- ------- -------
(Dollars in thousands)
<S> <C> <C> <C>
HELD-TO-MATURITY:
U.S. Treasury & agency securities $ 5,807 $ -- $ 495
State and political securities 7,235 7,146 5,494
Other bonds -- -- --
------- ------- -------
Total held-to-maturity 13,042 7,146 5,989
------- ------- -------
AVAILABLE-FOR-SALE:
U.S. Treasury & agency securities 11,986 23,085 30,691
State and political securities 1,611 2,228 3,008
Other bonds 201 23 --
Equity securities 1,672 1,746 2,670
------- ------- -------
Total available-for-sale 15,470 27,082 36,369
------- ------- -------
Total investments $28,512 $34,228 $42,358
======= ======= =======
</TABLE>
INVESTMENT MATURITIES AND YIELD. The following table presents the estimated fair
value of the available-for-sale securities and the amortized cost basis of
held-to-maturity securities with the approximate weighted yield of the
securities in the investment portfolio by type and stated maturity at December
31, 1999.
<TABLE>
<CAPTION>
December 31, 1999
Over one Year through Over 5 Years through
One Year or Less 5 Years 10 Years Over 10 Years
----------------------- ----------------------- ----------------------- --------------------
Weighted Weighted Weighted Weighted
Amount Yield Amount Yield Amount Yield Amount Yield
------- -------- ------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury &
agency securities $ 2,002 5.63% $26,110 6.03% $ 2,925 7.05% $ 149 4.80%
Municipal securities 327 5.19 3,501 5.87 945 6.22 3,729 5.97
------- ------- ------- -------
Total investments in
debt securities $ 2,329 5.57% $29,611 6.01% $ 3,870 6.85% $ 3,878 5.93%
======= ======= ======= =======
</TABLE>
DEPOSITS. Our primary source of funds has historically been deposits,
principally certificates of deposit. For the twelve months ended December 31,
1999, total average certificates of deposit were $292.1 million or 74.4% of
average total deposits. Deposits have grown significantly in recent years, with
total deposits increasing to $602.0 million at December 31, 1999 from $319.5
million at December 31, 1998 and $200.3 million at December 31, 1997. These
increases were primarily a result of opening four branches in 1998 and six
branches in 1999. To attract deposits, we regularly conduct promotional
campaigns. Additionally, we use the national certificates of deposit market to
generate time deposits of specific maturities as part of our overall
asset/liability management.
The following table presents the average balances for each major category of
deposits and the weighted average interest rates paid for interest-bearing
deposits for the periods indicated.
26
<PAGE> 27
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1998 1999
------------------------- -------------------------- -------------------------
Average Average Average
Average Interest Average Interest Average Interest
Balance Rate Balance Rate Balance Rate
-------- ---- -------- ---- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Demand, interest-bearing $ 12,184 2.09% $ 13,182 2.07% $ 19,238 2.12%
Money market accounts 10,913 3.43 18,058 3.95 49,414 4.66
Savings 11,413 3.15 12,970 3.12 15,802 3.16
IRA deposits 7,484 5.82 10,687 5.97 16,275 5.72
Certificates of deposit:
Under $100,000 72,229 6.11 126,396 6.13 231,845 5.73
$100,000 and over 19,500 5.89 35,349 5.95 60,216 5.81
Total interest-bearing
deposits 133,723 5.22% 216,642 5.49% 392,790 5.33%
Noninterest-bearing
demand deposits 24,654 33,845 48,938
-------- -------- --------
Total deposits $158,377 $250,487 $441,728
======== ======== ========
</TABLE>
The following table presents the amount and maturity of IRA deposits and
certificates of deposit that had balances of $100,000 or more at December 31,
1999.
REMAINING MATURITY:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Three months or less........................................... $16,058
Over three months through six months........................... 11,637
Over six months through 12 months.............................. 35,903
Over 12 months................................................. 27,833
-------
Total...................................................... $91,431
=======
</TABLE>
SHORT-TERM BORROWINGS. We use a revolving line of credit as well as securities
sold under agreements to repurchase as sources of short-term funding. The
outstanding balance on our line of credit at December 31, 1999 was $11.6
million. In June 1999 we began to draw on our line of credit to fund the growth
of our Colorado bank. Advances from our line of credit have been contributed
into our Colorado bank as capital.
FEDERAL HOME LOAN BANK BORROWINGS. Our banks are members of the Federal Home
Loan Bank of Topeka, which is one of 12 regional Federal Home Loan Banks. The
Federal Home Loan Bank system functions as a central bank providing credit for
members. As members of the Federal Home Loan Bank, our banks are entitled to
borrow funds from the Federal Home Loan Bank and are required to own Federal
Home Loan Bank stock in an amount determined by a formula based upon total
assets and Federal Home Loan Bank borrowings. Our banks may use Federal Home
Loan Bank borrowings to supplement deposits as a source of funds. See "Liquidity
- --Asset/Liability Management." Average Federal Home Loan Bank borrowings for the
twelve months ended December 31, 1999 were $10.5 million compared to $8.7
million for the year ended December 31, 1998 and $4.2 million for 1997. At
December 31, 1999, based on our Federal Home Loan Bank stockholdings, the
aggregate available and unused borrowing capacity of our banks was approximately
$3.5 million, which was available through a line of credit and term advances.
Federal Home Loan Bank borrowings are collateralized by Federal Home Loan Bank
stock, other investment securities and a small amount of loans of our subsidiary
banks.
27
<PAGE> 28
A variety of borrowing terms and maturities can be chosen from the Federal Home
Loan Bank. Maturities available range generally from one day to 10 years.
Interest rates can be either fixed or variable and prepayment options are
available if desired. The Federal Home Loan Bank offers both amortizing and
non-amortizing advances. To date Federal Home Loan Bank stock has been
redeemable at the preset price of $100 per share, but there can be no assurance
that this policy will continue.
CAPITAL ADEQUACY. Historically, our capital needs have been to fund the growth
of our banking operations. Until 1997, internally generated funds were
sufficient for our capital needs. However, in 1998 we determined that, absent a
significant capital addition, the growth in our business would result in our
regulatory capital falling below adequately capitalized guidelines. Accordingly,
in February 1999 we completed a $23.0 million offering of trust preferred
securities with net proceeds of $21.9 million. At December 31, 1999, our total
capital exceeded the total regulatory capital minimum requirements to be
considered adequately capitalized. Our management monitors compliance with bank
and bank holding company regulatory capital requirements, including risk-based
capital guidelines and leverage ratios. Under the risk-based capital method of
capital measurement, the ratio computed is dependent upon the amount and
composition of assets recorded on the balance sheet, and the amount and
composition of off-balance sheet items, in addition to the level of capital.
Included in the risk-based capital method are two measures of capital adequacy,
tier 1 capital and total capital, which consists of tier 1 and tier 2 capital.
See "Supervision and Regulation -- FirsTier -- Capital Adequacy." It is our
intention to maintain our holding company capital ratios at an adequately
capitalized level and our banks' regulatory capital ratios at or above the
adequately capitalized levels. The net proceeds from our trust preferred
securities offering were used in computing our regulatory capital ratios. See
"Supervision and Regulation--The Banks--Capital Adequacy."
The following tables present our capital ratios as of the indicated dates.
<TABLE>
<CAPTION>
December 31,
1998 1999
--------------------------- --------------------------
Amount Ratio Amount Ratio
--------- ----- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C>
RISK-BASED CAPITAL RATIOS:
Tier 1 capital $ 20,139 6.44% $ 33,684 5.16%
Tier 1 capital minimum requirement 12,504 4.00 26,108 4.00
--------- ---------
Excess $ 7,635 $ 7,576
========= =========
Total capital $ 22,564 7.22% $ 53,730 8.23%
Total capital minimum requirement 25,009 8.00 52,217 8.00
--------- ---------
Excess (deficit) $ (2,445) $ 1,513
========= =========
Total risk adjusted assets $ 312,617 $ 652,717
========= =========
LEVERAGE RATIOS:(1)
Tier 1 capital $ 20,139 5.70% $ 33,684 5.15%
Minimum requirement 14,137 4.00 26,159 4.00
--------- ---------
Excess $ 6,002 $ 7,525
========= =========
Average total assets $ 353,415 $ 653,977
========= =========
</TABLE>
28
<PAGE> 29
- --------------
(1) The leverage ratio is defined as the ratio of tier 1 capital to average
total assets. See "Supervision and Regulation -- FirsTier -- Capital
Adequacy" for definitions of tier 1 and total capital.
LIQUIDITY
SOURCES OF LIQUIDITY. We continuously forecast and manage our liquidity in order
to satisfy cash flow requirements of depositors and borrowers and to allow us to
meet our cash flow needs. We have developed internal and external sources of
liquidity to meet our growth needs. Our internal sources of liquidity include
cash flows from operations, investments in securities and deposit growth. Our
external sources of liquidity include borrowings from the Federal Home Loan Bank
and other banks and securities offerings to the capital markets.
We believe that we have developed sufficient internal and external sources of
liquidity to meet our cash needs for the foreseeable future. At December 31,
1999, these sources included:
o the ability to raise deposits through branch promotional campaigns;
o the sale of available-for-sale securities, of which $36.4 million was
available, subject to pledging requirements;
o the availability of borrowing lines, of which $27.1 million was
available; and
o draws on increased borrowing lines available at the Federal Home Loan
Bank with the purchase of additional Federal Home Loan Bank stock, of
which $39.3 million was available.
CASH FLOWS. A major source of our cash flow for the twelve month period ended
December 31, 1999 and 1998 were from financing activities. We realized cash
flows of $334.8 million for the twelve month period ended December 31, 1999 and
$135.3 million for the same period in 1998. Cash provided by financing
activities primarily consisted of net increases in deposits of $282.5 million
for the twelve month period ended December 31, 1999 and $119.2 million for the
same period in 1998. During the twelve month period ended December 31, 1999, we
received $23.0 million of cash from our trust preferred securities offering and
$24.7 million from advances from the Federal Home Loan Bank. For the same period
in 1998, we obtained $8.7 million of cash from advances from the Federal Home
Loan Bank.
The primary use of our cash is for our investing activities. We used $331.0
million of cash for the twelve month period ended December 31, 1999 and $135.4
million of cash for the same period in 1998 in our investing activities. For the
twelve month period ended December 31, 1999, the primary components of cash used
in investing activities were $331.1 million used to fund loans and net purchases
of investment securities of $73.1 million. For the same period in 1998, the
primary components of cash used in investing activities were $125.4 million used
to fund loans and $129.8 to purchase investment securities.
ASSET/LIABILITY MANAGEMENT. A principal function of asset/liability management
is to coordinate the levels of interest-sensitive assets and liabilities to
minimize net interest income fluctuations in times of fluctuating market
interest rates. Interest-sensitive assets and liabilities are those that are
subject to repricing in the near term, including both variable rate instruments
and fixed-rate instruments which are approaching maturity. Changes in net
interest income arise when interest rates on earning assets change in a
different time period from that of interest rates on interest-bearing
liabilities. Changes in net interest income may also arise from changes in the
mix and volumes of earning assets and interest-bearing liabilities.
29
<PAGE> 30
The following table presents the interest rate sensitivity of our assets and
liabilities as of December 31, 1999, and the repricing dates of our earning
assets and interest-bearing liabilities as of that date, as well as our interest
rate sensitivity gap percentages for the periods presented. Some assets and
liabilities indicated as maturing or otherwise repricing within a stated period
may, in fact, mature or reprice at different times and at different volumes than
those indicated. Also, the renewal or repricing of assets and liabilities can be
discretionary and subject to competitive and other pressures. Therefore, the
following table does not and cannot necessarily indicate the actual future
impact of general interest rate movements on our net interest income.
<TABLE>
<CAPTION>
ESTIMATED MATURITY OR REPRICING AT DECEMBER 31, 1999(1)
-----------------------------------------------------------------------------
Three months One year to
Less than to less than less than
three months 1 year 5 years Over 5 Years Total
------------ ------------ ----------- ------------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
EARNING ASSETS:
Funds sold and interest-bearing
deposits $ -- $ -- $ -- $ -- $ --
Investment in securities
available-for-sale 2,670 1,507 27,300 4,892 36,369
Investment in securities
held-to-maturity 551 271 2,312 2,855 5,989
Loans and loans held for sale 401,155 50,260 153,300 17,357 622,072
-------- --------- -------- ------- --------
Total earning assets 404,376 52,038 182,912 25,104 664,430
INTEREST-BEARING LIABILITIES:
Deposits:
Demand, interest-bearing 19,951 -- -- -- 19,951
Savings 105,124 -- -- -- 105,124
Certificates of deposit and IRAs:
Under $100,000 54,947 155,691 115,982 220 326,840
$100,000 and over 16,058 47,540 27,833 -- 91,431
Other Liabilities:
Federal Funds Purchased and
securities sold under agreements
to repurchase 8,150 -- -- -- 8,150
Federal Home Loan Bank
borrowings 24,700 -- 7,784 751 33,235
Note payable -- 11,560 -- -- 11,560
Company obligated mandatorily
redeemable preferred securities
of subsidiary trust -- -- -- 23,000 23,000
Total interest-bearing liabilities 228,930 214,791 151,599 23,971 619,291
-------- --------- -------- ------- --------
Interest rate gap $175,446 $(162,753) $ 31,313 $ 1,133 $ 45,139
======== ========= ======== ======= ========
Cumulative interest rate gap at
December 31, 1999 $175,446 $ 12,693 $ 44,006 $45,139
======== ========= ======== =======
Cumulative interest rate gap to
total assets 24.8% 1.8% 6.2% 6.4%
======== ========= ======== =======
</TABLE>
- ----------------
(1) Callable investment securities are assumed to mature at the earliest call
date. Loans are placed in the earliest time frame in which maturity or
repricing may occur, and are stated gross, before the allowance for loan
losses.
30
<PAGE> 31
Due to the volume of loans that reprice with changes in the prime lending rate
and the volume of interest-bearing deposits, we have experienced a positive
maturity gap in assets and deposits that reprice or mature in less than one
year. Of the total earning assets at December 31, 1999, 68.7% reprice or mature
in less than one year, while 71.7% of all interest-bearing liabilities reprice
or mature in that same time frame. A positive maturity gap indicates that net
income would increase in the event of rising interest rates and would decrease
in the event of decreasing interest rates.
In the unlikely event of an immediate, parallel and sustained shift of market
interest rates, management estimates that net income during the twelve months
ended December 31, 1999 would likely have increased approximately 36% compared
to the like twelve month period if interest rates rose by 200 basis points and
likely fall by approximately 38% compared to the like twelve month period if
rates fell by the same amount. These are good faith estimates assuming all other
factors do not change materially and, in management's belief, are not
necessarily indicative of what actually could occur in the event of an immediate
interest rate increase or decease of 200 basis points. Management believes that
it is highly unlikely that these changes would occur in a short time period. As
earning assets and interest-bearing liabilities reprice at different time frames
and in different proportion to market interest rate movements, various
assumptions must be made based on historical relationships of these variables in
reaching any conclusion. Since these correlations are based on competitive and
market conditions, future results would, in management's belief, likely be
materially different from the foregoing estimates.
EFFECTS OF INFLATION AND CHANGING PRICES
Substantially all of our assets and liabilities are monetary in nature. As a
result, interest rates generally have a more significant impact on our
performance than the general levels of inflation. Although interest rates do not
necessarily move in the same direction or to the same extent as the prices of
goods and services, increases in inflation generally have resulted in increased
interest rates.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
addresses the accounting for derivative transactions and hedging activities.
Subsequently, FASB issued Statement No. 137 which effectively delayed adoption
of No. 133 by one year. The Company will adopt the new standard beginning with
its 2001 fiscal year, when adoption is first required. Management is currently
evaluating the reporting requirements under this new standard but does not
anticipate that adoption of the new standard will have any significant impact on
financial results of the Company.
ITEM 7. FINANCIAL STATEMENTS
See "Financial Statements" beginning on page 40 of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
31
<PAGE> 32
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Our executive officers and directors and their respective ages and positions as
of March 28, 2000 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joel H. Wiens (1) 70 Chairman of the Board of FirsTier, the Colorado
bank and the Nebraska bank
Timothy D. Wiens (1) 44 President, Chief Executive Officer and Director of FirsTier;
President, Chief Executive Officer and Director of the Colorado
bank; Director of the Nebraska bank
Ronald B. James 45 Chief Financial Officer of FirsTier and the Colorado bank
Michael J. Nelson 57 Executive Vice President and Director of FirsTier; President and
Director of the Nebraska bank; Director of the Colorado bank
Alan D. Linton 52 Senior Vice President and Senior Credit Officer of the Colorado bank
Brigitte M. Howorko 47 Senior Vice President and Cashier of the Colorado bank
Ronald B. Robinson 59 Executive Vice President of the Colorado bank
Daniel L. Allen 47 Executive Vice President of the Colorado bank
</TABLE>
- ----------
(1) Joel H. Wiens is the father of Timothy D. Wiens. There are no other
family relationships between or among any of our directors and
executive officers. All of our directors hold office until the next
meeting of shareholders or until their successors are elected and
qualified.
JOEL H. WIENS has been Chairman of the Board of FirsTier and the Nebraska bank
since 1963 and of the Colorado bank since 1993. For more than the past five
years, he has been the President and owner of Western Management Company, a
management company that provides management consulting services to FirsTier and
its subsidiaries. See "Certain Transactions and Related Parties."
TIMOTHY D. WIENS has been an officer and Director of FirsTier since 1973, most
recently serving as Vice President from 1995 to July 1999, Vice Chairman from
December 1998 to July 1999 and President and Chief Executive Officer since July
1999. He has been a Director of the Nebraska bank since 1981. He has been an
officer and Director of the Colorado bank since 1993, and has been President of
our Colorado bank since January 1995. From August 1993 to January 1995, Mr.
Wiens was President of Firstate Mortgage Corporation.
RONALD B. JAMES has been Chief Financial Officer of FirsTier and the Colorado
bank since June 1998. From March 1997 to June 1998, Mr. James was a Senior Vice
President with First National Bank of Greeley, and from March 1982 to February
1997, he was employed with First Interstate Bancorp in various positions,
including finance officer. Prior to 1982, Mr. James was a controller with First
Interstate Bank of Englewood.
32
<PAGE> 33
MICHAEL J. NELSON has been an officer and Director of FirsTier since 1987, an
officer and Director of the Nebraska bank since 1978 and a Director of the
Colorado bank since 1993. He has been President of the Nebraska bank since 1978,
and became Executive Vice President of FirsTier in July 1999. Mr. Nelson is also
a director of George Risk Industries, Inc., an electronics manufacturing company
in Kimball, Nebraska, which is publicly traded on the Nasdaq Bulletin Board
System.
ALAN D. LINTON has been Senior Vice President and Senior Credit Officer of the
Colorado bank since April 1998. From April 1997 to April 1998, he was a Vice
President and Commercial Lender of the Colorado bank. From 1987 through 1996, he
was employed as Director of Operations and Chief Financial Officer of Pratt
Management Company, a real estate property management, development and
construction company. From 1974 through 1986 he held several positions with
United Banks of Colorado, including President of United Bank of Longmont.
BRIGITTE M. HOWORKO has worked for the Colorado bank since 1980, most recently
serving as Cashier since 1985 and Senior Vice President since January 1996. She
also has been a director of the Colorado bank since 1993.
RONALD B. ROBINSON has been an Executive Vice President of the Colorado bank
since May 1999, overseeing multi-branch operations for our Colorado bank's
Denver metropolitan area branches including corporate recruiting, facility
expansions, new business development and corporate operations. From February
1998 to May 1999, Mr. Robinson was employed with Merchants Mortgage as Vice
President and Manager of the Interim Loan Department. From May 1993 to January
1998, Mr. Robinson was employed by KeyBank of Colorado, formerly OmniBank, in a
variety of management positions, including as a bank President, Regional Manager
and Vice President. Prior to May 1993, Mr. Robinson was employed with The
Professional Bank and with United Banks of Colorado, now Norwest Bank, serving
in numerous management positions.
DANIEL L. ALLEN has been Executive Vice President and Director of Wholesale
Banking of the Colorado bank since July 1999, handling commercial lending and
correspondent bank relationships. Mr. Allen has over 22 years of banking
experience including serving as President and Chief Executive Officer of Pioneer
Bank/Community First National Bank, Longmont, Colorado from October 1984 to July
1999 and serving in management positions with Bank of Boulder from 1977 to 1984.
Our directors are paid an annual fee of $1,000. Directors of the Colorado bank
receive a fee of $100 per meeting, plus directors living outside of the Denver
metropolitan area receive a $100 per meeting travel allowance. Directors of the
Nebraska bank are paid $250 per meeting attended, with up to an additional $100
per meeting of travel expense reimbursement. Our board of directors meets
quarterly and the boards of directors of our banks meet monthly.
33
<PAGE> 34
ITEM 10. EXECUTIVE COMPENSATION.
The following table presents the cash compensation paid by us to our Chief
Executive Officer and to our other executive officers who received compensation
from us exceeding $100,000 in 1997, 1998 or 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
OTHER
ANNUAL ALL OTHER
COMPEN- COMPEN-
NAME SALARY BONUS SATION SATION
AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)
- ---------------------- ---- ------ ----- ------- ---------
<S> <C> <C> <C> <C> <C>
Joel H. Wiens, ............................... 1999 -- -- -- (2)
Chairman of the Board (1) .................... 1998 -- -- -- (2)
.............................................. 1997 -- -- -- (2)
Timothy D. Wiens,
Chief Executive Officer ...................... 1999 127,678 100,000 -- --
and President (3) ............................ 1998 98,176 50,000 -- --
.............................................. 1997 73,178 30,000 -- --
</TABLE>
- ----------
(1) Joel H. Wiens was our Chief Executive Officer during 1997 and 1998.
(2) Joel H. Wiens did not receive a salary from us or our banks in the
indicated years; however, Western Management Company, which is 100% owned
by Mr. Wiens, received $195,050 in 1999, $180,500 in 1998 and $167,000 in
1997 from us and our subsidiaries for management services. See "Item 12 --
Certain Relationships and Related Transactions."
(3) Prior to August 1999, Timothy D. Wiens was our Vice Chairman.
1999 STOCK INCENTIVE PLAN
In September 1999, we adopted the 1999 Stock Incentive Plan. The plan provides
for the following stock and stock-based awards: restricted stock, stock options,
stock appreciation rights and performance shares. Up to 1,700,000 shares of
common stock may be issued under the plan. All of our employees, directors and
consultants are eligible to participate in the plan. The plan is administered by
our board of directors, or the board of directors can designate a committee
composed of at least two non-employee directors to administer the plan. The
board of directors or committee will determine the participants in the plan and
the types of awards to be granted and the terms and conditions of all awards.
The plan requires that the exercise period for stock options and restricted
stock cannot exceed 10 years and prohibits, except under limited circumstances,
the transfer of any awards.
34
<PAGE> 35
The following table sets forth certain information regarding stock options
granted to our Chief Executive Officer during 1999 pursuant to the 1999 Stock
Incentive Plan. No other stock options have been granted by us.
<TABLE>
<CAPTION>
----------------------- ---------------- --------------------- --------------------- --------------------
Number of Percent of Total
Securities Options
Underlying Granted to Employees Exercise Expiration
Name Options in the Fiscal Year Price ($/Sh) Date
Granted (#)
----------------------- ---------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Timothy D. Wiens, 500,000 100% $12 9/15/2009
Chief Executive
Officer
----------------------- ---------------- --------------------- --------------------- --------------------
</TABLE>
The following table sets forth the aggregate options held by our Chief Executive
Officer. No other executive officer has been granted an option. No options were
exercised by the specified officer in 1999.
<TABLE>
<CAPTION>
- ------------------------ --------------------- ------------------- -------------------------- -------------------------
Value of Unexercised
Number of Securities In-the-Money Options at
Shares Acquired Value Underlying Options December 31, 1999
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ --------------------- ------------------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Timothy D. Wiens, -- -- 0/500,000 None / None
Chief Executive Officer
- ------------------------ --------------------- ------------------- -------------------------- -------------------------
</TABLE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table presents information regarding beneficial ownership of our
common stock, as of March 28, 2000, by:
o each shareholder known by us to be the beneficial owner of more than
5% of our outstanding common stock;
o each director and each named executive officer; and
o all directors and executive officers as a group.
Unless otherwise indicated, based on information furnished by the shareholders,
management believes that the shareholders listed below have sole investment and
voting power regarding their shares.
35
<PAGE> 36
<TABLE>
<CAPTION>
NAME AND SHARES
ADDRESS OF BENEFICIALLY PERCENTAGE
BENEFICIAL OWNER OWNED(1) OF CLASS
---------------- ------------ ----------
<S> <C> <C>
Joel H. Wiens .................... 6,635,358(2) 87.5%
11210 Huron Street
Northglenn, Colorado 80234
Timothy D. Wiens ................. 911,870(3) 12.0
11210 Huron Street
Northglenn, Colorado 80234
Wiens Family Trust ............... 515,509 6.8
11210 Huron Street
Northglenn, Colorado 80234
Michael J. Nelson ................ 163,726 2.2
115 South Walnut
Kimball, Nebraska 69145
Ronald B. James .................. -- --
11210 Huron Street
Northglenn, Colorado 80234
Daniel L. Allen .................. -- --
1849 North Main Street
Longmont, Colorado 80501
Ronald B. Robinson ............... -- --
5299 DTC Boulevard
Greenwood Village, Colorado 80111
Alan D. Linton ................... -- --
11210 Huron Street
Northglenn, Colorado 80234
Brigette M. Howorko .............. -- --
11210 Huron Street
Northglenn, Colorado 80234
All executive officers and
directors as a group (eight persons) 7,453,209 98.3%
</TABLE>
- ------------
* Less than 1%.
(1) The number of shares beneficially owned by each shareholder is
determined under the rules issued by the SEC. The information is not
necessarily indicative of beneficial ownership for any other purpose.
Under these rules, beneficial ownership includes any shares as to
which the individual has sole or shared voting power and any shares as
to which the individual has the right to acquire beneficial ownership
within 60 days after March 28 through the exercise of any stock option
or other right.
(2) Of this amount, 6,119,849 shares are owned directly, and 515,509
shares are owned indirectly as trustee of the Wiens Family Trust.
(3) Of this amount, 512,325 shares are owned directly, 141,791 shares are
owned indirectly through his minor children and 257,754 shares are
owned indirectly as a 50% beneficiary of the Wiens Family Trust.
36
<PAGE> 37
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We and each of our three subsidiaries have entered into management agreements
with Western Management Corporation, a corporation owned by Joel H. Wiens. Each
management agreement is effective for one year, subject to renewal at the annual
meeting of the board of directors of each entity. Management services performed
under each agreement include strategic planning, tax planning and budgeting,
business development, marketing, community and industry relations, and
assistance with the preparation and filing of Federal Reserve reports. The
management agreements require payment of monthly fees to Western Management
Corporation as follows: FirsTier - $750; our Colorado bank - $750 plus $250 per
branch; our Nebraska bank - $3,000; First Mtg. Bancorp -- $2,000. In addition to
these monthly fees, Western Management Corporation bills in December of each
year for any additional amount of time spent over 100 hours annually at $85 per
hour for Joel H. Wiens and $65 per hour for its accounting officer. The
following table summarizes payments made to Western Management Corporation for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
FirsTier................................. $ 19,000 $ 19,000 $ 19,000
Colorado Bank............................ 28,000 36,500 57,250
Nebraska Bank............................ 86,000 86,000 84,800
First Mtg. Bancorp....................... 34,000 39,000 34,000
----------- ------------ -----------
Total............................... $ 167,000 $ 180,500 $ 195,050
=========== ============ ===========
</TABLE>
In 1995, Timothy D. Wiens sold assets of a mortgage company he owned to us for
$100,000 to be paid out of profits generated by mortgage operations relating to
those assets. Amounts due to Timothy D. Wiens under this agreement were paid in
full by December 31, 1998.
In May 1997, we issued 787,143 shares of common stock to six persons, including
Joel H. Wiens, Michael J. Nelson, Timothy D. Wiens and two of his children in
exchange for shares they owned in our Colorado bank, representing an 18.2%
minority interest in our Colorado bank. The parties used a valuation based
solely on book value of the two entities in determining the exchange ratio for
the transaction. Accordingly, no goodwill was recognized by us in the
transaction. The book value of the minority interest was approximately $632,000.
After the exchange, our Colorado bank became wholly-owned by us.
In March 1999, we issued 232,994 shares of common stock to five persons,
including Joel H. Wiens, Timothy D. Wiens and two of his children, and Michael
J. Nelson in exchange for shares they owned in our Nebraska bank, representing
an 8.6% minority interest in our Nebraska bank. The parties used a valuation
based solely on book value of the two entities in determining the exchange ratio
for the transaction. Accordingly, no goodwill was recognized by us in the
transaction. The book value of the minority interest was $683,000. After the
exchange, our Nebraska bank became wholly-owned by us.
We rent our 6,000 square feet service center from a limited liability company
owned by Timothy D. Wiens, Joel H. Wiens and Michael J. Nelson pursuant to a
five year lease which began in August 1999. The rent for this facility is $6,000
per month plus our share of operating expenses, which includes, among other
charges, maintenance, utilities, insurance and management fees. The rent may be
increased annually based on increases in the Consumer Price Index.
37
<PAGE> 38
From time to time, Joel H. Wiens purchases loan participations from our
subsidiaries. The participations are made on terms identical to those of
unaffiliated parties. Approximate loan principal balances outstanding under
these participations are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Loan principal balances outstanding which were
purchased by Joel H. Wiens .................................... $1,420 $1,034 --
</TABLE>
Timothy D. Wiens and Michael J. Nelson, along with two officers of our Nebraska
bank and two unaffiliated persons, each own 16.67% of Insurance Professionals,
Inc., a Nebraska insurance agency. Insurance Professionals, Inc. has rented
office space at both the Kimball and Elm Creek branches of the Nebraska bank for
over 10 years for $100 per month per location on a month to month basis.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
a. Exhibits Filed Herewith or Incorporated by Reference to Previous Filings with
the Securities and Exchange Commission:
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1 Articles of Incorporation of FirsTier, as amended (2).
3.2 Bylaws of FirsTier (2).
4.1 Form of Subordinated Indenture dated February 15, 1999 between
the Registrant and Wilmington Trust Company, as Indenture Trustee
(1).
4.2 Form of Junior Subordinated Debenture (included as an exhibit to
Exhibit 4.1).
4.3 Form of Amended and Restated Trust Agreement of FW Capital I,
dated February 15, 1999 (1).
4.4 Form of Preferred Security Certificate of FW Capital I (included
as an exhibit to Exhibit 4.5).
4.5 Form of Preferred Securities Guarantee Agreement (1).
10.1 Revolving Line of Credit dated February 19, 1998 between FirsTier
as borrower and National Bank of Commerce Trust and Savings
Association (1).
10.2 Advance, Pledge and Security Agreement dated October 21, 1997
between Federal Home Loan Bank of Topeka and Firstate Bank (1).
10.3 Advance, Pledge and Security Agreement dated March 31, 1997
between Federal Home Loan Bank of Topeka and Firstate Bank of
Colorado (1).
10.4 Line of Credit agreement signed February 24, 1998 between
Firstate Bank of Colorado and Federal Home Loan Bank of Topeka
(1).
10.5 Federal Funds Purchased Line agreement between Firstate Bank and
Wells Fargo Bank (1).
10.6 Federal Funds Purchased Line agreement dated August 25, 1998
between Firstate Bank of Colorado and Bankers Bank of the West
(1).
38
<PAGE> 39
10.7 Federal Funds Purchased Line agreement dated October 20, 1997
between Firstate Bank and Bankers Bank of the West (1).
10.8 Management Agreement between FirsTier and Western Management
Corporation dated January 21, 1997 (1).
10.9 Management Agreement between Firstate Bank of Colorado and
Western Management Corporation dated January 4, 1993 (1).
10.10 Management Agreement between Firstate Bank of Nebraska and
Western Management Corporation dated January 21, 1998 (1).
10.11 Management Agreement between First Mtg. Bancorp and Western
Management Corporation dated January 21, 1997 (1).
10.12 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank dated May 8, 1998 (1).
10.13 Electronic Data Processing Agreement between First Commerce
Technologies and Firstate Bank of Colorado dated April 14, 1998
(1).
10.14 1999 Incentive Plan (2).
10.15 Lease dated July 27, 1999 between JMT, LLC and FirsTier (2).
11.1 Statement re Computation of per share earnings - see Item 7 --
Financial Statements.
21 Subsidiaries of the Registrant (2).
24 Power of Attorney - see Signature Page hereof.
27 Financial Data Schedule.
- ----------
(1) Filed with the Registration Statement on Form SB-2, SEC File No.
333-67107, on November 13, 1998.
(2) Filed with the Registration Statement on Form SB-2, SEC File No.
333-93293, on December 21, 1999.
b. Reports on Form 8-K.
None.
39
<PAGE> 40
FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
INDEPENDENT AUDITOR'S REPORT...........................................F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets...................................F-2
Consolidated Statements of Income.............................F-3
Consolidated Statements of Stockholders' Equity...............F-4
Consolidated Statements of Cash Flows.........................F-5
Notes to Consolidated Financial Statements....................F-6
40
<PAGE> 41
INDEPENDENT AUDITOR'S REPORT
Board of Directors
FirsTier Corporation
Northglenn, Colorado
We have audited the consolidated balance sheets of FirsTier Corporation and
subsidiaries as of December 31, 1998 and 1999, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of FirsTier Corporation
and subsidiaries as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
CLIFTON GUNDERSON L.L.C.
Denver, Colorado
January 15, 2000
F-1
<PAGE> 42
FIRSTIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
Cash and due from banks $ 13,892 $ 27,049
Interest bearing deposits in other banks 3 3
Federal funds sold 13,270 --
Investment securities:
Available-for-sale, at fair value 27,082 36,369
Held-to-maturity, at amortized cost, fair value of
$7,250 in 1998 and $6,006 in 1999 7,146 5,989
--------- ---------
Total investment securities 34,228 42,358
--------- ---------
Loans held for sale 5,193 1,123
Gross loans receivable 290,875 623,070
Less:
Unearned loan fees (886) (2,121)
Allowance for loan losses (2,187) (5,322)
--------- ---------
Net loans receivable 287,802 615,627
--------- ---------
Premises and equipment, net 8,308 11,117
Preferred securities issuance cost, net -- 1,083
Other assets 4,511 8,461
--------- ---------
TOTAL ASSETS $ 367,207 $ 706,821
========= =========
LIABILITIES
Deposits:
Demand noninterest bearing $ 44,653 $ 58,648
Demand interest bearing 14,919 19,951
Time 259,908 523,395
--------- ---------
Total deposits 319,480 601,994
Securities sold under agreements to repurchase 5,080 8,150
Note payable 8,790 11,560
Federal Home Loan Bank borrowings 8,650 33,235
Other liabilities 3,818 3,178
--------- ---------
Total liabilities 345,818 658,117
--------- ---------
Minority interest in consolidated subsidiaries 683 --
--------- ---------
Company obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely Junior
Subordinated Debentures -- 23,000
--------- ---------
STOCKHOLDERS' EQUITY
Preferred stock, 20,000,000 shares authorized; no shares issued
and outstanding at December 31, 1998 and 1999 -- --
Common stock, 50,000,000 shares authorized; shares issued
and outstanding: 7,346,673 at December 31, 1998 and
7,579,667 at December 31, 1999 837 1,520
Retained earnings 19,460 24,520
Accumulated other comprehensive income (loss) 409 (336)
--------- ---------
Total stockholders' equity 20,706 25,704
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 367,207 $ 706,821
========= =========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-2
<PAGE> 43
FIRSTIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $ 13,860 $ 24,160 $ 44,755
Taxable investment securities 1,173 1,153 1,819
Nontaxable investment securities 447 500 517
Dividends on investment securities 47 71 47
Federal funds sold 690 855 598
Other interest 46 15 2
----------- ----------- -----------
Total interest income 16,263 26,754 47,738
----------- ----------- -----------
INTEREST EXPENSE
Deposits 6,986 11,884 20,919
Federal funds purchased 45 23 235
Securities sold under agreements to repurchase 113 120 233
Note payable 113 299 355
Trust preferred securities -- -- 1,886
Federal Home Loan Bank borrowings 224 428 622
----------- ----------- -----------
Total interest expense 7,481 12,754 24,250
----------- ----------- -----------
Net interest income 8,782 14,000 23,488
PROVISION FOR LOAN LOSSES 140 1,090 3,230
----------- ----------- -----------
Net interest income after provision for loan losses 8,642 12,910 20,258
----------- ----------- -----------
NON-INTEREST INCOME
Fees for customer services 761 1,015 1,998
Net gains from sale of loans 625 1,036 816
Commissions and fees from brokerage activities 29 220 315
Investment securities transactions, net -- (4) --
Other operating income 293 573 566
----------- ----------- -----------
Total non-interest income 1,708 2,840 3,695
----------- ----------- -----------
NON-INTEREST EXPENSES
Salaries and employee benefits 3,296 5,489 8,669
Net occupancy expense of premises 989 1,616 2,333
Purchased services 842 1,342 1,790
Office supplies 182 318 491
Minority interest in income of consolidated subsidiaries 101 111 --
Other operating expenses 1,134 1,783 2,988
----------- ----------- -----------
Total non-interest expenses 6,544 10,659 16,271
----------- ----------- -----------
Income before income tax expense 3,806 5,091 7,682
INCOME TAX EXPENSE 1,309 1,716 2,616
----------- ----------- -----------
NET INCOME $ 2,497 $ 3,375 $ 5,066
=========== =========== ===========
OTHER COMPREHENSIVE INCOME, NET OF TAX
Unrealized holding gains (losses) arising during the period 52 646 (1,183)
Unrealized holding gains (losses) on matured securities
reversing during the year -- -- 46
Income tax (expense) benefit related to items of other
comprehensive income (19) (226) 386
----------- ----------- -----------
Other comprehensive income, net of tax 33 420 (751)
----------- ----------- -----------
COMPREHENSIVE INCOME $ 2,530 $ 3,795 $ 4,315
=========== =========== ===========
INCOME PER SHARE
Basic and diluted earnings per share $ 0.36 $ 0.46 $ 0.68
=========== =========== ===========
Weighted average shares outstanding 7,018,696 7,346,673 7,504,835
=========== =========== ===========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-3
<PAGE> 44
FIRSTIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON RETAINED COMPREHENSIVE
STOCK EARNINGS INCOME (LOSS) TOTAL
----- -------- ------------- -----
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 205 $ 13,588 $ (44) $ 13,749
Net income for the year -- 2,497 -- 2,497
Issuance of 787,143 shares in exchange
for minority shares of FirsTier Bank 632 -- -- 632
Net changes in other comprehensive
income -- -- 33 33
------ -------- ----- --------
BALANCE AT DECEMBER 31, 1997 837 16,085 (11) 16,911
Net income for the year -- 3,375 -- 3,375
Net changes in other comprehensive
income -- -- 420 420
------ -------- ----- --------
BALANCE AT DECEMBER 31, 1998 837 19,460 409 20,706
Net income for the year -- 5,066 -- 5,066
Issuance of 232,994 shares in exchange
for minority shares of Firstate Bank
(Nebraska Bank) 683 (6) 6 683
Net changes in other comprehensive
income (loss) -- -- (751) (751)
------ -------- ----- --------
BALANCE AT DECEMBER 31, 1999 $1,520 $ 24,520 $(336) $ 25,704
====== ======== ===== ========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-4
<PAGE> 45
FIRSTIER CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,497 $ 3,375 $ 5,066
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 140 1,090 3,230
Provision for losses on other real estate owned 76 25 --
Depreciation and amortization 426 709 1,344
Net gains from sale of loans (625) (1,036) (816)
Proceeds from sale of loans held for sale 27,225 50,175 53,358
Origination of loans held for sale (29,800) (50,150) (48,472)
Investment securities transactions, net -- 4 --
Increase in minority interest in consolidated subsidiaries 23 23 --
Changes in deferrals and accruals:
Other assets (449) (947) (3,713)
Other liabilities 3,375 310 (640)
-------- --------- ---------
Net cash provided by operating activities 2,888 3,578 9,357
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in federal funds sold 1,710 (1,960) 13,270
Net (increase) decrease in interest bearing deposits in other banks (50) 146 --
Purchase of investment securities available-for-sale (1,643) (129,237) (72,321)
Purchase of investment securities held-to-maturity (765) (513) (786)
Proceeds from sale of investment securities available-for-sale 250 29,996 --
Proceeds from maturities/paydowns of investment securities 6,681 94,679 63,840
Net increase in loans (67,275) (125,348) (331,146)
Expenditures for bank premises and equipment (2,466) (3,835) (4,047)
Proceeds from sale of other real estate 256 705 172
Purchase of savings bank, net of $3,897 of cash and due from
banks acquired 154 -- --
-------- --------- ---------
Net cash used in investing activities (63,148) (135,367) (331,018)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 71,936 119,186 282,514
Net increase (decrease) in securities sold under agreements
to repurchase (5,941) 3,008 3,070
Advances from Federal Home Loan Bank 1,000 8,650 24,700
Payments on Federal Home Loan Bank advances (6,800) (1,000) (115)
Proceeds from note payable 3,380 6,940 11,560
Payments on note payable -- (1,530) (8,790)
Proceeds from trust preferred securities -- -- 23,000
Debt issuance cost -- -- (1,121)
-------- --------- ---------
Net cash provided by financing activities 63,575 135,254 334,818
-------- --------- ---------
NET INCREASE IN CASH AND DUE FROM BANKS 3,315 3,465 13,157
CASH AND DUE FROM BANKS AT BEGINNING OF PERIOD 7,112 10,427 13,892
-------- --------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 10,427 $ 13,892 $ 27,049
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 5,028 $ 12,287 $ 25,009
======== ========= =========
Income taxes $ 1,137 $ 2,025 $ 3,608
======== ========= =========
NONCASH TRANSACTIONS
Conversion of loans to other real estate owned $ 197 $ 761 $ 91
======== ========= =========
Issuances of shares for minority interests of consolidated
subsidiaries $ 632 $ -- $ 683
======== ========= =========
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying notes to consolidated financial statements.
F-5
<PAGE> 46
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
FirsTier Corporation (the Company) was incorporated for the purposes of owning
shares of and acting as the parent holding company for Firstate Bank (the
Nebraska Bank) and FirsTier Bank (the Colorado Bank) (collectively referred to
as the "Banks"). The Banks provide a full range of banking services to
individual and corporate customers principally in the Front Range of Colorado
and the west and central Nebraska areas. A majority of the Company's loans are
related to real estate and commercial activities. The Company is subject to
competition from other financial institutions for loans and deposit accounts.
The Company and the Banks are also subject to regulation by certain governmental
agencies and undergo periodic examinations by those regulatory agencies.
On September 15, 1999, the Company reorganized as a Colorado corporation and
changed its name to FirsTier Corporation from First Western Corp. As a result of
the reorganization, the Company's common stock and surplus accounts have been
combined and the Company's shares have been split 52.48 for one. All share and
per share amounts contained in these financial statements have been restated for
this reorganization.
BASIS OF FINANCIAL STATEMENT PRESENTATION AND USE OF ESTIMATES
The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent assets
and liabilities as of the date of the balance sheet and revenues and expenses
for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses, management
obtains independent appraisals for significant properties and assesses estimated
future cash flows from borrowers' operations and the liquidation of loan
collateral.
Management believes that the allowance for loan losses is adequate. While
management uses available information to estimate future loan losses, changes in
economic conditions may necessitate revisions in future years. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowance for loan losses. Such agencies may
require the Banks to make additional loan loss provisions based on their
judgments about information available to them at the time of their examination.
F-6
<PAGE> 47
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its respective subsidiaries. The Company currently owns 100 percent of the
Colorado Bank (having acquired the minority interest in a May 1997 exchange of
stock), the Nebraska Bank (having acquired the minority interest in a March 1999
exchange of stock), First Mortgage Bancorp, and FW Capital I. In connection with
the issuance of the preferred securities, as more fully described in Note 17,
the Company formed FW Capital I, a wholly owned subsidiary, in November 1998.
Prior to the issuance of the preferred securities described in Note 17, FW
Capital I was a shell company which had no assets nor operations. All material
intercompany transactions and balances have been eliminated in consolidation.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Company has defined cash
equivalents as those amounts included in the balance sheet caption "cash and due
from banks."
INVESTMENT SECURITIES
Management determines the classification of debt securities at the time of
purchase. Debt securities are classified as held-to-maturity when the Banks have
the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost.
Debt securities not classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are stated at fair value, with
the unrealized gains and losses, net of tax, reported as a component of
stockholders' equity.
The amortized cost of debt securities classified as held-to-maturity is adjusted
for amortization of premiums and accretion of discounts to maturity or, in the
case of mortgage-backed securities, over the estimated life of the security.
Such amortization and accretion is included as an adjustment to interest income
from investments. Realized gains and losses and declines in value judged to be
other-than-temporary are included in investment securities transactions, net in
the consolidated statements of income. The cost of securities sold is based on
the specific identification method.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
F-7
<PAGE> 48
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal, adjusted for any charge-offs, the allowance for loan
losses, and any deferred fees or costs on originated loans.
Loan fees which represent adjustments to interest yield are deferred and
amortized over the estimated life of the loan. Most of the loans originated by
the Company are short-term.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due. When
interest accrual is discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent cash payments are
received. Impaired loans are measured based on the present value of expected
future cash flows discounted at the loan's original effective interest rate. As
a practical matter, impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment in the loan, the impairment is recorded through a valuation
allowance.
The allowance for loan losses is established through a provision for loan losses
charged to income. Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principal is unlikely or,
with respect to consumer installment loans, according to an established
delinquency schedule. The allowance is an amount that management believes will
be adequate to absorb losses inherent in existing loans and commitments to
extend credit, based on evaluations of the collectibility and prior loss
experience of loans and commitments to extend credit. The evaluations take into
consideration such factors as changes in the nature and volume of the portfolio,
overall portfolio quality, loan concentrations, specific problem loans and
commitments, and current and anticipated economic conditions that may affect the
borrowers' ability to pay. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available.
PREMISES AND EQUIPMENT
Premises, including leasehold improvements, and equipment are stated at cost.
Depreciation is provided for in amounts sufficient to charge the cost of
depreciable assets to operations over their estimated service lives, principally
on the straight-line method.
OTHER REAL ESTATE
Real estate properties acquired through, or in lieu of, foreclosure are to be
sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, management periodically
performs valuations and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Other real estate is carried in other
assets on the consolidated balance sheets. Revenue and expense from operations
and changes in the valuation allowance are included in other operating expenses.
F-8
<PAGE> 49
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
INTANGIBLE ASSETS
Intangible assets are included in other assets in the consolidated balance
sheets. Such intangible assets consist of goodwill arising from the February
1997 acquisition of a financial institution. The goodwill is being amortized on
a straight line basis over a period of fifteen years from the date of purchase.
COMPREHENSIVE INCOME
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130), in
June 1997. SFAS No. 130 establishes standards for reporting and display of
comprehensive income (as defined) in a full set of general-purpose financial
statements. SFAS No. 130 requires classification of items of other comprehensive
income by their nature in a financial statement and display of the accumulated
balance of other comprehensive income separately from retained earnings in the
equity section of the consolidated balance sheet. The Company has only one item
of other comprehensive income and has elected to report comprehensive income in
the consolidated statements of income.
PER SHARE COMPUTATIONS
Basic earnings per share are based on the weighted average number of common
shares outstanding during each year presented. Diluted earnings per share is
computed based upon the weighted average number of shares outstanding during the
year plus the shares that would be outstanding assuming exercise of the dilutive
stock options which are considered to be common stock equivalents. The number of
shares that would be issued from the exercise of stock options has been reduced
by the number of shares that could have been purchased from the proceeds at the
average market price of the Company's stock.
Options to purchase 500,000 shares of common stock at $12 per share were
outstanding during the second half of 1999 but were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares during 1999.
F-9
<PAGE> 50
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OPERATING SEGMENTS
The Company adopted Financial Accounting Standards Board Statement No. 131,
Disclosures About Segments of an Enterprise and Related Information (SFAS No.
131), effective January 1, 1998. This statement establishes standards for
reporting information about segments in annual and interim financial statements.
SFAS No. 131 introduces a new model for segment reporting called "management
approach." The management approach is based on the way the chief operating
decision-maker organizes segments within a company for making operating
decisions and assessing performance. Reportable segments are based on products
and services, geography, legal structure, management structure, and any other
segments into which management disaggregates a company. Based on the "management
approach" model, the Company has determined that its business is comprised of a
single operating segment and that SFAS No. 131 therefore has no impact on its
consolidated financial statements.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities, which
addresses the accounting for derivative transactions and hedging activities.
Subsequently, FASB issued Statement No. 137 which delayed the effective date of
Statement No. 133 by one year. The Company will adopt the new standard beginning
with its 2001 fiscal year, when adoption is first required. Management is
currently evaluating the reporting requirements under this new standard but does
not anticipate that adoption of the new standard will have any significant
impact on financial results of the Company.
NOTE 2 - ACQUISITIONS
In February 1997, the Company acquired 100 percent of First Northern Holdings,
L.T.D. and the remaining 18.5 percent minority interest not owned by it in First
Northern Savings Bank, Greeley, Colorado. The purchase price, approximately $3.8
million, was paid in cash. The excess purchase price over the fair value of the
net assets acquired (goodwill) of $966,000 is being amortized over a
fifteen-year period from the date of purchase. Both locations of First Northern
Savings Bank immediately became branches of the Colorado Bank and added
approximately $33 million in assets to the Company.
In May 1997, the Company exchanged 787,143 shares of its common stock for the
18.2 percent of the Colorado Bank that it did not own at the time. Individuals
already affiliated with the Company owned such minority shares. No goodwill was
recognized in connection with this transaction.
F-10
<PAGE> 51
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 2 - ACQUISITIONS (CONTINUED)
In March 1999, the Company exchanged 232,994 shares of its common stock for the
8.6 percent of the Nebraska Bank that it did not own at the time. Individuals
already affiliated with the Company owned such minority shares. As the Company
and its four shareholders at the time of the exchange owned 99.6 percent of the
Nebraska Bank and the remaining 0.4 percent was owned by other employees of the
Company, it was determined by the boards of both entities that a book value
exchange ratio represented a fair value for all parties. The fair value
determined for this transaction was $683,000. No goodwill was recognized in
connection with this transaction.
Following their respective acquisition dates, the Company included the results
of operations of all of the above-indicated acquisitions in its consolidated
statement of income.
NOTE 3 - INVESTMENT SECURITIES
At December 31, 1998, the Company had securities with the following amortized
cost and estimated fair values:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- --------- -------- -------------
<S> <C> <C> <C> <C>
Securities held-to-maturity:
State and political securities $ 7,146 $ 104 $ -- $ 7,250
------------- --------- -------- -------------
TOTAL SECURITIES HELD-TO-MATURITY $ 7,146 $ 104 $ -- $ 7,250
============= ========= ======== =============
Securities available-for-sale:
U.S. Treasury and agency
securities $ 23,080 $ 33 $ 28 $ 23,085
State and political securities 2,136 92 -- 2,228
Other bonds 21 2 -- 23
Equity securities 1,216 530 -- 1,746
------------- --------- -------- -------------
TOTAL SECURITIES AVAILABLE-FOR-SALE $ 26,453 $ 657 $ 28 $ 27,082
============= ========= ======== =============
</TABLE>
F-11
<PAGE> 52
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
At December 31, 1999, the Company had securities with the following amortized
cost and estimated fair values:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---- ----- ------ ----------
<S> <C> <C> <C> <C>
Securities held-to-maturity:
U.S. Treasury and agency
securities $ 495 $ 3 $ -- $ 498
State and political securities 5,494 48 34 5,508
------- ---- ---- -------
TOTAL SECURITIES HELD-TO-MATURITY $ 5,989 $ 51 $ 34 $ 6,006
======= ==== ==== =======
Securities available-for-sale:
U.S. Treasury and agency
securities $31,480 $ -- $789 $30,691
State and political securities 3,049 73 114 3,008
Equity securities 2,348 322 -- 2,670
------- ---- ---- -------
TOTAL SECURITIES AVAILABLE-FOR-SALE $36,877 $395 $903 $36,369
======= ==== ==== =======
</TABLE>
The amortized cost and estimated fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Actual maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
HELD-TO-MATURITY AVAILABLE-FOR-SALE
------------------------------- ---------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
----------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Due in one year or less $ 822 $ 826 $ 1,509 $ 1,507
Due after one year through five years 2,312 2,327 27,935 27,300
Due after five years through ten years 691 705 3,262 3,178
Due after ten years 2,164 2,148 1,823 1,714
----------- ------------ ------------- -------------
Total debt securities 5,989 6,006 34,529 33,699
Equity securities - no maturity -- -- 2,348 2,670
----------- ------------ ------------- -------------
TOTAL SECURITIES $ 5,989 $ 6,006 $ 36,877 $ 36,369
=========== ============ ============= =============
</TABLE>
Securities included in the accompanying consolidated balance sheets at December
31, 1998 and 1999, with a carrying value of $16,720,792 and $29,139,448,
respectively, are pledged as collateral for public deposits and for other
purposes as required or permitted by law.
F-12
<PAGE> 53
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
In 1997, gross realized losses of $37 on sales of securities available-for-sale
were recognized. Gross realized losses of $4,205 on sales of securities
available-for-sale were recorded in 1998. There were no sales of securities
available-for-sale recorded in 1999.
NOTE 4 - LOANS RECEIVABLE
The components of the loan portfolio are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1998 1999
--------- ---------
<S> <C> <C>
Commercial, financial, and agricultural $ 51,990 $ 82,982
Construction 85,782 135,367
Real estate 141,955 388,078
Installment loans to individuals 11,057 16,335
Other 91 308
--------- ---------
Gross loans receivable 290,875 623,070
Less unearned loan fees (886) (2,121)
Less allowance for loan losses (2,187) (5,322)
--------- ---------
NET LOANS RECEIVABLE $ 287,802 $ 615,627
========= =========
</TABLE>
The Company, through its subsidiaries, grants real estate, construction,
commercial, agricultural, and other types of loans to customers primarily in the
Front Range of Colorado and west and central Nebraska. As the Company's loan
portfolio is concentrated in real estate and real estate-related loans, a
substantial portion of its debtors' ability to honor their contracts is
dependent upon the real estate economic sector. The Company had no loans
involving foreign activities (borrowers outside the United States) outstanding
at December 31, 1998 or December 31, 1999.
Activity in the allowance for loan losses was as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Balance, at beginning of year $ 851 $ 1,321 $ 2,187
Provision for loan losses 140 1,090 3,230
Allowance from acquired savings bank 277 -- --
Recoveries 111 174 94
Loans charged off (58) (398) (189)
------- ------- -------
BALANCE, AT END OF YEAR $ 1,321 $ 2,187 $ 5,322
======= ======= =======
</TABLE>
F-13
<PAGE> 54
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 4 - LOANS RECEIVABLE (CONTINUED)
The components of impaired loans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
---- ----
<S> <C> <C>
Outstanding principal balance of accruing loans
having payments delinquent more than 90 days $288 $ 78
Loans on which the accrual of interest has been
discontinued or reduced 635 962
</TABLE>
The average investments in impaired loans were $1,138,000 and $928,000 during
the years ended December 31, 1998 and 1999, respectively. Interest income on
impaired loans recognized for cash payments received during these years was not
significant. The amount of the allowance for loan losses allocated to impaired
loans at December 31, 1998 and 1999 was not significant.
The Company is not committed to lend funds to debtors whose loans have been
impaired.
Loans are made in the ordinary course of business to directors, officers, and
principal holders of equity securities of the Company and its subsidiaries and
to their affiliates. The terms of these loans, including interest rates and
collateral, are similar to those prevailing for comparable transactions with
others and do not involve more than a normal risk of collectibility. A summary
of activity in these loans is as follows:
<TABLE>
<CAPTION>
1998 1999
---------- ------
<S> <C> <C>
Balance, at beginning of year $ -- $ --
New loans -- 1,742
Repayments -- --
---------- ------
BALANCE, AT END OF YEAR $ -- $1,742
========== ======
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1999
-------- --------
<S> <C> <C>
Cost:
Building and improvements $ 4,523 $ 5,398
Leasehold improvements 771 1,263
Equipment 3,782 5,970
Land 1,966 2,458
-------- --------
Total cost 11,042 15,089
Less accumulated depreciation (2,734) (3,972)
-------- --------
NET BOOK VALUE $ 8,308 $ 11,117
======== ========
</TABLE>
F-14
<PAGE> 55
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 6 - DEPOSITS
At December 31, 1999, the scheduled remaining maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
DEPOSIT CATEGORY
-------------------------
UNDER $100,000
$100,000 OR MORE TOTAL
-------- -------- --------
<S> <C> <C> <C>
Three months or less $ 54,947 $16,058 $ 71,005
Over three months through twelve months 155,691 47,540 203,231
Over one year through three years 115,982 27,833 143,815
Over three years 220 -- 220
-------- ------- --------
Total time deposits $326,840 $91,431 418,271
======== =======
Deposits with no stated maturity 105,124
--------
TOTAL DEPOSITS $523,395
========
</TABLE>
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature one day from the
transaction date. The securities underlying the repurchase agreements are held
by an agent of the Banks and are under the control of the Banks.
NOTE 8 - NOTE PAYABLE
The Company maintained a revolving line of credit with the National Bank of
Commerce in the amount of $15,000,000 at December 31, 1999. The outstanding
balance at December 31, 1998 and 1999 was $8,790,000 and $11,560,000,
respectively. The repayment schedule requires semi-annual interest payments with
the principal due at maturity (June 30, 2002). Interest is calculated at 250
basis points over the like "CMT" treasury (weighted total of 7.25% at December
31, 1999) with the next repricing date of March 31, 2000. The note is secured by
100 percent of the outstanding common stock of the Colorado Bank and 91 percent
of the outstanding common stock of the Nebraska Bank and is guaranteed by a
principal stockholder of the Company. The loan agreement also calls for the
Company to maintain the following financial ratios:
Maintain or cause each of its bank subsidiaries to maintain:
(i) for the Company, not less than a 6.5% tangible equity capital-to-assets
ratio and
(ii) for each of its subsidiary banks, not less than a 6.0% tangible equity
capital-to-assets ratio.
F-15
<PAGE> 56
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 9 - FEDERAL HOME LOAN BANK BORROWINGS
As of December 31, 1999, the Banks have available lines of credit totaling
$36,738,000 with the Federal Home Loan Bank (FHLB) secured by FHLB capital stock
and qualifying first mortgage residential loans. The advances outstanding at
December 31, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
OUTSTANDING BALANCE
AT DECEMBER 31,
INTEREST ------------------------
RATE 1998 1999
---- ---- ----
<S> <C> <C> <C>
Maturity date of advance:
February 2, 2001 5.740% $ 2,500 $ 2,500
January 31, 2003 5.810% 5,000 5,000
December 1, 2008 5.572% 1,150 1,035
Various advances maturing prior to
February 15, 2000 5.640%-6.000% -- 24,700
------- -------
TOTAL ADVANCES OUTSTANDING $ 8,650 $33,235
======= =======
</TABLE>
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONTINGENT
LIABILITIES
The Banks are parties to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers.
These financial instruments include commitments to extend credit and stand-by
letters of credit.
Those instruments involve, to a varying degree, elements of credit risk in
excess of the amount recognized in the consolidated balance sheets. The contract
amounts of those instruments reflect the extent of involvement the Banks have in
particular classes of financial instruments.
The Banks' exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and stand-by
letters of credit is represented by the contractual notional amount of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1998 1999
-------- --------
<S> <C> <C>
Commitments to extend credit $118,843 $225,506
Stand-by letters of credit 3,799 13,435
</TABLE>
F-16
<PAGE> 57
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND CONTINGENT
LIABILITIES (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of a condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may expire without being
drawn upon or be participated to other financial institutions, the total
commitment amounts do not necessarily represent future cash requirements. The
Banks evaluate each customer's credit-worthiness on a case-by-case basis.
The amount of collateral obtained if deemed necessary by the Banks upon
extension of credit is based on management's credit evaluation. Collateral held
varies, but may include accounts receivable, inventory, property, plant, and
equipment, and income-producing commercial properties.
Stand-by letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In the normal course of business there are outstanding various contingent
liabilities, such as claims and legal actions, which are not reflected in the
accompanying consolidated financial statements. Management believes, based on
consultation with counsel, that liabilities arising from these proceedings, if
any, will not be material to the Company's consolidated financial position.
NOTE 11 - LEASE COMMITMENTS
The Colorado Bank leases various branch office and ATM equipment space under
noncancelable operating leases. At December 31, 1999, future minimum lease
payments under these leases, expiring at various dates through 2009, are as
follows:
<TABLE>
<S> <C>
Year ending December 31:
2000 $ 948
2001 948
2002 978
2003 973
2004 916
Thereafter 2,428
--------
TOTAL FUTURE LEASE PAYMENTS $ 7,191
========
</TABLE>
Total lease expense for all operating leases was $241,866, $346,665, and
$630,199 for the years ended December 31, 1997, 1998, and 1999, respectively.
F-17
<PAGE> 58
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 12 - INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
---- ------
<S> <C> <C>
Deferred tax assets:
Provision for loan losses $199 $1,332
Depreciation 133 145
Net unrealized loss on securities available-for-sale -- 173
---- ------
Total deferred tax assets 332 1,650
Deferred tax liabilities:
Net unrealized gains on securities available-for-sale 220 --
---- ------
NET DEFERRED TAX ASSETS $112 $1,650
==== ======
</TABLE>
Management believes that it is more likely than not that the Company will
realize the recorded deferred tax assets and, accordingly, no valuation
allowance has been established.
The effective income tax rate varies from the statutory federal rate because of
several factors, the most significant being nontaxable interest income earned on
obligations of state and political subdivisions. The following table reconciles
the Company's effective tax rate to the statutory federal rate:
<TABLE>
<CAPTION>
1997 1998 1999
------------------------- ------------------------- -----------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at statutory rate $ 1,294 34.0% $ 1,731 34.0% $ 2,612 34.0%
Increase (decrease) in taxes
due to:
Tax exempt municipal
interest (142) (3.7) (152) (3.0) (176) (2.3)
State tax 81 2.1 162 3.2 166 2.2
Other 76 2.0 (25) (.5) 14 0.2
------- ------- ------- ------- ------- -------
TOTAL INCOME TAX EXPENSE $ 1,309 34.4% $ 1,716 33.7% $ 2,616 34.1%
======= ======= ======= ======= ======= =======
</TABLE>
F-18
<PAGE> 59
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 12 - INCOME TAXES (CONTINUED)
The consolidated provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current tax provision:
Federal $ 1,191 $ 1,656 $ 3,352
State 123 246 397
------- ------- -------
Total current tax provision 1,314 1,902 3,749
Deferred federal tax (5) (186) (1,133)
------- ------- -------
TOTAL PROVISION FOR INCOME TAXES $ 1,309 $ 1,716 $ 2,616
======= ======= =======
</TABLE>
NOTE 13 - RELATED PARTIES
The Company has sold loan participations to related parties (stockholders,
directors, family members, businesses related through common ownership). At
December 31, 1997 and 1998, the participations sold to related parties were
approximately $1.4 million and $1.0 million, respectively. There were no
participations sold to related parties at December 31, 1999. The Company's
related parties also have deposit activities with the Banks in the normal course
of business.
In accordance with the terms of management agreements, the Company and three of
its subsidiaries purchase services from Western Management Corporation, a
corporation owned by a principal stockholder. Such agreements are annually
renewable and are on terms that the Company believes would be similar to those
obtained from an unaffiliated party. The purchased services include strategic
planning, tax planning and budgeting, business development, and marketing.
Amounts expensed by the Company and its subsidiaries pursuant to the management
agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C>
$ 167.0 $ 180.5 $ 195.1
</TABLE>
In 1995, the then Vice Chairman of the Company sold assets of a mortgage company
to the Company for a purchase price of $100,000 to be paid out of future profits
generated by mortgage operations relating to those assets. Through December 31,
1998, payments under the terms of this agreement totaled $100,000. The Company
believes that this transaction was made on terms similar to those that would
have been obtained with an unaffiliated party.
F-19
<PAGE> 60
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 14 - EMPLOYEE BENEFITS
The Company participates in a multiple-employer 401(k) profit sharing plan
involving other companies of its primary shareholder. The plan is available for
all Company personnel who have been employed for one year. Employees may
contribute up to 10 percent of their compensation with the Company's
discretionary matching within the limits defined for a 401(k) plan.
Contributions in 1997, 1998, and 1999 were $19,341, $37,478, and $48,731,
respectively.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summary presents the methodologies and assumptions used to
estimate the fair value of the Company's financial instruments. The Company
operates as a going concern and, except for its investment portfolio, no active
market exists for its financial instruments. Much of the information used to
determine fair value is highly subjective and judgmental in nature and,
therefore, the results may not be precise. The subjective factors include, among
other things, estimates of cash flows, risk characteristics, credit quality, and
interest rates, all of which are subject to change. Since the fair value is
estimated as of the balance sheet date, the amounts which will actually be
realized or paid upon settlement or maturity of the various financial
instruments could be significantly different.
CASH AND DUE FROM BANKS, INTEREST BEARING DEPOSITS IN OTHER BANKS, AND FEDERAL
FUNDS SOLD
For these short-term instruments, the carrying amount approximates fair value.
INVESTMENT SECURITIES
For investment securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities. The carrying amount of accrued interest
receivable approximates its fair value.
LOANS
The fair value of fixed rate loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities. For variable
rate loans, the carrying amount is a reasonable estimate of fair value. For
loans where collections of principal are in doubt, an allowance for losses has
been estimated. Loans with similar characteristics were aggregated for purposes
of the calculations. The carrying amount of accrued interest receivable
approximates its fair value.
F-20
<PAGE> 61
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
DEPOSITS
The fair value of interest bearing deposits with no stated maturity is the
amount payable on demand at the reporting date (i.e., their carrying amount).
The fair value of fixed maturity interest bearing deposits is estimated using a
discounted cash flow calculation that applies the rates currently offered for
deposits of similar remaining maturities. The carrying amount of accrued
interest payable approximates its fair value.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
For securities sold under agreements to repurchase, the carrying amount is a
reasonable estimate of fair value.
OTHER BORROWINGS
The fair value of other borrowings is estimated by discounting the future cash
flows using the current rate at which a similar loan could be financed.
COMMITMENTS TO EXTEND CREDIT AND STAND-BY LETTERS OF CREDIT
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparts. For fixed-rate
loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair value of letters of
credit is based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations with the
counterparts at the reporting date.
The following table presents estimated fair values of the Company's financial
instruments as of December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks $ 13,892 $ 13,892 $ 27,049 $ 27,049
Interest bearing deposits in other
banks 3 3 3 3
Federal funds sold 13,270 13,270 -- --
Investment securities:
Securities held-to-maturity 7,146 7,250 5,989 6,006
Securities available-for-sale 27,082 27,082 36,369 36,369
Loans held for sale 5,193 5,193 1,123 1,123
Net loans 287,802 287,349 615,627 608,975
Accrued interest receivable 2,902 2,902 4,979 4,979
</TABLE>
F-21
<PAGE> 62
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------------------------- ---------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Financial liabilities:
Deposits:
Noninterest bearing $ 44,653 $ 44,653 $ 58,648 $ 58,648
Interest bearing 274,827 272,881 543,346 540,363
Securities sold under agreements
to repurchase 5,080 5,080 8,150 8,150
Note payable 8,790 8,790 11,560 11,560
Federal Home Loan Bank borrowings 8,650 8,758 33,235 32,934
Accrued interest payable 3,348 3,348 2,550 2,550
Unrecognized financial instruments:
Commitments to extend credit 118,843 118,843 225,506 225,506
Stand-by letters of credit 3,799 3,799 13,435 13,435
</TABLE>
NOTE 16 - STOCKHOLDERS' EQUITY AND REGULATORY RESTRICTIONS
The payment of dividends to the Company by the subsidiaries is subject to
various state and federal regulatory limitations.
The Company (on a consolidated basis) and the Banks are subject to various
regulatory capital requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on the Company's consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Banks must meet
specific capital guidelines that involve quantitative measures of the Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Banks' capital amounts and
classification are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Prompt corrective action
provisions are not applicable to bank holding companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and Banks to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1999, that
the Company and the Banks meet all minimum capital adequacy requirements to
which they are subject.
F-22
<PAGE> 63
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 16 - STOCKHOLDERS' EQUITY AND REGULATORY RESTRICTIONS (CONTINUED)
As of December 31, 1999, the most recent notification, the Federal Deposit
Insurance Corporation categorized the Nebraska Bank as well capitalized and the
Colorado Bank as adequately capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, a bank must
maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed either Bank's category. The
Company's and the Banks' actual capital amounts and ratios as of December 31,
1998 and 1999 are also presented in the table.
AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
MINIMUM
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------------- ------------------------- -----------------------
RATIO RATIO
AMOUNT RATIO AMOUNT > OR = AMOUNT > OR =
------- ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
Total capital to risk
weighted assets $22,564 7.22% $25,009 8.00% $ N/A
Tier 1 capital to risk
weighted assets 20,139 6.44 12,504 4.00 N/A
Tier 1 capital to average
assets 20,139 5.70 14,137 4.00 N/A
Colorado Bank:
Total capital to risk
weighted assets $22,165 8.53% $20,780 8.00% $25,976 10.00%
Tier 1 capital to risk
weighted assets 20,828 8.02 10,390 4.00 15,585 6.00
Tier 1 capital to average
assets 20,828 7.39 11,275 4.00 14,094 5.00
Nebraska Bank:
Total capital to risk
weighted assets $ 8,546 16.31% $ 4,192 8.00% $ 5,240 10.00%
Tier 1 capital to risk
weighted assets 7,889 15.05 2,096 4.00 3,144 6.00
Tier 1 capital to average
assets 7,889 11.08 2,848 4.00 3,559 5.00
</TABLE>
F-23
<PAGE> 64
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 16 - STOCKHOLDERS' EQUITY AND REGULATORY RESTRICTIONS (CONTINUED)
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
MINIMUM
TO BE WELL
MINIMUM CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
------------------------- ------------------------- -----------------------
RATIO RATIO
AMOUNT RATIO AMOUNT > OR = AMOUNT > OR =
------- ----- ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Consolidated:
Total capital to risk
weighted assets $53,730 8.23% $52,217 8.00% $ N/A
Tier 1 capital to risk
weighted assets 33,684 5.16 26,108 4.00 N/A
Tier 1 capital to average
assets 33,684 5.15 26,159 4.00 N/A
Colorado Bank:
Total capital to risk
weighted assets $52,266 9.09% $45,998 8.00% $57,497 10.00%
Tier 1 capital to risk
weighted assets 47,876 8.33 22,999 4.00 34,498 6.00
Tier 1 capital to average
assets 47,876 8.33 22,989 4.00 28,736 5.00
Nebraska Bank:
Total capital to risk
weighted assets $ 9,004 14.15% $ 5,091 8.00% $ 6,363 10.00%
Tier 1 capital to risk
weighted assets 8,207 12.90 2,545 4.00 3,818 6.00
Tier 1 capital to average
assets 8,207 10.81 3,037 4.00 3,797 5.00
</TABLE>
The Federal Reserve Board requires banks to maintain reserve balances composed
of cash on hand and balances maintained at the Federal Reserve Bank. These
reserve balances are based primarily on deposit levels and totaled approximately
$1,071,000 and $2,183,000 at December 31, 1998 and 1999, respectively.
F-24
<PAGE> 65
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 17 - ISSUANCE OF PREFERRED SECURITIES
On February 16, 1999, the Company completed the issuance of 2,300,000 of Company
obligated mandatorily redeemable preferred securities of subsidiary trust
holding solely junior subordinated debentures. The preferred securities have
been structured to qualify as Tier 1 capital for regulatory purposes. However,
the securities cannot be used to constitute more than 25 percent of the
Company's total Tier 1 capital according to regulatory requirements. The Company
utilized a portion of the proceeds of this issuance to inject additional capital
into the Colorado Bank.
NOTE 18 - STOCK INCENTIVE PLAN
On September 15, 1999, the Company adopted the FirsTier Corporation 1999 Stock
Incentive Plan to provide incentives for eligible persons, including employees,
non-employee directors, and consultants to the Company and its subsidiaries. The
total number of Company shares to be issued under this plan shall not exceed
1,700,000 shares. Incentive awards may be granted by the Company's Board of
Directors under this plan. To date, all stock options granted permit the holder
to purchase, under certain limitations, the Company's common stock at a price
not less than 100 percent of the market value of the stock on the date the
option was granted. These options terminate, contingent upon continued
employment and other factors, approximately 10 years from the date of grant. At
the time of the initial adoption of the plan, 500,000 shares were granted under
this plan to an eligible person. The exercise price per share is $12.00 per
share. None of the options were exercisable at December 31, 1999.
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for the plan and recognizes no
compensation costs in net earnings from the grant of options, as options are
granted at exercise prices equal to the current stock price. Had compensation
cost been determined under SFAS 123, Accounting for Stock-Based Compensation,
the Company's pro forma 1999 net income and income per share would have been as
follows:
<TABLE>
<S> <C>
Net income:
As reported $ 5,066
Pro forma 4,846
Income per share - basic and diluted:
As reported $ 0.68
Pro forma 0.65
</TABLE>
F-25
<PAGE> 66
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 18 - STOCK INCENTIVE PLAN (CONTINUED)
In accordance with SFAS 123, the fair value of options at date of grant was
estimated using the Black-Scholes option pricing model with the following
weighted-average assumptions:
<TABLE>
<CAPTION>
1999
----
<S> <C>
Risk-free interest rate 6.44%
Expected life (years) 9.71
Expected volatility 32.00%
Expected dividend yield --
</TABLE>
In accordance with SFAS 123, the weighted average fair value of options granted
during 1999 was $6.86.
NOTE 19 - YEAR 2000 UNCERTAINTIES
Like most entities, the Company and its subsidiaries may be exposed to risks
associated with Year 2000 dating problems. This problem affects computer
software and hardware; transactions with customers, vendors, and other entities;
and equipment dependent on microchips. The Company recognizes that Year 2000
dating problems pose a risk beyond January 1, 2000 as errors may not become
evident until after that date. The Company has performed the remediation steps
it believes necessary to address Year 2000 dating problems. It is not possible
for any entity to guarantee the results of its own remediation efforts or to
accurately predict the impact of Year 2000 dating problems on third parties with
which the Company does business. If remediation efforts of the Company or third
parties with which it does business are not successful, it is possible the Year
2000 dating problem could negatively impact the Company's consolidated financial
condition and results of operations. The Company does not believe any
significant Year 2000 dating problems have occurred.
F-26
<PAGE> 67
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 20 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY
The following presents condensed parent company only financial statements for
FirsTier Corporation:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
------- --------
<S> <C> <C>
Assets:
Cash $ 15 $ 5
Investment in subsidiaries 29,925 57,905
Note receivable from nonbank subsidiary -- 2,490
Other assets 2,025 1,287
------- --------
TOTAL ASSETS $31,965 $ 61,687
======= ========
Liabilities:
Note payable $ 8,790 $ 11,560
Income taxes payable 2,118 --
Accounts payable and accrued liabilities 351 712
Subordinated debenture payable to nonbank
subsidiary -- 23,711
------- --------
Total liabilities 11,259 35,983
------- --------
Stockholders' equity:
Common stock 837 1,520
Retained earnings 19,460 24,520
Accumulated other comprehensive income (loss) 409 (336)
------- --------
Total stockholders' equity 20,706 25,704
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,965 $ 61,687
======= ========
</TABLE>
F-27
<PAGE> 68
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 20 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1997 1998 1999
------ ------- -------
<S> <C> <C> <C>
Income:
Dividends received from subsidiaries $ 937 $ 994 $ 2,012
Interest 5 -- 174
Other -- 2 --
------ ------- -------
Total income 942 996 2,186
------ ------- -------
Expenses:
Purchased services 294 294 311
Interest 113 299 2,300
Other 27 27 64
------ ------- -------
Total expenses 434 620 2,675
------ ------- -------
Income (loss) before income tax expense
(benefit) and equity in undistributed
income of subsidiaries 508 376 (489)
Income tax expense (benefit) 2 (401) (968)
------ ------- -------
Income before equity in undistributed
income of subsidiaries 506 777 479
Equity in undistributed income of subsidiaries 1,991 2,598 4,587
------ ------- -------
NET INCOME $2,497 $ 3,375 $ 5,066
====== ======= =======
</TABLE>
F-28
<PAGE> 69
FIRSTIER CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
NOTE 20 - CONDENSED FINANCIAL STATEMENTS - PARENT COMPANY ONLY (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,497 $ 3,375 $ 5,066
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (1,991) (2,598) (4,587)
Changes in deferrals and accruals:
Other assets (501) (852) (169)
Income taxes payable 639 809 --
Accounts payable and accrued liabilities 112 239 443
------- ------- --------
Net cash provided by operating activities 756 973 753
------- ------- --------
Cash flows from investing activities:
Capital injection into subsidiary bank (3,737) (6,550) (22,750)
Capital injection into trust subsidiary -- -- (711)
Purchase of savings bank (3,743) -- --
Net cash transfers with First Mortgage Bancorp 2,799 166 (2,662)
------- ------- --------
Net cash used in investing activities (4,681) (6,384) (26,123)
------- ------- --------
Cash flows from financing activities:
Proceeds from note payable 3,380 6,940 11,560
Payments on note payable -- (1,530) (8,790)
Proceeds from junior subordinated notes issued to
trust subsidiary -- -- 23,711
Debt issuance cost -- -- (1,121)
------- ------- --------
Net cash provided by financing activities 3,380 5,410 25,360
------- ------- --------
Net decrease in cash (545) (1) (10)
Cash at beginning of year 561 16 15
------- ------- --------
CASH AT END OF YEAR $ 16 $ 15 $ 5
======= ======= ========
</TABLE>
This information is an integral part of the accompanying
consolidated financial statements.
F-29
<PAGE> 70
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Northglenn, State of Colorado on March 28, 2000.
FIRSTIER CORPORATION
By: /s/ T. Wiens
------------------------------
Timothy D. Wiens,
Chief Executive Officer
By: /s/ Ron James
------------------------------
Ronald B. James,
Chief Financial Officer
POWER OF ATTORNEY
Each individual whose signature appears below hereby designates and
appoints Timothy D. Wiens and Ronald B. James, and each of them, as such
person's true and lawful attorneys-in-fact and agents (the "Attorneys-in-Fact")
with full power of substitution and resubstitution, for each person and in such
person's name, place, and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Annual Report on Form
10-KSB, which amendments may make such changes in this Annual Report on Form
10-KSB as either Attorney-in-Fact deems appropriate and to file each such
amendment with all exhibits thereto, and all documents in connection therewith,
with the Securities and Exchange Commission, granting unto such
Attorneys-in-Fact and each of them, full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as such person might or could do
in person, hereby ratifying and confirming all that such Attorneys-in-Fact or
either of them, or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on March 28, 2000.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ T. Wiens
- --------------------------------
Timothy D. Wiens Director, President and Chief March 28, 2000
Executive Officer (Principal
Executive Officer)
/s/ Joel Wiens
- --------------------------------
Joel H. Wiens Director March 28, 2000
/s/ Michael Nelson
- --------------------------------
Michael J. Nelson Director March 28, 2000
/s/ Ron James
- --------------------------------
Ronald B. James Chief Financial Officer March 28, 2000
(Principal Accounting Officer)
</TABLE>
<PAGE> 71
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
11.1 Statement re Computation of per share earnings - see Item 7 --
Financial Statements.
24 Power of Attorney - see Signature Page hereof.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 27,049
<INT-BEARING-DEPOSITS> 3
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 36,369
<INVESTMENTS-CARRYING> 5,989
<INVESTMENTS-MARKET> 6,006
<LOANS> 622,072
<ALLOWANCE> 5,322
<TOTAL-ASSETS> 706,821
<DEPOSITS> 601,994
<SHORT-TERM> 8,150
<LIABILITIES-OTHER> 3,178
<LONG-TERM> 44,795
23,000
0
<COMMON> 1,520
<OTHER-SE> 24,184
<TOTAL-LIABILITIES-AND-EQUITY> 706,821
<INTEREST-LOAN> 44,755
<INTEREST-INVEST> 2,383
<INTEREST-OTHER> 600
<INTEREST-TOTAL> 47,738
<INTEREST-DEPOSIT> 20,919
<INTEREST-EXPENSE> 24,250
<INTEREST-INCOME-NET> 23,488
<LOAN-LOSSES> 3,230
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 16,271
<INCOME-PRETAX> 7,682
<INCOME-PRE-EXTRAORDINARY> 5,066
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,066
<EPS-BASIC> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.92
<LOANS-NON> 962
<LOANS-PAST> 78
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,187
<CHARGE-OFFS> 189
<RECOVERIES> 94
<ALLOWANCE-CLOSE> 5,322
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,713
</TABLE>
