<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
* Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For the fiscal year ended DECEMBER 31, 1996.
* Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
Commission File Number: 0 - 28394
MOUNTAIN BANK HOLDING COMPANY
(exact name of registrant as specified in its charter)
WASHINGTON 91-1602736
(State or other jurisdiction of (IRS Employer
incorporation or organization) identification Number)
501 Roosevelt Avenue, PO Box 98, Enumclaw, WA 98022
(address of principal executive offices) (zip code)
Registrant's telephone number: (360) 825-0100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(title of class)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response 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 [X]
State the issuer's revenues for its most recent fiscal year: $4,937,563
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: at February 28, 1997 - $7,302,825
---------------------------------
Number of shares of common stock outstanding as of February 28, 1997: 704,398
-------
Transitional Small Business Disclosure Format: Yes X No
----- -----
<PAGE>
FORM 10-KSB AMENDMENT NO. 2
TRANSITIONAL SMALL BUSINESS ISSUER
DISCLOSURE PURSUANT TO ALTERNATIVE 2
PART I
(ITEMS 6-11, MODEL B, FORM 1-A)
ITEM 6. DESCRIPTION OF BUSINESS
General
Mountain Bank Holding Company (the "Company") is a Washington corporation
formed in 1993 primarily to hold all of the Common Stock of Mt. Rainier National
Bank (the "Bank"), a National Banking Association organized under the laws of
the United States. The Bank provides personal and commercial banking and
related financial services at its main office located at 501 Roosevelt Avenue,
Enumclaw, Washington, and at its branch office located in Buckley, Washington,
at 29290 Highway 410. The Company is regulated by the Federal Reserve Board
(the "FRB") under the Bank Holding Company Act of 1956, as amended. A bank
holding company is generally defined as a company that has direct or indirect
control of a bank. The Company qualifies as a bank holding company because it
owns one hundred percent (100%) of the outstanding securities of the Bank. At
December 31, 1996, the Company reported on a consolidated basis total assets of
$64,561,274, total deposits of $58,803,847, and shareholders' equity of
$5,278,878.
The Company presently has one subsidiary other than the Bank. That subsidiary
is Mountain Real Estate Holdings, Inc., which was incorporated on March 10,
1994. The purpose of Mountain Real Estate Holdings, Inc. is to engage solely in
the business of holding premises occupied or to be occupied by the Bank,
together with fixed assets used in conjunction with the premises occupied by the
Bank. By using this affiliate corporation to hold premises occupied by the Bank
or its branches, the Bank subsidiary can lend money to it for the cost of
acquiring needed premises without the collateral requirements applicable to a
loan made directly from the Bank to the Company.
The Company strategy is to capitalize on its investment in the Bank through
continued growth in the Bank's assets, deposits and earnings, and creation of
long-term value for Company shareholders by pursuing the following:
- - Monitoring and improving the credit quality of the Bank's existing
asset base;
- - Concentrating on expense control, interest spread maximization
and marketing of fee-based products, as well as maintaining
adequate liquidity and capital levels;
- - Emphasizing close working relationships between the Bank's
senior management, directors, loan officers and commercial
customers; and
- - Focusing on training programs to ensure that management and
staff have knowledge necessary to serve customers and remain in
compliance with all legal and regulatory obligations.
There can be no assurance that the Bank will achieve these objectives.
1
<PAGE>
DESCRIPTION OF MT. RAINIER NATIONAL BANK
The Bank
Mt. Rainier National Bank is a wholly-owned subsidiary of the Company.
While the Company and the Bank are distinctly different entities regulated by
different regulatory bodies, the income of the Company will be almost entirely
derived from dividends upstreamed from the Bank to the Company. Therefore, the
value of the securities of the Company are, to a large extent, dependent upon
the success of the Bank.
History
The Bank opened on July 2, 1990, and has been operating since that date.
Business
The Bank offers a full line of commercial banking services including
checking accounts, savings programs, ATMs, night depository services, customer
deposit box facilities, consumer loans, residential loans, commercial loans,
real estate and construction loans and agriculture loans, NOW accounts and
certificates of deposit.
The principal sources of the Bank's revenues are: (i) interest and fees on
loans; (ii) deposit service charges; (iii) interest on federal funds sold (funds
loaned on a short-term basis to other banks); (iv) gains on mortgages originated
and sold to the secondary market; and (v) interest on investments. Loans
include short-to-medium-term commercial and consumer loans, including operating
loans and lines, equipment loans, automobile loans, recreational vehicle and
truck loans, personal loans and lines of credit, home improvement and
rehabilitation loans, VISA national credit cards, and residential mortgage
lending. Residential loans are currently sold into the secondary market. The
Bank also offers safe deposit boxes, direct deposit of payroll and social
security checks, automated teller machine access, and automatic drafts for
various accounts. The Bank has a night depository, an ATM, as well as drive-up
services at each of its offices.
The Bank's core deposit base generally has been enhanced through
advertising and deposit promotions, and focusing on securing the entire banking
relationship of each of its customers. The Bank has not used brokered deposits
as a source of funds.
The Bank's commercial banking activities target high net worth individuals
and their businesses with an emphasis on the small to medium size businesses.
The Bank's operating strategy is to offer personal service, flexibility and
timely responsiveness to the needs of its customers. Senior management of the
Bank and the Company maintain close personal contact and close working
relationships with the Bank's commercial customers and their businesses, and the
Bank's and the Company's Board of Directors primarily include local business
people from the Bank's primary service area. Most of the Bank's new commercial
banking business consists of referrals from existing customers. The Company
believes that the Bank's loan portfolio is appropriately diversified. All
floating rate loans are priced at prime or higher.
The Company believes that the growth in loans and profitability achieved by
the Bank also is attributable in large measure to its strategy of targeting
smaller and medium size businesses in the manner described above and to the
business and personal relationships and experience of the Bank's and the
Company's management and Directors, rather than the result of greater risk-
taking or price concessions. In addition, there have been numerous acquisitions
and mergers of banks in the primary service area which have made the larger
institutions in the market even
2
<PAGE>
larger and left the Bank, at the present time, as the only small commercial bank
in the Bank's primary service area focusing primarily on the needs of the
smaller and medium size commercial customers.
Service Area
The primary service area of the Bank is the city of Enumclaw and its
environs which include the communities of Black Diamond and Buckley.
Employees
As of December 31, 1996, the Company had no full time employees. As of the
same date, the Bank had 32.46 full time equivalent employees, including three
Executive Officers. None of the Bank's employees is presently represented by a
union or covered by a collective bargaining agreement. The Bank considers its
relationships with its employees to be good.
Competition
The banking business in the Bank's primary service area is highly
competitive with respect to both loans and deposits. All the major commercial
banks, including Seafirst, Key Bank, Wells Fargo and U.S. Bank, have a branch or
branches within the Bank's primary service area. Among the advantages such
major banks have are their ability to finance wide-ranging advertising campaigns
and to allocate their investment assets to geographic regions of higher yield
and demand. Such banks offer certain services which are not offered directly by
the Bank (but are offered indirectly through correspondent institutions); and,
by virtue of their greater total capitalization (legal lending limits to an
individual customer are based upon a percentage of a bank's total shareholder
equity accounts), such banks have substantially higher lending limits than the
Bank. The primary service area is also served by savings and loan associations
and credit unions.
The Bank also competes with a number of non-bank competitors such as
insurance companies, small loan companies, finance companies, mortgage
companies, and other sources of funds. Many of the Company's non-bank
competitors are not subject to the extensive federal and state regulations which
govern the Company and, as a result, have a competitive advantage over the
Company in providing certain services.
The Bank believes its competitive position has been strengthened by the
consolidation in the banking industry which has resulted in a focus by the
larger banks on their larger accounts, with less direct contact between the
officers and their customers. The Bank's strategy, by contrast, is to remain a
middle market lender which maintains close, long-term contact with its
customers.
Products and Services
In conjunction with the growth of its asset base, the Bank has introduced
new products and services to position itself to compete in its highly
competitive market. The Bank's customers demand not only a wide range of
financial products but also efficient and convenient service. In response to
these demands, the Bank has developed a mix of products and services utilizing
newly developed technology available to the banking industry; for example, the
addition of automatic teller machines. Additionally, the bank offers a wide
range of commercial and retail banking products and services to its customers.
Deposit accounts include certificates of deposit, individual retirement accounts
and other time deposits, checking and other demand deposit accounts, interest-
bearing checking accounts, savings accounts and money market accounts. Loans
include residential real estate, commercial, financial and real estate
construction and
3
<PAGE>
development, installment and consumer loans. Other products and services
include: credit related insurance; ATMs, and safe deposit boxes.
Marketing
The Bank uses to the fullest extent possible the flexibility which is
accorded by its independent status. This includes an emphasis on specialized
services, local promotional activity, and personal contacts by the Bank's
officers, directors and employees. The Bank also seeks to provide special
services and programs for individuals in its primary service area who are
employed in the business and professional fields. In the event there are
customers whose loan demands exceed the Bank's lending limits, the Bank arranges
for such loans on a participation basis with other financial institutions.
Lending Activities
The two main areas in which the Bank has directed its lendable funds are
commercial and real estate loans. At December 31, 1996, these categories
accounted for approximately 31% and 55%, respectively, of the Bank's total loan
portfolio. The Bank's major source of income is interest and fees charged on
loans.
Interest income on loans is recognized based on principal amounts
outstanding, at applicable interest rates. Accrual of interest on impaired
loans is discontinued when reasonable doubt exists as to the full, timely
collection of interest or principal or when payment of principal or interest is
contractually past due 90 days, unless the loan is well secured and in the
process of collection. When a loan is placed on nonaccrual status, all interest
previously accrued, but not collected, is reversed against current period
interest income. Income on such loans is then recognized only to the extent
that cash is received and when the future collection of principal is probable.
Interest accruals are resumed on such loans only when they are brought current
with respect to principal and interest and when, in the opinion of management,
the loans are estimated to be fully collectible as to both principal and
interest.
In general, the Bank is permitted by law to make loans to single borrowers
in aggregate amounts of up to fifteen percent (15%) of the Bank's unimpaired
capital and unimpaired surplus. The Bank, on occasion, sells participations in
loans when necessary to stay within lending limits or to otherwise limit the
Bank's exposure. The Bank's goal is to reduce the risk of undue concentrations
of loans to multiple borrowers engaged in similar activities that would cause
them to be similarly impacted by economic or other conditions. At December 31,
1996, no such concentration exceeded 10% of the Bank's loan portfolio, although
approximately 6.4% of the Bank's loan portfolio consists of agricultural loans
and approximately 7.6% of interim real estate construction loans. The Bank has
no loans to foreign countries and its policy is to lend within Washington State,
however the bank does have some loans to out-of-state borrowers.
In the normal course of business there are various commitments outstanding
and commitments to extend credit which are not reflected in the financial
statements. These commitments generally require the customers to maintain
certain credit standards and have fixed expiration dates or other termination
clauses. The Bank uses the same credit policies in making commitments as it
does for loans. Management does not expect that all such commitments will be
fully utilized.
Lending activities are conducted pursuant to a written Loan Policy which
has been adopted by the Board of Directors of the bank. Each loan officer has a
defined lending authority. Regardless of lending authority, individual loans
over $100,000 are reviewed by the Bank's Loan Committee.
4
<PAGE>
The Bank has entered into agreements with other banks to participate in
certain of the Bank's commitments to extend credit to customers.
Investment Portfolio
The investment policy of the Bank is an integral part of the overall
asset/liability management of the Bank. The Bank's investment policy is to
establish a portfolio which will provide liquidity necessary to facilitate
making loans and to cover deposit fluctuations while at the same time achieving
a satisfactory investment return on the funds invested. The investment policy
is reviewed annually by the Bank's Board of Directors. The Bank stresses the
following attributes for its investments: safety of principal, liquidity,
yield, price appreciation and pledgeability. With its implementation of
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments in Debt and Equity Securities, the Bank is required to
classify its portfolio into three categories: Held to Maturity, Trading
Securities, and Available for Sale.
Held to Maturity includes debt securities that the Bank has positive intent
and ability to hold to maturity; these securities are reported at amortized
cost.
Trading Securities include debt and equity securities that are purchased
and held solely for the purpose of selling them in the short-term future for
trading profits. Trading Securities are reported at fair market value with
unrealized gains and losses included in earnings. As of December 31, 1996, the
Bank held no securities as Trading Securities.
Available for Sale securities include those which are acquired with the
intention to dispose of the asset prior to maturity; however, these securities
may be held to maturity. These securities are reported at fair market value
with unrealized gains and losses excluded from the earnings and reported as a
separate component of shareholders' equity.
As a national bank and member of the Federal Reserve System, the Bank is
required to have $124,200 invested in the Federal Reserve Bank Stock. Also, as
a member of the Federal Home Loan Bank, the Bank is required to keep $254,000 in
stock. This portion of the Bank's investment portfolio is not liquid.
5
<PAGE>
STATISTICAL INFORMATION ABOUT THE COMPANY
The following statistical information should be read in conjunction with the
consolidated financial statements and accompanying notes included elsewhere
herein.
The composition of the loan portfolio is summarized as follows:
LOAN PORTFOLIO - TYPES OF LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------------------------------------------
PERCENT PERCENT
OF TOTAL OF TOTAL
AMOUNTS LOANS AMOUNTS LOANS
----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Commercial and agricultural $11,685 31.12% $13,622 44.18%
Real Estate:
Construction 3,537 9.42% 1,847 5.99%
Mortgage 17,198 45.81% 11,196 36.31%
Consumer 5,123 13.65% 4,169 13.52%
-------------------------------------------------------------
Total loans $37,543 100.00% $30,834 100.00%
================================================================
</TABLE>
LOAN PORTFOLIO - MATURITIES AND SENSITIVITIES ON LOANS
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Over One Maturing
One Year or Less Through Five Years After Five Years TOTAL
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amount Fixed Variable Fixed Variable
Commercial and Agriculture $ 7,361 $ 4,243 $0 $ 81 $0 $11,685
Real Estate $ 9,815 $10,866 $0 $ 54 $0 $20,735
Consumer $ 1,316 $ 3,757 $0 $ 50 $0 $ 5,123
----------------------------------------------------------------------------------
Total $ 18,492 $18,866 $0 $185 $0 $37,543
</TABLE>
The following table summarizes nonperforming assets by category:
RISK ELEMENTS - NONACCRUAL, PAST DUE AND RESTRUCTERED LOANS
<TABLE>
<CAPTION>
90 Days or More
Past Due Nonaccrual Restructured Lost Interest
---------------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Commercial and Agriculture $0 $121 $0 $4
Real Estate $0 $ 0 $0 $0
Consumer $0 $ 16 $0 $1
-- ---- -- --
$0 $137 $0 $5
</TABLE>
At December 31, 1996, the Bank had no other assets that would be considered
nonaccrual, past due or restructured if such assets were loans.
6
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE AND RELATED INFORMATION
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
DECEMBER 31, DECEMBER 31,
1996 1995
----------------------------------
(dollars in thousands)
<S> <C> <C>
Allowance for loan losses
(beginning of period) $ 334 $ 318
Loans charged off:
Commercial and agricultural (16)
Real estate construction
Real estate mortgage
Consumer (10)
---------------------------
Total (10) (16)
---------------------------
Recoveries of loans previously
charged off:
Commercial and agricultural
Real estate construction
Real estate mortgage
Consumer
Total
---------------------------
---------------------------
Net loans charged off (10) (16)
Provision for possible loan 67 32
losses
Allowance for possible loan
losses
---------------------------
(end of period) $ 391 $ 334
===========================
Loans outstanding:
Average $34,102 $27,728
End of period 37,543 30,834
Ratio of allowance for loan
loss
to total loans outstanding
Average 1.15% 1.20%
End of period 1.04% 1.08%
Ratio of net charge-offs to
average loans outstanding -0.03% -0.06%
Percent of categories to
total end of period loans:
Allocation of Loan Loss
12/31/96 12/31/95 By Loan Classification
----------------------------- ----------------------
Commercial and 31.12% 44.18% $122
agricultural
Real estate construction 9.42% 5.99% $ 37
Real estate mortgage 45.81% 36.31% $179
Consumer 13.65% 13.52% $ 53
--------------------------- ----
Total loans 100.00% 100.00% $391
=========================== ====
</TABLE>
7
<PAGE>
The carrying value of investment securities and the maturities and yield
information on the investment portfolio is as follows:
INVESTMENT SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
DEC. 31 DECEMBER 31, DOLLAR PERCENTAGE
1996 1995 CHANGE CHANGE
------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
US Treasury securities $ 3,145 $3,644 $ (499) -13.69%
US Government and agency
securities 7,055 2,264 4,791 211.62%
Mortgage Backed Securities 1,748 - 1,748 100.00%
Corporate bonds 799 1,490 (691) -46.38%
Municipal bonds 329 352 (23) -6.53%
-----------------------------------------
Total $13,076 $7,750 $5,326 68.72%
===========================================================
<CAPTION>
December 31, 1996
------------------------------------------------------------------------------------------------
Over One Over Five
One Year or Less Through Five Years Through Ten Years Over Ten Years
------------------------------------------------------------------------------------------------
Amount Yield Amount Yield Amount Yield Amount Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
US Treasury Securities $2,501 6.30% $ 644 5.13% $ 0
US Govt. and Agency Securities $6,561 6.12% $ 494 6.75%
Mortgage Backed Securities $ 965 6.75% $ 783 7.31%
Corporate Bonds $ 252 9.25% $ 547 5.84% $ 0
Municipal Bonds (1) $ 130 4.25% $ 0 $ 199 5.50%
-----------------------------------------------------------------------------------------------
Total $2,883 $8,717 $1,476 $0
Weighted Average Yield 6.03% 6.10% 6.88%
</TABLE>
(1) Yields have not been calculated on a tax equivalent basis.
8
<PAGE>
The following tables set forth the distribution of the Bank's deposit accounts
at the dates indicated:
DEPOSIT LIABILITY COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
-----------------------------------------------------------
PERCENT PERCENT
OF TOTAL OF TOTAL DOLLAR PERCENTAGE
AMOUNTS DEPOSITS AMOUNTS DEPOSITS CHANGE CHANGE
------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $ 8,565 14.57% $ 6,251 14.31% $ 2,314 37.02%
Interest-bearing demand (1) 21,892 37.23% 13,060 29.90% 8,832 67.63%
Savings 7,730 13.15% 7,075 16.20% 655 9.26%
Certificates of deposit 13,820 23.50% 11,403 26.11% 2,417 21.20%
Certificates of deposit over $100,000 6,797 11.56% 5,892 13.49% 905 15.36%
------------------------------------------------------------------------
Total $58,804 100.00% $43,681 100.00% $15,123 34.62%
========================================================================
</TABLE>
(1) At December 31, 1996, the Bank received approximately $5,000,000 from two
depositors which is included in interest bearing demand. It is unknown how long
these deposits will remain.
At December 31, 1996, the scheduled maturities of certificates of deposit was:
<TABLE>
<CAPTION>
Balances
---------------------------------
Less Than $100,000
$ 100,000 or More
---------- --------
<S> <C> <C>
Maturity in:
Three months or less: $ 3,714 $3,366
Over three months through twelve months $ 7,696 $2,648
Over one year through five years $ 2,410 $ 783
Over five years $ 0 $ 0
-------------------------------
TOTAL $13,820 $6,797
===============================
</TABLE>
The following ratios applicable to the Company are among those commonly used in
analyzing bank holding companies:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Return on Average Assets 0.56% 0.23%
Return on Average Equity 5.75% 2.16%
Dividend Payout Ratio 0% 0%
Equity to Assets Ratio 9.67% 10.49%
</TABLE>
At December 31, 1996 and December 31, 1995, neither the Bank nor the Company had
any short term borrowings.
9
<PAGE>
The matching of assets and liabilities may be analyzed by examining the extent
to which such assets and liabilities are interest rate sensitive and by
monitoring an institution's interest rate sensitivity "gap." An asset or
liability is interest rate sensitive within a specific time period if it will
reprice within that time period. The interest rate sensitivity gap is defined
as the difference between the amount of interest-bearing assets anticipated,
based upon certain assumptions, to mature or reprice within a specific time
period and the amount of interest-bearing liabilities anticipated, based upon
certain assumptions, to mature or reprice within that time period. A gap is
considered positive when the amount of interest rate sensitive assets maturing
within a specific time frame exceeds the amount of interest sensitive
liabilities maturing within that same time frame. If negative, the reverse is
true.
The following table represents an interest rate sensitivity analysis at December
31, 1996:
GAP ANALYSIS
<TABLE>
<CAPTION>
-------------------------------------------------------
Total Within One Year To Over
One Year Five Years Five Years
-------------------------------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets:
Loans $18,492 $18,866 $ 185
Investments $ 2,883 $ 8,717 $1,476
Federal Funds Sold $ 7,550
-----------------------------------------
TOTAL $28,925 $27,583 $1,661
Rate Sensitive Liabilities:
Savings, Now and Interest Checking $29,622
Time Deposits $17,425 $ 3,192
-----------------------------------------
TOTAL $47,047 $ 3,192 $ 0
Interest Sensitive Gap ($18,122) $24,391 $1,661
==========================================
</TABLE>
Currently, the Bank's interest sensitivity gap is negative within one year.
Assuming that general market interest rate changes affected the repricing of
assets and liabilities in equal magnitudes, this indicates that the effects of
rising interest rates on the Company would be a decrease in the net interest
margin, whereas falling interest rates would cause a corresponding increase in
margin.
10
<PAGE>
DISTRIBUTION OF AVERAGE ASSETS, LIABILITY AND SHAREHOLDERS' EQUITY
AND INTEREST RATES
The following table sets forth the average balance sheets of Mountain Bank
Holding Company for the past two years along with an analysis of net interest
earnings for each major category of interest earning assets and interest bearing
liabilities, the average rate paid in each category, and net yield on earning
assets.
<TABLE>
<CAPTION>
YEAR ENDED DEC. 31,
------------------------------------------------------------------------------
1996 1995
ANNUALIZED ANNUALIZED
AVERAGE INT EARNED/ YIELD/ AVERAGE INT EARNED/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE (1)
------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans $ 34,102 $ 3,462 10.15% $ 27,728 $ 2,917 10.52%
Investments 10,893 661 6.07% 6,559 355 5.41%
Federal funds sold 2,211 123 5.56% 1,864 116 6.22%
-------------------- -------------------
Total interest earning assets 47,206 4,246 8.99% 36,151 3,388 9.37%
-------- --------
Non-interest earning assets:
Cash and due from banks 2,947 2,263
Premises and equipment 2,288 2,288
Other assets 426 354
Reserve for possible loan losses (354) (317)
-------- --------
Total assets $ 52,513 $ 40,739
======== ========
Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing demand deposits $ 5,594 121 2.16% 4,362 102 2.34%
Savings 16,889 589 3.49% 12,292 453 3.69%
Certificates of deposit 12,603 693 5.50% 9,877 559 5.66%
Certificates of deposit over $100,000 5,819 321 5.52% 4,398 278 6.32%
-------------------- -------------------
Total interest bearing deposits 40,905 1,724 4.21% 30,929 1,392 4.50%
-------- --------
Federal funds purchased 14 1 7.14% 254 28 11.02%
Other borrowings 47 4 8.51% 46 4 8.70%
-------------------- -------------------
Total interest bearing liabilities 40,966 1,729 31,229 1,424
-------- --------
Non-interest bearing liabilities:
Demand deposits 6,141 5,254
Other liabilities 328 192
Redeemable stock -- 223
Shareholders' equity 5,078 3,841
-------- --------
$ 52,513 $ 40,739
======== ========
Net interest income $ 2,517 $ 1,964
======== ========
Net interest margin 5.33% 5.43%
<CAPTION>
------------------------------------------------
CHANGES IN INTEREST INCOME AND
EXPENSE VOLUME AND RATE VARIANCES
NET RATE/
CHANGE VOLUME YIELD VOLUME
-------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans $ 545 $ 671 $ (102) $ (24)
Investments $ 306 $ 235 $ 43 $ 28
Federal funds sold $ 7 $ 22 $ (12) $ (3)
--------------------------------------------
Total interest earning assets $ 858 $ 927 $ (71) $ 1
--------------------------------------------
Non-interest earning assets:
Cash and due from banks
Premises and equipment
Other assets
Reserve for possible loan losses
Total assets
Liabilities and shareholders' equity
Interest bearing liabilities:
Interest bearing demand deposits $ 19 $ 29 $ (8) $ (2)
Savings $ 136 $ 169 $ (24) $ (9)
Certificates of deposit $ 134 $ 154 $ (16) $ (5)
Certificates of deposit over $100,000 $ 43 $ 90 $ (35) $ (12)
--------------------------------------------
Total interest bearing deposits $ 332 $ 442 $ (83) $ (28)
--------------------------------------------
Federal funds purchased $ (27) $ (26) $ (10) $ 9
Other borrowings $ -- 0 0 0
--------------------------------------------
Total interest bearing liabilities $ 305 $ 416 $ (93) $ (19)
--------------------------------------------
Non-interest bearing liabilities:
Demand deposits
Other liabilities
Redeemable stock
Shareholders' equity
Net interest income
$ 553
========
Net interest margin
</TABLE>
(1) Interest on non-accruing loans is not included for purposes of calculating
yields
<PAGE>
Regulation and Supervision
The following generally refers to certain significant statutes and
regulations affecting the banking industry. These references are only intended
to provide brief summaries and therefore, are not complete and are qualified by
the statutes and regulations referenced. In addition, due to the numerous
statutes and regulations which apply to and regulate the banking industry, many
are not referenced below.
The Company
- -----------
General. As a bank holding company, the Company is subject to the Bank
Holding Company Act of 1956 ("BHCA"), as amended, which places the Company under
the supervision of the Board of Governors of the Federal Reserve System ("FRB").
In general, the BHCA limits the business of bank holding companies to owning or
controlling banks and engaging in other activities related to banking. Certain
recent legislation designed to expand interstate branching and relax federal
restrictions on interstate banking has been phased in and may expand
opportunities for bank holding companies (for additional information see below
under the heading "The Bank - Recent Federal Legislation - Interstate Banking
and Branching"). However, the impact of this legislation on the Company is
unclear at this time.
Holding Company Structure
- -------------------------
FRB Regulation. The Company must obtain the approval of the FRB before it:
(1) acquires direct or indirect ownership or control of any voting shares of a
bank if, after such acquisition, it would own or control, directly or
indirectly, more than 5% of the bank's voting shares; (2) merges or consolidates
with another bank holding company; and (3) acquires substantially all of the
assets of any additional banks. Until September of 1995, the BHCA also
prohibited the acquisition by the Company of any such interest in any bank or
bank holding company located in a state other than Washington unless the laws of
that state expressly authorized such acquisition. Now, subject to certain state
laws, such as age and contingency laws, a bank holding company that is
adequately capitalized and adequately managed may acquire the assets of an out-
of-state bank.
The Company files annual and quarterly reports and any other reports the
FRB may require from time to time. In addition, the FRB periodically examines
the Company and its subsidiary Bank.
Holding Company Control of Nonbanks. With certain exceptions, the BHCA
prohibits bank holding companies from acquiring direct or indirect ownership or
control of voting shares in any company other than a bank or a bank holding
company unless the FRB finds the company's business activities to be incidental
to the business of banking or managing or controlling banks. When making this
determination, the FRB in part considers whether allowing a bank holding company
to engage in those activities would offer advantages to the public that would
outweigh possible adverse effects.
The Economic Growth and Regulatory Paperwork Reduction Act of 1996
("Economic Growth Act") amended the BHCA to eliminate the requirement that a
bank holding company seek FRB approval before engaging de novo in permissible
nonbanking activities, if the holding company is well capitalized and meets
certain other criteria specified in the statute. A bank holding company meeting
the specifications is now required only to notify the FRB within 10 business
days after the activity has begun. On February 28, 1997, the FRB issued a final
rule incorporating the changes enacted by the Economic Growth Act. Effective
April 21, 1997, a well-run bank holding company, without any prior notice or FRB
approval, may commence immediately
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any activity that is currently or at the time of commencement included in the
FRB's list of acceptable nonbanking activities.
Acceptable nonbanking activities include: (1) operating an industrial loan
company, mortgage company, finance company, trust company, or credit card
company; (2) performing certain data processing operations; and (3) providing
investment and financial advice. In contrast, prohibited nonbanking activities
include real estate brokerage and syndication, land development, property
management, and the underwriting of life insurance not related to credit
transactions. From time to time, the FRB may add to or delete from the list of
activities permissible for bank holding companies.
Transactions With Affiliates. The Company and the Bank are considered
affiliates within the meaning of the Federal Reserve Act, and transactions
between affiliates are subject to certain restrictions. Section 23A of the
Federal Reserve Act limits certain covered transactions. These covered
transactions include, subject to specific exceptions, loans by bank subsidiaries
to affiliates, investments by bank subsidiaries in securities issued by an
affiliate or acceptance of such securities as collateral, and the purchase by a
bank subsidiary of an affiliate's assets. Section 23B of the Federal Reserve
Act, among other things, restricts an institution from engaging in specified
transactions with certain affiliates unless the transactions are on terms
substantially the same, or at least as favorable, to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies.
Tie-In Arrangements. The Company and the Bank cannot engage in certain
tie-in arrangements in connection with any extension of credit, sale or lease of
property or furnishing of services. For example, with certain exceptions,
neither the Company nor the Bank may condition an extension of credit on either
(1) a requirement that the customer obtain additional services provided by it or
(2) an agreement by the customer to refrain from obtaining other services from a
competitor. Effective April 21, 1997, the FRB has adopted significant
amendments to its anti-tying rules that: (1) remove FRB-imposed anti-tying
restrictions on bank holding companies and their non-bank subsidiaries; (2)
create exemptions from the statutory restriction on bank tying arrangements to
allow banks greater flexibility to package products with their affiliates; and
(3) establish a safe harbor from the tying restrictions for certain foreign
transactions. These amendments are designed to enhance competition in banking
and nonbanking products and allow banks and their affiliates to provide more
efficient a lower-cost service to customers. However, the impact of the
amendments on the Company and the Bank is unclear at this time.
State Law Restrictions. As a corporation chartered under the laws of the
State of Washington, the Company is also be subject to certain limitations and
restrictions under applicable Washington corporate laws.
Securities Registration and Reporting. The common stock of the Company is
registered as a class with the Securities and Exchange Commission ("SEC") under
the Securities Exchange Act of 1934. Thus, the Company is subject to the
periodic reporting and proxy solicitation requirements and the insider-trading
restrictions of that Act. The periodic reports, proxy statements, and other
information filed by the Company under that Act can be inspected and copied at
or obtained from the Washington, D.C. office of the SEC. In addition, the
securities issued by the Company are subject to the registration requirements of
the Securities Act of 1933 and applicable state securities laws, unless
exemptions are available.
Control Transactions
- --------------------
The Change in Bank Control Act of 1978, as amended, requires a person (or
group of persons acting in concert) acquiring "control" of a bank holding
company to provide the FRB with at least 60 days' advance written notice of the
proposed acquisition. Following receipt of this
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notice, the FRB has 60 days to issue a notice disapproving the proposed
acquisition, but the FRB may extend this time period for up to an additional 30
days. An acquisition may be completed before the expiration of the disapproval
period if the FRB issues written notice of its intent not to disapprove the
transaction.
In addition, any "company" must obtain the FRB's approval under the BHCA
before acquiring 25% (5% if the company is a bank holding company) or more of
the outstanding shares of the Company, or otherwise obtaining control over the
Company.
The Bank
- --------
General. Despite some recent legislative initiatives to reduce regulatory
burdens, banking remains a highly regulated industry. Legislation enacted from
time to time may increase the cost of doing business, limit or expand
permissible activities, or affect the competitive balance between banks and
other financial and nonfinancial institutions. Proposals to change the laws and
regulations governing the operations and taxation of banks and other financial
institutions are frequently made in Congress, in state legislatures, and before
various bank regulatory agencies. In addition, there continue to be proposals
in Congress to restructure the banking system.
Some of the significant areas of bank regulation are generally discussed
below.
Regulation of National Banks. The Bank, as a national banking
association, is subject to primary regulation and examination by the OCC. It is
also subject to regulation by the FRB and, to a more limited extent, by the
Federal Deposit Insurance Corporation ("FDIC"). Federal statutes and
regulations which govern the Bank's operations relate to required reserves
against deposits, investments, loans, mergers and consolidations, borrowings,
issuance of securities, payment of dividends, establishment of branches, and
other aspects of its operations. The National Bank Act restricts the Bank to
performing commercial banking business and engaging in activities incidental to
the business of banking and prohibits the Bank from investing in equity
securities, except in its fiduciary capacity. The OCC also may prohibit a
national bank from engaging in activities it considers unsafe and unsound
business practices.
Regulation of Management. Federal law: (1) sets forth circumstances under
which officers or directors of a bank may be removed by the institution's
federal supervisory agency, (2) places restraints on lending by a bank to its
executive officers, directors, principal shareholders, and their related
interests, and (3) prohibits management personnel of a bank from serving as a
director or in other management positions of another financial institution whose
assets exceed a specified amount or which has an office within a specified
geographic area.
Control of Financial Institutions. No person may acquire "control" of a
bank unless the appropriate federal agency has been given sixty days prior
written notice and within that time the agency has not disapproved the
acquisition. Substantial monetary penalties may be imposed for violation of the
change in control or other provisions of banking laws.
Recent Federal Banking Legislation
- ----------------------------------
Interstate Banking and Branching. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Act") generally will, over the
next few months, permit nationwide interstate banking and branching. This
legislation generally authorizes interstate branching and relaxes federal law
restrictions on interstate banking. Subject to certain state laws, such as age
and contingency laws, the Interstate Act allows adequately capitalized and
adequately managed bank holding companies to purchase the assets of out-of-state
banks (effective as of September 29, 1995). Additionally, beginning June 1,
1997, the Interstate Act permits interstate bank mergers, subject to certain
state laws, such as age and contingency laws, unless the home state of either
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merging bank has "opted-out" of these provisions by enacting "opt-out"
legislation. States may also "opt-in" to these bank merger provisions early by
enacting non-discriminatory "opting-in" legislation permitting interstate
mergers within their own borders before June 1, 1997. The Interstate Act does
allow states to impose certain conditions on interstate bank mergers within
their borders; for example, states may require that the in-state merging bank
exist for up to five years before the interstate merger. Under the Interstate
Act, states may also "opt-in" to de novo branching, allowing out-of-state banks
to establish de novo branches within the state.
In 1996, Washington enacted "opting in" legislation authorizing interstate
mergers pursuant to the Interstate Act. Accordingly, as of June 6, 1996, an
out-of-state bank holding company may now acquire more than 5% of the voting
shares of a Washington-based bank, regardless of reciprocity, provided such bank
or its predecessor has been doing business for at least five years prior to the
acquisition. Further, an out-of-state bank may engage in banking in Washington
if the requirements of Washington's interstate banking statute are met, and the
bank either (1) was lawfully engaged in banking in Washington on June 6, 1996,
(2) resulted from an interstate combination pursuant to Washington law, (3)
resulted from a relocation of a head office of a state bank or a main office of
a national bank pursuant to federal law, or (4) resulted from the establishment
of a savings bank branch in compliance with applicable Washington law.
Additionally, the Washington Director of Financial Institutions may approve
interstate combinations if the basis for such approval does not discriminate
against out-of-state banks, out-of-state holding companies, or their
subsidiaries.
Regulatory Improvement. In 1994, Congress enacted the Community
Development and Regulatory Improvement Act ("Regulatory Improvement Act") with
the intent of, among other things, reducing the regulatory burden on financial
institutions. This Act is intended to streamline certain regulatory procedures
and relax certain regulatory compliance requirements. In addition, the
Regulatory Improvement Act specifically directs each federal banking agency to
review and streamline its regulations and written supervisory policies.
Other Significant Federal Banking Legislation
- ---------------------------------------------
Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDICIA"). FDICIA was enacted into law in late 1991. As required by FDICIA,
numerous regulations have been adopted by federal bank regulatory agencies,
including the following: (1) federal bank regulatory authorities have
established five different capital levels for banks and, as a general matter,
enable banks with higher capital levels to engage in a broader range of
activities; (2) the FRB has issued regulations requiring standardized
disclosures with respect to interest paid on deposits; (3) the FDIC has imposed
restrictions on the acceptance of brokered deposits by weaker banks; (4) the
FDIC has implemented risk-based deposit insurance premiums; and (5) the FDIC has
issued regulations requiring state chartered banks to comply with certain
restrictions with respect to equity investments and activities in which the
banks act as a principal.
FDICIA recapitalized the Bank Insurance Fund ("BIF") and required the FDIC
to maintain the BIF and Savings Association Insurance Fund ("SAIF") at 1.25% of
insured deposits by increasing deposit insurance premiums as necessary to
maintain such ratio. FDICIA also required federal bank regulatory authorities to
implement the following: (1) non-capital standards of safety and soundness; (2)
operational and managerial standards for banks; (3) asset and earnings standards
for banks and bank holding companies addressing such areas as classified assets,
capital, and stock price; and (4) standards for compensation of executive
officers and directors of banks.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"). FIRREA became effective on August 9, 1989. Among other things, this
far-reaching legislation (1) phased in significant increases in the FDIC
insurance premiums paid by commercial banks; (2) created two deposit insurance
pools within the FDIC, one to insure commercial bank and savings
15
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bank deposits and the other to insure savings association deposits; (3) for the
first time, permitted bank holding companies to acquire healthy savings
associations; (4) permitted commercial banks that meet certain housing-related
asset requirements to secure advances and other federal services from their
local Federal Home Loan Banks; and (5) greatly enhanced the regulators'
enforcement powers by removing procedural barriers and sharply increasing the
civil and criminal penalties for violating statutes and regulations.
Restrictions on Capital Distributions
- -------------------------------------
Dividends paid by the Bank to the Company are a material source of the
Company's cash flow. Various federal statutory provisions limit the amount of
dividends the Bank is permitted to pay to the Company without regulatory
approval. FRB policy further limits the circumstances under which bank holding
companies may declare dividends. For example, a bank holding company should not
continue its existing rate of cash dividends on its common stock unless its net
income is sufficient to fully fund each dividend and its prospective rate of
earnings retention appears consistent with its capital needs, asset quality, and
overall financial condition.
If, in the opinion of the applicable federal banking agency, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
institution, could include the payment of dividends), the agency may require,
after notice and hearing, that the institution cease and desist from that
practice. In addition, the FRB and the FDIC have issued policy statements which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings.
Under the National Bank Act, national banks may only pay dividends without
advance approval of the OCC, if the total of all dividends declared by the
national bank in any calendar year will exceed the sum of its net profits (as
defined) for that year plus its retained profits for the preceding two calendar
years, less any required transfers to surplus. The National Bank Act also
prohibits national banks from paying dividends that would be in an amount
greater than net profits then on hand (as defined) after deducting losses and
bad debts (as defined).
Capital Requirements
- --------------------
Capital Adequacy Requirements. The FRB, the FDIC, and the OCC
(collectively, the "Agencies") have adopted risk-based capital guidelines for
banks and bank holding companies that are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among banks and bank
holding companies and account for off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios in excess
of the minimums. Failure to achieve and maintain adequate capital levels may
give rise to supervisory action through the issuance of a capital directive to
ensure the maintenance of required capital levels.
The current guidelines require all federally-regulated banks to maintain a
minimum risk-based total capital ratio equal to 8%, of which at least 4% must be
Tier 1 capital. Tier 1 capital includes common shareholders' equity, qualifying
perpetual preferred stock, and minority interests in equity accounts of
consolidated subsidiaries, but excludes goodwill and most other intangibles and
the allowance for loan and lease losses. Tier 2 capital includes the excess of
any preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate term-
preferred stock, and general reserves for loan and lease losses up to 1.25% of
risk-weighted assets. The Bank has not received any notice indicating that it
will be subject to higher capital requirements.
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Under these guidelines, banks' assets are given risk-weights of 0%, 20%,
50% or 100%. In addition, certain off-balance sheet items are given credit
conversion factors to convert them to asset equivalent amounts to which an
appropriate risk-weight will apply. These computations result in the total
risk-weighted assets. Most loans are assigned to the 100% risk category, except
for first mortgage loans fully secured by residential property and, under
certain circumstances, residential construction loans (both carry a 50% rating).
Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds (which have a 50% rating) and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government Agencies (which have a 0% rating).
The Agencies have also implemented a leverage ratio, which is equal to
Tier 1 capital as a percentage of average total assets less intangibles, to be
used as a supplement to the risk-based guidelines. The principal objective of
the leverage ratio is to place a constraint on the maximum degree to which a
bank may leverage its equity capital base. The minimum required leverage ratio
for top-rated institutions is 3%, but most institutions are required to maintain
an additional cushion of at least 100 to 200 basis points. Any institution
operating at or near the 3% level is expected to have well-diversified risk,
including no undue interest rate risk exposure, excellent asset quality, high
liquidity and good earnings, and in general, to be a strong banking organization
without any supervisory, financial or operational weaknesses or deficiencies.
Any institutions experiencing or anticipating significant growth would be
expected to maintain capital ratios, including tangible capital positions, well
above the minimum levels.
Regulations adopted by the Agencies as required by FDICIA impose even more
stringent capital requirements. The regulators require the OCC and other Federal
Banking Agencies to take certain "prompt corrective action" when a bank fails to
meet certain capital requirements. The regulations establish and define five
capital levels: (1) "well-capitalized," (2) "adequately capitalized," (3)
"undercapitalized," (4) "significantly undercapitalized" and (5) "critically
undercapitalized." To qualify as "well-capitalized," an institution must
maintain at least 10% total risk-based capital, 6% Tier 1 risk-based capital,
and a leverage ratio of no less than 5%. Increasingly severe restrictions are
imposed on the payment of dividends and management fees, asset growth and other
aspects of the operations of institutions that fall below the category of being
"adequately capitalized" (which requires at least 8% total risk-based capital,
4% Tier 1 risk-based capital, and a leverage ratio of at least 4%).
Undercapitalized institutions are required to develop and implement capital
plans acceptable to the appropriate federal regulatory agency. Such plans must
require that any company that controls the undercapitalized institution must
provide certain guarantees that the institution will comply with the plan until
it is adequately capitalized. As of December 31, 1996, neither the Company nor
the Bank were subject to any regulatory order, agreement, or directive to meet
and maintain a specific capital level for any capital measure.
In August of 1995, the Federal Banking Agencies adopted a final rule
implementing the portion of Section 305 of FDICIA that requires the banking
agencies to revise their risk-based capital standards to ensure that those
standards take adequate account of interest rate risk. Effective September 1,
1995, when evaluating the capital adequacy of a bank, the Federal Banking
Agencies' examiners will consider exposure to declines in the economic value of
the bank's capital due to changes in interest rates. A bank may be required to
hold additional capital for interest rate risk if it has a significant exposure
or a weak interest rate risk management process. Concurrent with the
publication of this final rule, the Agencies proposed for comment a joint policy
statement describing the process the Agencies will use to measure and assess a
bank's interest rate risk. This joint policy statement was superseded by an
updated Joint Policy Statement in June of 1996. Any impact the joint final
rule and the Joint Policy Statement may have on the Company or the Bank cannot
be predicted at this time.
In addition, the Agencies published a joint final rule on September 6,
1996, amending their
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respective risk-based capital standards to incorporate a measure for market risk
to cover all positions located in an institution's trading account and foreign
exchange and commodity positions wherever located. This final rule, effective
January 1, 1997, implements an amendment to the Basle Capital Accord that sets
forth a supervisory framework for measuring market risk. The final rule
effectively requires banks and bank holding companies with significant exposure
to market risk to measure that risk using its own internal value-at-risk model,
subject to the parameters of the final rule, and to hold a sufficient amount of
capital to support the institution's risk exposure.
Institutions subject to this final rule must be in compliance with it by
January 1, 1998. This final rule applies to any bank or bank holding company,
regardless of size, whose trading activity equals 10% or more of its total
assets, or whose trading activity equals $1 billion or more. An institution's
trading activity is defined as the sum of its trading assets and trading
liabilities as reported in its most recent call report for a bank, or its most
recent Y-9C Report for a bank holding company. Total assets means quarter-end
total assets. The Agencies may require an institution not otherwise subject to
the final rule to comply with it for safety and soundness reasons and also may
exempt an institution otherwise subject to the final rule from compliance under
certain circumstances.
FDIC Insurance
- --------------
Generally, customer deposit accounts in banks are insured by the FDIC for
up to a maximum amount of $100,000. The FDIC has adopted a risk-based insurance
assessment system under which depository institutions contribute funds to the
BIF and the SAIF based on their risk classification. The FDIC assigns
institutions a risk classification based on three capital groups and three
supervisory subgroups. The capital groups are "well capitalized," "adequately
capitalized," and "undercapitalized." The three supervisory subgroups are Group
"A" (for financially sound 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 risk to the deposit
insurance fund), and Group "C" (for those institutions with a substantial
probability of loss to the fund absent effective corrective action).
On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("Funds
Act") was enacted. The Funds Act provides, among other things, for the
recapitalization of the SAIF through a special assessment on all depository
institutions that hold SAIF insured deposits. The one-time assessment is
designed to place the SAIF at its 1.25 reserve ratio goal.
The Funds Act, for the three year period beginning in 1997, subjects BIF
insured deposits to a Financing Corporation ("FICO") premium assessment on
domestic deposits at one-fifth the premium rate (approximately 1.3 basis points)
imposed on SAIF insured deposits (approximately 6.5 basis points). In addition,
service debt funding on FICO bonds for the first half of 1997 is expected to
result in BIF insured institutions paying .64 cents for each $100 of assessed
deposits, and SAIF insured institutions paying 3.2 cents on each $100 of
deposits. Beginning in the year 2000, BIF insured institutions will be required
to pay the FICO obligations on a pro-rata basis with all thrift institutions;
annual assessments are expected to equal approximately 2.4 basis points until
2017, to be phased out completely by 2019.
For at least the first half of 1997, BIF premiums will be maintained at
their current level. Accordingly, institutions in the lowest risk category will
continue to pay no premiums, and other institutions will be assessed based on a
range of rates, with those in the highest risk category paying 27 cents for
every $100 of BIF insured deposits. Rates in the SAIF assessment schedule,
previously ranging from 4 to 31 basis points, have recently been adjusted by 4
basis points to a range of 0 to 27 basis points (as of October 1, 1996).
Banking regulators are empowered under the Funds Act to prohibit insured
institutions
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and their holding companies from facilitating or encouraging the shifting of
deposits from the SAIF to the BIF in order to avoid higher assessment rates.
Accordingly, the FDIC recently proposed a rule that would, if adopted as
proposed, impose entrance and exit fees on depository institutions attempting to
shift deposits from the SAIF to the BIF as contemplated by the Funds Act. The
Funds Act also provides for the merger of the BIF and SAIF on January 1, 1999,
only if no thrift institutions exist on that date. It is expected that Congress
will address comprehensive legislation on the merger of the funds and
elimination of the thrift charter during the 1997 session.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant caused this amendment to this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Mountain Bank Holding Company
Date: April 8, 1997
By: /s/ ROY T. BROOKS
---------------------------
Roy T. Brooks,
Chairman of the Board & CEO
S-1
