Item 1. Business BACKGROUND
Glacier Bancorp, Inc. Kalispell, Montana (the "Company") is a Delaware corporation incorporated in 1990, pursuant to the reorganization of Glacier Bank, FSB ("Savings Bank") into a bank holding company.
In addition to the Savings Bank, Glacier is also the parent holding company of First National Bank of Eureka ("Eureka") and Glacier National Bank, Whitefish, Montana ("GNB"), formerly First National Bank of Whitefish ("Whitefish"), owning approximately 93% and 94%, respectively, of the outstanding stock of Eureka and GNB (collectively referred to as the "National Banks"). Glacier has an open offer to all minority shareholders of the National Banks to acquire their shares of Eureka and GNB at the then current book value. Effective March 14, 1997, Whitefish acquired certain of the assets and the liabilities of the Whitefish branch of Savings Bank and changed its name to "Glacier National Bank". Concurrent with the closing of this acquisition, the Whitefish branch of Savings Bank was closed.
As of December 31, 1996, Whitefish and Eureka had assets of $35 million and $25 million, respectively.
On December 31, 1996, the Company completed its acquisition of 100% of the outstanding stock of the First Security Bank of Missoula ("First Security"), through an exchange of stock with Missoula Bancshares, Inc., ("Bancshares") the parent company of First Security, shareholders. Bancshares merged out of existence and First Security became a direct subsidiary of Glacier. Total assets of First Security on December 31, 1996 were approximately $120 million.
The Savings Bank is a federally-chartered savings bank. It began operations in 1955 and converted from a savings and loan association to a savings bank in 1983, and from a mutual form of ownership to a stock form in 1984. The Savings Bank's savings and checking accounts are insured by the Federal Deposit Insurance Corporation ("FDIC"). The Savings Bank is a member of the Federal Home Loan Bank of Seattle ("FHLB"), which is one of twelve banks which comprise the Federal Home Loan Bank System. The Savings Bank is subject to regulation and examination by the OTS.
The Savings Bank's main office is located at 202 Main Street, Kalispell, MT, 59901 and its telephone number is (406) 756-4200. See "Item 2.
Item 2. Properties
At December 31, 1996, the Savings Bank owned eight of its twelve offices, including its headquarters and other property having an aggregate book value of approximately $4.5 million, and leased the remaining branches.
The Savings Bank believes that all of its facilities are well-maintained, adequate and suitable for the current operations of its business, as well as fully utilized.
The following table sets forth certain information regarding the Savings Bank's offices at December 31, 1996:
*Effective March 14, 1997, the Whitefish Branch was closed and certain of its assets and the liabilities were acquired by Whitefish.
First Security conducts banking activities from three locations in Missoula, MT. The main office has undergone extensive remodeling, and the Great Northern Way office was new in 1996. The East Broadway facility was completed in 1992. Management believes that each facility is in excellent condition. The net book value of the below listed facilities is $2.6 million:
GNB and Eureka each conduct their banking activities out of one office as listed below. Both institutions have undergone a major remodeling and have net book values of $721,000 and $607,000 respectively. Management believes that both facilities are currently in excellent condition:
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company or its subsidiaries is a party to or to which any of its property is subject.
Item 4.
Item 4. Submission of Matter To A Vote of Security Holders
At a special meeting held November 13, 1996, the shareholders approved the Plan and Agreement of Merger with Bancshares.
PART II
Item 5.
Item 5. Market For The Registrant's Common Equity and Related Stockholder Matters
The information required by this item is incorporated by reference to the inside front cover and pages 1 and 19 to the Annual Report to Stockholders for the year ended December 31, 1996. Reference is also made to the caption under Item 1 hereof entitled "Regulation - Limitations on Dividends and Other Capital Distributions."
Item 6.
Item 6. Selected Financial Data
Information required by this item is incorporated by reference to Page 1 and Page 9 of the Annual Report to Stockholders for the year ended December 31, 1996.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The information required by this item is incorporated by reference to Pages 27 through 31 of the Annual Report to Stockholders for the year ended December 31, 1996.
Item 8.
Item 8. Financial Statements and Supplementary Data
The following audited consolidated financial statements which appear in the Annual Report to Stockholders for the year ended December 31, 1996 are incorporated by reference:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of Glacier on pages 3 through 8 and 16 of the Proxy Statement for the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
Information regarding directors and executive officers of Glacier on pages 10 through 16 of the Proxy Statement for the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Information regarding security ownership of certain beneficial owners and management on pages 4 and 5, and 8 and 9 of the Proxy Statement for the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions on pages 9, and 15 and 16 of the Proxy Statement for the 1997 Annual Meeting of Stockholders is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) The following financial statements are incorporated by reference from Item 8 hereof and the Annual Report to Stockholders included herein as Exhibit 13: Consolidated Statements of Financial Condition at December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1995, and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
(a) (2) All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements and related notes thereto.
(a) (3) The following exhibits are included as part of this Form 10-K.
(1) Incorporated by reference to the identically numbered exhibit included in the Company's Registration Statement on Form S-4 (No. 33-37025), declared effective by the Securities and Exchange Commission on October 4, 1990.
(2) Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-4 (No. 333-13595).
(3) Incorporated by reference to the exhibits 10(i), 10(k), and 10(h) included in the Company's Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to Exhibit 99.1 of the Company's S-8 Registration Statement (No. 33-94648).
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1996.
(c) See Item 14(a) (3) above for all exhibits filed herewith and the Exhibit Index.
SIGNATURES
PURSUANT to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 26, 1997.
GLACIER BANCORP, INC.
By:/s/ John S. MacMillan ------------------------------------ John S. MacMillan President/CEO
PURSUANT to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 27, 1996, by the following persons in the capacities indicated.
/s/ John S. MacMillan Chairman/President/CEO John S. MacMillan (Principal Executive Officer)
/s/ James H. Strosahl Senior Vice President and CFO James H. Strosahl (Principal Financial/Accounting Officer)
Majority of the Board of Directors
/s/ Michael J. Blodnick Executive Vice President/COO, and Michael J. Blodnick Director
/s/ L. Peter Larson Director L. Peter Larson
/s/ Darrel R. Martin Director Darrel R. (Bill) Martin
/s/ F. Charles Mercord Director F. Charles Mercord
/s/ Everit A. Sliter Director Everit A. Sliter
/s/ Harold A. Tutvedt Director Harold A. Tutvedt
/s/ William L. Bouchee Director William L. Bouchee
/s/ Allen J. Fetscher Director Allen J. Fetscher
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1996, 1995, and 1994
See accompanying notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(a) GENERAL
Glacier Bancorp, Inc. (the "Company"), a Delaware corporation organized in 1990, is a multi-bank, thrift holding company which provides a full range of banking services to individual and corporate customers in Montana through its subsidiary banks. The subsidiary banks are subject competition from other financial service providers. The subsidiary banks are also subject to the regulations of certain government agencies and undergo periodic examinations by those regulatory authorities.
The accounting and consolidated financial statement reporting policies of the Company conform with generally accepted accounting principles and prevailing practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported and disclosed amounts of assets and liabilities as of the date of the statement of financial condition and income and expenses for the period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the subsidiary banks' allowance for loan losses. Such agencies may require the subsidiary banks to recognize additions to the allowance based on their judgements about information available to them at the time of their examination.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and its bank subsidiaries, Glacier Bank (the "Savings Bank"), First Security Bank of Missoula, First National Bank of Whitefish, and First National Bank of Eureka (collectively the "Commercial Banks"). All significant intercompany transactions have been eliminated in consolidation. The Company owns 100% of the outstanding stock of Glacier Bank and First Security Bank of Missoula, and 94% and 93% of the First National Banks of Whitefish and Eureka, respectively.
The First Security Bank of Missoula was acquired on December 31, 1996 through an exchange of stock with Missoula Bancshares, Inc. formerly the parent company of First Security Bank. The pooling of interests accounting method is being used for this merger transaction. Under this method, financial information for each of the periods presented include the combined companies as though the merger had occurred prior to the earliest date presented.
(c) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are considered to be cash on hand, cash held as demand deposits at various banks and regulatory agencies, interest bearing deposits and federal funds sold with original maturities of three months or less.
(d) INVESTMENT SECURITIES
Debt securities for which the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and are stated at amortized cost. Debt and equity securities held primarily for the purpose of selling them in the near term are classified as trading securities and are reported at fair market value, with unrealized gains and losses included in income. Debt and equity securities not classified as held-to-maturity or trading are classified as available-for-sale and are reported at fair value with unrealized gains and losses, net of income taxes, shown as a separate component of stockholders' equity.
Premiums and discounts on investment securities are amortized or accreted into income using a method which approximates the level-yield interest method.
The cost of any investment, if sold, is determined by specific identification. Declines in the fair value of available-for-sale or held-to-maturity securities below carrying value that are other than temporary are charged to expense as realized losses and the related carrying value reduced to fair value.
(e) LOANS RECEIVABLE
Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balance reduced by any chargeoffs or specific valuation accounts and net of any deferred fees or costs on originated loans or unamortized premiums or discounts on purchased loans. Discounts and premiums on purchased loans are amortized over the expected life of loans using methods that approximate the interest method.
(f) LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated market value in the aggregate. Net unrealized losses are recognized by charges to income.
(g) LOAN ORIGINATION FEES
Statement of Financial Accounting Standards (SFAS) No. 91 provides for the deferral of loan origination fees and direct loan origination costs with those amounts recognized over the lives of the related loans as an adjustment of the loan's yield using a method which approximates the level-yield method.
(h) ALLOWANCE FOR LOAN LOSSES
Management's periodic evaluations of the adequacy of the allowance is based on factors such as the Company's past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower's ability to repay, the estimated value of any underlying collateral, current economic conditions, and independent appraisals.
The Company also provides an allowance for losses on specific loans which are deemed to be impaired. Groups of small balance homogeneous loans (generally consumer and residential real estate loans) are evaluated for impairment collectively. A loan is considered impaired when, based upon current information and events, it is probable that the Company will be unable to collect, on a timely basis, all principal and interest according to the contractual terms of the loans's original agreement. When a specific loan is determined to be impaired, the allowance for loan losses is increased through a charge to expense for the amount of the impairment. The amount of the impairment is measured using cash flows discounted at the loan's effective interest rate, except when it is determined that the sole source of repayment for the loan is the operations or liquidation of the underlying collateral. In such case, the current value of the collateral, reduced by anticipated selling costs, will be used in place of discounted cash flows. Generally, when a loan is deemed impaired, current period interest previously accrued but not collected is reversed against current period interest income. Income on such impaired loans is then recognized only to the extent that cash in excess of any amounts charged off to the allowance for loan losses is received and where the future collection of principal is probable. Interest
accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgement of management, the loans are estimated to be fully collectible as to both principal and interest.
During 1996 and 1995 the amount of impaired loans was not material.
(I) PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less depreciation. Depreciation is generally computed on a straight-line method over the estimated useful lives, which range from five to fifty years, of the various classes of assets from their respective dates of acquisition.
(J) REAL ESTATE OWNED
Property acquired by foreclosure or deed in lieu of foreclosure is carried at the lower of cost or estimated fair value, not to exceed estimated net realizable value. Costs, excluding interest, relating to the improvement of property are capitalized, whereas those relating to holding the property are charged to expense. Fair value is determined as the amount that could be reasonably expected in a current sale (other than a forced or liquidation sale) between a willing buyer and a willing seller. If the fair value of the asset minus the estimated cost to sell is less than the cost of the property, this deficiency is recognized as a valuation allowance and is charged to expense.
(K) RESTRICTED STOCK INVESTMENTS
The Company holds stock in the Federal Home Loan Bank (FHLB); Federal Home Loan Mortgage Corporation (FHLMC); and the Federal Reserve Bank (FRB). These investments are carried at the lower of cost or market value.
(L) GOODWILL
Goodwill is being amortized against income using the straight-line method over 15 years.
(M) INCOME TAXES
Deferred tax assets and liabilities are recognized for estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(N) STOCK-BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock option plan in accordance with the provisions of Accounting Principles Board ("APB") Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations. As such, compensation expense would be recorded over the vesting period only if at the date of grant the current market price of the underlying stock exceeded the exercise price. On January 1, 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation," which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards determined on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB Opinion No. 25 for stock based awards to employees and provide pro forma income and pro forma earnings per share disclosures for employee stock options granted in 1995 and future years as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(O) IMPAIRMENT AND DISPOSAL OF LONG-LIVED ASSETS
Effective January 1, 1996 the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of". The statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset is deemed impaired if the sum of the expected future cash flow is less than the carrying amount of the asset. If impaired, an impairment loss is recognized to reduce the carrying value of the asset to fair value. Adoption of SFAS No. 121 did not have a material impact on the Company's consolidated financial position or results of operations. At December 31, 1996 there were no assets that were considered impaired.
(P) MORTGAGE SERVICING RIGHTS
The Company recognizes mortgage servicing rights as an asset regardless of whether the servicing rights are acquired or originated and retained. The mortgage servicing rights are assessed for impairment based on the fair value of the mortgage servicing rights. As of December 31, 1996 and 1995 the carrying value of originated servicing rights was approximately $396,000 and $176,000, respectively. There was no impairment of value at December 31, 1996 or 1995.
(Q) FUTURE ACCOUNTING CHANGES
In June 1996, the Financial Accounting Standards Board issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." SFAS No. 125 is effective for transfers and servicing of financial assets and extinguishment of liabilities occurring after December 31, 1996 and is to be applied prospectively. This Statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of the financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Management of the Company does not expect the adoption of SFAS No. 125 will have a material impact on the Company's consolidated financial position or results of operations. 2. CASH ON HAND AND IN BANKS:
The subsidiary banks are required to maintain an average reserve balance with the Federal Reserve Bank, or maintain such reserve in the form of cash. The amount of this required reserve balance at December 31, 1996 was approximately $4,000,000 and was met by maintaining cash and an average reserve balance with the Federal Reserve Bank in excess of this amount.
3. Investment Securities:
A comparison of the amortized cost and estimated fair value of the Company's investment securities is as follows at:
DECEMBER 31, 1996
DECEMBER 31, 1995
Maturities of securities do not reflect repricing opportunities present in many adjustable rate securities, nor do they reflect expected shorter maturities based upon early prepayment of principal.
The Company has not entered into any swaps, options or futures contracts. Included in the U.S. Government and Federal Agencies security amounts are investments in structured notes which have contractual step-up interest rates and call features.
Gross proceeds from sales of investment securities for the years ended December 31, 1996, 1995, and 1994, were approximately $23,065,000, $5,111,000, and $6,469,000 respectively, resulting in gross gains of approximately $291,000, $47,000 and $19,000 and gross losses of approximately $170,000, $53,000, and $41,000, respectively.
At December 31, 1996, the Company had investment securities with book values of approximately $38,793,000 pledged as security for deposits of several local government units, securities sold under agreements to repurchase, and as collateral for the Treasury tax and loan borrowings.
The Real Estate Mortgage Investment Conduits consist of nine certificates which are backed by the FNMA, GNMA and FHLMC.
At December 31, 1996 and 1995 the minority interest share of the unrealized gain (loss) was ($7,000) and $9,000, respectively.
4. LOANS RECEIVABLE:
The following is a summary of loans receivable at:
Summary of activity in allowance for losses on loans:
Approximately 90 percent of the Company's total loans receivable are with customers located in Western Montana.
The weighted average interest rate on loans was 8.82%, and 9.01% at December 31, 1996 and 1995, respectively.
The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, and letters of credit, and involve to varying degrees, elements of credit risk.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.
At December 31, 1996 and 1995 serviced loans sold to others were $115,437,000 and $103,756,000, respectively.
At December 31, 1996, the Company had outstanding commitments as follows (dollars in thousands):
Accrued Interest Receivable:
5. PREMISES AND EQUIPMENT:
Premises and equipment consist of the following at:
6. DEPOSITS:
Deposits consist of the following at:
At December 31, 1996, scheduled maturities of certificates of deposit are as follows:
Interest expense on deposits is summarized as follows:
7. ADVANCES FROM FEDERAL HOME LOAN BANK OF SEATTLE:
Advances from the Federal Home Loan Bank of Seattle consist of the following at December 31, 1996:
Advances from the Federal Home Loan Bank of Seattle consist of the following at December 31, 1995:
These advances were collateralized by the Federal Home Loan Bank of Seattle stock held by the Company, and qualifying real estate loans and investments totaling approximately $233,661,000 and $189,580,000 at December 31, 1996 and 1995, respectively.
The weighted average interest rate on these advances was 5.67% and 5.80% at December 31, 1996 and 1995, respectively.
8. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS:
Securities sold under agreements to repurchase consist of the following at:
The securities underlying agreements to repurchase entered into by the Company are for the same securities originally sold, and are held in a custody account by a third party. For the year ended December 31, 1996 securities sold under agreements to repurchase averaged approximately $17,000,000 and the maximum outstanding at any month end during the year was approximately $22,000,000.
In 1996 the Company entered into the treasury tax and loan account note option program, which provides short term funding up to $12,000,000 at federal funds rate minus 25 basis points. The borrowings are secured with investment securities with an amortized cost of approximately $15,400,000. At December 31, 1996 the outstanding balance under this program was approximately $5,200,000.
Other borrowed funds prior to 1996 related to Missoula Bancshares, Inc. to acquire First Security. The debt was repaid prior to the merger with the Company.
9. STOCKHOLDERS' EQUITY:
For regulatory purposes, the Savings Bank is required to maintain three minimum capital requirements. Failure to maintain the required capital can result in regulatory action to limit the Savings Bank's operations.
Savings Bank capital components at December 31, 1996, are as follows:
Savings associations that meet or exceed their capital requirements may make capital distributions during any one year up to an amount that would reduce its surplus capital ratio to no less than one-half of its surplus capital ratio at the beginning of the calendar year. Under this regulation the amount of allowable distributions was approximately $1,150,000 as of year end.
The Federal Deposit Insurance Corporation Improvement Act generally restricts a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be capitalized at less than 8% of total risk-based capital, 4% of Tier I capital, or a 4% leverage ratio. At December 31, 1996, the Commercial Banks capital measures exceed the highest supervisory threshold, which requires total Tier II capital of at least 10%, Tier I capital of at least 6%, and a leverage ratio of at least 5%.
National banks may not pay dividends without the approval of the Comptroller of the Currency if the total of all dividends declared will exceed the sum of its net profits for the current year and the preceding two calendar years. The amount available for dividend distribution by the National Banks as of December 31, 1996, was approximately $1,242,000.
State banks such as First Security may pay dividends up to the total of the prior two years earnings without permission of the State regulator. The amount available for dividend distribution by First Security as of December 31, 1996, was approximately $3,015,000.
The Federal Reserve Board has adopted capital adequacy guidelines pursuant to which it assesses the adequacy of capital in supervising a bank holding company. The following table illustrates the Federal Reserve Boards capital adequacy guidelines and the Company's compliance with those guidelines as of December 31, 1996.
10. FEDERAL AND STATE INCOME TAXES:
The following is a summary of consolidated income tax expense for:
Federal and state income tax expense differs from that computed at the federal statutory corporate tax rate as follows for:
The tax effects of temporary differences which give rise to a significant portion of deferred tax assets and deferred tax liabilities are as follows at:
There was no valuation allowance at December 31, 1996 and 1995 because management believes that it is more likely than not that the company's deferred tax assets will be realized by offsetting future taxable income from reversing taxable temporary differences and anticipated future operating income.
For taxable years beginning prior to January 1, 1996, savings institutions such as the Savings Bank were allowed, if certain conditions were met, a special bad debt deduction for income tax purposes based on a percentage of taxable income before such deduction.
As a result of recently enacted federal legislation, savings associations are no longer able to calculate their deduction for bad debts using the percentage-of-taxable-income method. Instead, savings associations are required to compute their deduction based on specific charge-offs during the taxable year or, if the savings association or its controlled group had assets of less than $500 million, based on actual loss experience over a period of years. This legislation also requires savings associations to recapture into taxable income over a six-year period their post-1987 additions to their bad debt tax reserves. At December 31, 1996, the Savings Bank's post-1987 tax bad debt reserves were approximately $2.6 million. The recapture may be suspended for up to two years if, during those years, the institution satisfies a residential loan requirement which the Savings Bank anticipates will be met.
Retained earnings at December 31, 1996 includes approximately $3,600,000 for which no provision for Federal income tax has been made. This amount represents the base year tax bad debt reserve which is essentially an allocation of earnings to pre-1988 bad debt deductions for income tax purposes only. This amount is treated as a permanent difference and deferred taxes are not recognized unless it appears that this reserve will be reduced and thereby result in taxable income in the foreseeable future. The Company is not currently contemplating any changes in its business or operations which would result in a recapture of this federal bad debt reserve into taxable income.
11. EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined contribution retirement plan covering substantially all employees. The Company follows the policy of funding retirement plan contributions as accrued. The total retirement plan expense for the years ended December 31, 1996, 1995, and 1994 was approximately $366,000, $287,000 and $249,000 respectively. The employees of First Security will be eligible to participate in the plan during 1997.
The Company also has an employees' savings plan. The plan allows eligible employees to contribute up to 10% of their monthly salaries. The Company matches an amount equal to 50% of the employee's contribution, up to 6% of the employee's total pay. Participants are at all times fully vested in all contributions. The Company's contribution to the savings plan for the years ended December 31, 1996, 1995 and 1994 was approximately $106,000, $95,000, and $85,000, respectively. Employees of First Security will be eligible to participate in the plan in 1997.
In 1995 a Supplemental Executive Retirement Plan (SERP) was adopted which provides retirement benefits at the savings and retirement plan levels, for amounts that are limited by IRS regulations under those plans. The Company's contribution to the SERP for the years ended December 31, 1996 and 1995 was approximately $41,000 and $19,000 respectively.
In 1995 a non-funded deferred compensation plan for directors and senior officers was established. The plan provides for the deferral of cash payments of up to 25% of a participants salary, and for 100% of bonuses and directors fees, at the election of the participant. The total amount deferred was approximately $87,000, and zero for the years ending December 31, 1996 and 1995, respectively. The participant receives an earnings credit at a one year certificate of deposit rate, or at the total return rate on Company stock, on the amount deferred, as elected by the participant at the time of the deferral election. The total earnings credit for 1996 and 1995 was approximately $5,000 and zero, respectively.
First Security Bank of Missoula had a discretionary non-contributory profit sharing plan covering substantially all employees, with funding of contributions as accrued. The total plan expense for the years ended December 31, 1996, 1995, and 1994 was approximately $262,000, $235,000 and $212,000 respectively. The plan was terminated as of December 31, 1996.
The Company has entered into employment contracts with eight senior officers that provide benefits under certain conditions following a change in control of the Company.
12. EARNINGS PER SHARE:
Earnings per common share were computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the year. Previous period amounts are restated for the effect of stock dividends. Stock options are considered common stock equivalents, but are excluded from earnings per share computations due to immateriality.
13. STOCK OPTION PLANS:
During fiscal 1984, an Incentive Stock Option Plan was approved which provided for the grant of options limited to 168,750 shares to certain full time employees of the Company. In the year ended June 30, 1990, additional Stock Option Plans were approved which provided for the grant of options limited to 29,445 shares to outside Directors and 166,860 shares to certain full time employees of the Company. In the year ended December 31, 1994 a Stock Option Plan was approved which provides for the grant of options to outside Directors of the Company, limited to 50,000 shares. In the year ended December 31, 1995 a Stock Option Plan was approved which provides for the grant of options limited to 279,768 shares to key employees of the Company. The option price at which the Company's common stock may be purchased upon exercise of options granted under the plan must be at least equal to the per share market value of such stock at the date the option is granted. The 1984 plan also contains provisions permitting the optionee, with the approval of the Company, to surrender his or her options for cancellation and receive cash or common stock equal to the difference between the exercise price and the then fair market value of the shares on the date of surrender. The fiscal 1990 and 1995 plans also contain provisions authorizing the grant of limited stock rights, which permit the optionee, upon a change in control of the Company, to surrender his or her options for cancellation and receive cash or common stock equal to the difference between the exercise price and the fair market value of the shares on the date of the grant. All option shares are adjusted for stock splits and stock dividends.
At December 31, 1996, total stock options available for issuance are 288,451.
Changes in stock options for the years ended December 31, 1996, 1995, and 1994, are summarized as follows:
At December 31, 1996, the remaining stock options outstanding are at exercise prices ranging from $10.24 to $24.62 per share. The options exercised during the year ended December 31, 1996 were at prices from $7.37 to $19.09.
The per share weighted-average fair value of stock options granted during 1996 and 1995 was $1.75 and $2.12 on the date of grant using the Black Scholes option-pricing model with the following assumptions: 1996 - expected dividend yield of 2.9%, risk-free interest rate of 5.8%, volatility ratio of .024, and expected life of 4.8 years: 1995 - expected dividend yield of 2.9%, risk-free interest rate of 5.9%, volatility ratio .024, and expected life of 3.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:
Pro forma net earnings and earnings per share reflect only options granted in 1996 and 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma net earnings and earnings per share amounts presented above because compensation cost is reflected over the options vesting period of 2 years and proforma compensation cost for options granted prior to January 1, 1995 is not considered.
In September 1993 Missoula Bancshares, Inc. granted 1,000 shares of common stock to a senior officer to be issued on or after September 1998 at the election of the officer, with vesting over the five year period. In conjunction with the merger of Missoula Bancshares, Inc., the Company issued 14,930 shares which was the vested portion of the 1,000 shares at the exchange ratio, and converted the non-vested portion to options for 8,040 Company shares which will fully vest at the end of September 1998. The related compensation expense, based on the fair value of the common stock at the date of the grant, is being charged to expense over the service period with a corresponding credit to paid-in capital.
14 PARENT COMPANY INFORMATION (CONDENSED):
The following condensed financial information is the unconsolidated (Parent Company Only) information for Glacier Bancorp, Inc, combined with Missoula Bancshares Inc:
15. UNAUDITED QUARTERLY FINANCIAL DATA:
Summarized unaudited quarterly financial data is as follows (in thousands except per share amounts):
[1] Per share amounts adjusted to reflect effect of 10% Stock Dividend.
[2] Per share amounts adjusted to reflect effect of 10% Stock Dividend, not adjusted for shares issued in merger.
[3] Extraordinary dividend was paid at $.10 per share.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS.
Financial instruments has been defined to generally mean cash or a contract that implies an obligation to deliver cash or another financial instrument to another entity. For purposes of the Company's Consolidated Statement of Financial Condition, this includes the following items:
Financial assets and financial liabilities other than securities are not traded in active markets. The above estimates of fair value require subjective judgments and are approximate. Changes in the following methodologies and assumptions could significantly affect the estimates. These estimates may also vary significantly from the amounts that could be realized in actual transactions.
Financial Assets - The estimated fair value approximates the book value of cash and interest bearing cash accounts. For securities, the fair value is based on quoted market prices. The fair value of loans is estimated by discounting future cash flows using current rates at which similar loans would be made. The fair value of FHLB and Federal Reserve stock approximates the book value.
Financial Liabilities - The estimated fair value of demand and savings deposits approximates the book value since rates are periodically adjusted to market rates. Certificates of deposit fair value is estimated by discounting the future cash flows using current rates for similar deposits. Repurchase agreements have variable interest rates, or are short term, so fair value approximates book value. Advances from the FHLB of Seattle fair value is estimated by discounting future cash flows using current rates for advances with similar weighted average maturities.
Off-balance sheet financial instruments - Commitments to extend credit and letters of credit represent the principal categories of off-balance sheet financial instruments. Rates for these commitments are set at time of loan closing, so no adjustment is necessary to reflect these commitments at market value. See Note 4 to consolidated financial statements.
17. CONTINGENCIES:
The Company is a defendant in legal proceedings arising in the normal course of business. In the opinion of management, the disposition of pending litigation will not have a material effect on the Company's consolidated financial position or results of operations.
18. POOLING-OF-INTERESTS COMBINATION:
On December 31, 1996, the Company issued 1,145,599 shares of common stock in exchange for all of the outstanding stock of Missoula Bancshares, Inc., parent of First Security Bank of Missoula. This business combination has been accounted for as a pooling-of-interests combination and, accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Missoula Bancshares, Inc.
The results of operations previously reported by the separate companies and the combined amounts presented in the accompanying consolidated financial statements are summarized below.
There were no transactions between the companies prior to the combination.
[KPMG PEAT MARWICK LLP LOGO]
Independent Auditors' Report
The Board of Directors and Stockholders Glacier Bancorp, Inc.:
We have audited the accompanying consolidated statements of financial condition of Glacier Bancorp, Inc. and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. As audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Glacier Bancorp, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in the notes to the consolidated financial statements, the Company changed its method of accounting for investments in debt and equity securities on January 1, 1994 to adopt the provisions of the Financial Accounting Standards Board's statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
Billings, Montana January 31, 1997
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Glacier Bancorp, Inc. (the "Company") is a Delaware corporation with four financial institutions as subsidiaries, Glacier Bank, First National Bank of Whitefish, First National Bank of Eureka, and the newly acquired First Security Bank of Missoula. The merger of First Security Bank, completed on December 31, 1996, is accounted for using the "pooling of interests" method of accounting. All financial information presented in this report includes the effect of First Security Bank. The Company reported earnings of $7,425,000 for the year ended December 31, 1996, or $1.65 per share, compared to $7,975,000, or $1.77 per share, for the year ended December 31, 1995, and $6,889,000, or $1.53 per share for the year ended December 31, 1994. During 1996 the FDIC SAIF fund was recapitalized through one-time payments from thrift institutions. Glacier Bank's after tax cost of this payment was $583,000, or $.13 per share. In addition expenses related to the merger of First Security Bank were $563,000, or $.12 per share. Operating earnings without the SAIF and merger expenses were $8,570,000, or $1.90 per share, which are record earnings for the Company. This continued improvement in net income can be attributed to an increase in earning assets, management of net interest margin, and increased non-interest income. The following narrative and charts focus on the significant financial changes which have taken place over the past years and include a discussion of the Company's financial condition, results of operations, and capital resources.
LIQUIDITY AND CAPITAL RESOURCES
The objective of liquidity management is to maintain cash flows adequate to meet current and future needs for credit demand, deposit withdrawals, maturing liabilities and corporate operating expenses. This source of funds is generated by deposits, principal and interest payments on loans, sales of loans and securities, short and long term borrowings, and net income. In addition, all four subsidiaries are members of the Federal Home Loan bank of Seattle. This membership provides for established lines of credit in the form of advances which serve as a supplemental source of funds for lending and other general business purposes. During 1996, all four financial institutions maintained liquidity at a level deemed sufficient to meet operating cash needs. The liquidity was in excess of regulatory requirements.
Retention of a portion of Glacier Bancorp, Inc.'s earnings results in stockholders' equity at December 31, 1996 of $51,948,000, or 9.5% of assets, which compares with $46,819,000, or 9.5% of assets at December 31, 1995. Earnings retention has kept pace with the large increase in assets, $52,928,000 or 10.7%, during 1996. The stockholders' equity ratio remains well above required regulatory levels, and above the average of the Company's peers, providing flexibility in the management of assets.
FINANCIAL CONDITION
For the year ended December 31, 1996, consolidated assets increased $52,928,000, or 107%, over the prior year The following table summarizes the Company's major asset and liability components in percentage terms at December 31, 1996, 1995, and 1994
Real estate loans continue to be the largest component of the Company's assets Deposit accounts, with comparatively short terms to maturity, represent the majority of the liabilities
EFFECT OF INFLATION AND CHANGING PRICES
Generally accepted accounting principles require the measurement of financial position and operating results in terms of historical dollars, without consideration for change in relative purchasing power over time due to inflation Virtually all assets of a financial institution are monetary in nature, therefore interest rates generally have a more significant impact on a company's performance than does the effect of inflation
GAP ANALYSIS
The following table gives a description of our GAP position for various time periods As of December 31, 1996, we had a positive GAP position at six months, and a negative GAP position at twelve months The cumulative GAP as a percentage of total assets for six months is a positive 17% which compares to a negative 7% at December 31, 1995, and a positive GAP of 29% at December 31, 1994
The table also shows the GAP earnings sensitivity, and earnings sensitivity ratio, along with a brief description as to how they are calculated The traditional one dimensional view of GAP is no longer sufficient to show a bank's ability to withstand interest rate changes Superior earnings power is also a key factor in reducing exposure to higher interest rates For example, our GAP earnings sensitivity ratio shows that a 1% change in interest rates would only change income by 212% Because of our GAP position, the table illustrates how a 1% increase in rates would decrease the Company's income by approximately $158,000 Using this analysis to join GAP information with earnings data, it produces a better picture of our strength and ability to handle interest rate change The methodology used to compile this GAP information is based on our mix of assets and liabilities and the historical experience accumulated regarding their rate sensitivity
ESTIMATE OF RATE SENSITIVE ASSETS TO RATE SENSITIVE LIABILITIES GAP AND GAP COVERAGE RATIOS AT DECEMBER 31, 1996:
(1) Based on scheduled maturity or time before the loan can be repriced Loans also reflect estimated amortization and prepayments
(2) GAP Earnings Sensitivity is the estimated effect on income after taxes at 40.00% of a 1% increase or decrease in interest rates (1% x ($26,260 less tax of $10,504))
(3) GAP Earnings Sensitivity Ratio is GAP Earnings Sensitivity divided by the estimated yearly earnings of $7,425,000. A 1% increase in interest rates has this estimated percentage increase (decrease) effect on annual income.
INTEREST RATE SPREAD
One way to protect against interest rate volatility is to maintain a comfortable interest spread between yields on assets and the rates paid on interest bearing liabilities. As shown below, our net interest margin decreased in 1996 from 4.90% to 4.67%, the result of higher interest rates on deposits and borrowings, a greater percentage of assets funded with interest bearing liabilities, and lower rates on earning assets. Although the interest spread, and net interest margin are down from 1995, increased asset levels resulted in significantly higher net interest income.
[1] Weighted averages are computed without the effect of compounding daily interest. [2] Includes dividends received on capital stock of the Federal Home Loan Bank. [3] The net interest margin (net yield on average interest earning assets) is interest income from loans and investments less interest expense from deposits, FHLB advances, and other borrowings, divided by the total amount of earning assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
FINANCIAL CONDITION
Total assets increased $52,928,000, or 10.7% over the December 31, 1995 asset level. Total net loans outstanding increased 9.4%, or $33,378,000 with the largest increase occurring in the commercial classification which increased $14,454,000, 16.9%, followed by installment loans which increased $13,384,000, or 17.2%. Real estate loans increased $5,747,000 or 3% a result of a significant portion of the loan production being sold. Investment securities increased $14,650,000, or 16.1%, the result of a strategy to better utilize capital in excess of loan growth requirements.
Total liabilities increased $47,799,000, or 10.7%, with interest bearing deposits up $19,579,000, or 8.2%, and non-interest bearing deposits up $10,575,000, or 19.7%. The largest increase in funding was from Federal Home Loan Bank advances which increased $22,575,000, or 18.7%. Securities sold under repurchase agreements and other borrowed funds were down $7,312,000, or 32.8%. Funding sources are utilized based on the lowest cost available, which results in changes from one accounting period to the next.
Total stockholders' equity increased $5,129,000, or 10.9%, primarily the result of earnings retention, reduced by the change in the net unrealized gains on securities available-for-sale of $739,000.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $41,148,000 compared to $36,852,000 for the years ended December 31, 1996 and 1995, respectively, a $4,296,000, or 11.7% increase. The weighted average yield on the loan and investment portfolios decreased from 8.7% to 8.5%. This decrease in yield was offset by increased volumes in loans and investments, resulting in the increased interest income. Interest rates were higher at the end of 1996 than early in the year, with the yield curve substantially steeper.
INTEREST EXPENSE - Interest expense was $18,556,000 for the year ended December 31, 1996, up from $16,069,000 in 1995, a $2,487,000, or 15.5% increase. The increase is due to higher balances in interest bearing deposits and increased rates over 1995, increased funding from the Federal Home Loan Bank; partially offset by decreases in amounts outstanding in repurchase agreements and other borrowed funds during 1996. Continued increases in interest rates could result in higher interest expense in future periods.
NET INTEREST INCOME - Net interest income was $22,592,000 compared to $20,783,000 in 1995, an increase of $1,809,000, or 8.7%, the net result of the items discussed in the above paragraphs.
PROVISION FOR LOAN LOSSES - The provision for loan losses was $880,000 for 1996, up from $581,000 for 1995, the result of higher loan balances outstanding and an increase in loans charged off, net of recoveries, of $522,000. The allowance for loan losses reserve balance is $3,284,000 at year end 1996, up from $3,077,000 at year end 1995, an increase of $207,000. At December 31, 1996, the non-performing assets (non-accrual loans, accruing loans 90 days or more overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and repossessed personal property) totalled $1,607,000 or .29% of total assets; compared to $563,000 or .11% of total assets at December 31, 1995.
NON-INTEREST INCOME - Total non-interest income increased $747,000 from $7,592,000 to $8,339,000, or 9.8%. The largest portion of the increase occurred in service charges and other fees which were $589,000 over the prior year. The number of customer accounts has increased substantially which has resulted in the increased fee income.
NON-INTEREST EXPENSE - Total non-interest expense increased from $14,680,000 to $17,536,000 an increase of $2,856,000, or 19.5%. Of this increase $947,000 was for the FDIC SAIF insurance assessment, and $563,000 was for merger expenses, leaving an increase from operations of $1,346,000. Compensation, employee benefits, and related expenses increased $1,094,000, or 14.6% from 1995 the result of the expansion of the Billings loan production office into a full service branch, staffing of two new supermarket branches, expansion of banking services to include Saturdays and some holidays, staffing of the new office by First Security in Missoula, other growth related staffing additions, plus other normal cost increases. Occupancy expense increased $159,000, or 10.4% from 1995 the result of adding the new branches, and other cost increases. Other expense increased only 2% from 1995. The efficiency ratio (non-interest expense)/(net interest income + non-interest income) was 57% in 1996, up from and 52% in 1995, as compared with similar sized bank holding companies nationally which average about 64%. Without the one-time charges for the SAIF assessment and merger expenses, the efficiency ratio for 1996 would have remained at 52%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO DECEMBER 31, 1994
FINANCIAL CONDITION
Total assets increased $67,397,000, or 15.8% over the December 31, 1994 asset level. Total net loans outstanding increased 11.1%, or $35,361,000 with the largest increase occurring in the consumer classification which increased $18,976,000, or 32.2%, followed by commercial loans which increased $13,141,000, or 18.1%. Mortgage loans increased only 2%; a result of a significant portion of the loan production being sold. Investment securities increased $22,024,000, or 32.0%, the result of a strategy to better utilize capital in excess of loan growth requirements.
Total liabilities increased $60,805,000, or 15.8%, with interest bearing deposits up $27,723,000, or 13.2%, and non-interest bearing deposits up $5,140,000, or 10.6%. The largest increase in funding was from Federal Home Loan Bank advances which increased $38,173,000, or 46.2%. Securities sold under repurchase agreements and other borrowed funds were down $13,827,000, or 38.3%. Funding sources are utilized based on the lowest cost available, which results in changes from one accounting period to the next.
Total stockholders' equity increased $6,961,000, or 17.5%, primarily the result of earnings retention, and the adjustment for net unrealized gains on securities available-for-sale of $1,262,000.
RESULTS OF OPERATIONS
INTEREST INCOME - Interest income was $36,582,000 compared to $29,361,000 for the years ended December 31, 1995 and 1994, respectively, a $7,491,000, or 25.5% increase. The weighted average yield on the loan and investment portfolios increased from 8.01% to 8.69% for the year. This increase in yield, combined with increased volumes in loans and investments, resulted in the increased interest income.
INTEREST EXPENSE - Interest expense was $16,069,000 for the year ended December 31, 1995, up from $11,496,000 in 1994, a 39.8% increase. The increase is due to higher balances in interest bearing deposits and increased rates over 1994, increased funding from the Federal Home Loan Bank, and higher average amounts outstanding in repurchase agreements during 1995.
NET INTEREST INCOME - Net interest income was $20,783,000 compared to $17,865,000 in 1994, an increase of $2,918,000, or 16.3%, the net result of the items discussed in the above paragraphs.
PROVISION FOR LOAN LOSSES - The provision for loan losses was $581,000 for 1995, up from $321,000 for 1994, the result of higher loan balances outstanding and an increase of $147,000 in net loan losses. The allowance for loan losses reserve balance is $3,077,000 at year end 1995, up from $2,647,000 at year end 1994, an increase of $430,000. At December 31, 1995, the non-performing assets (non-accrual loans, accruing loans 90 days or more overdue, real estate acquired by foreclosure or deed-in-lieu thereof, and repossessed personal property) totalled $563,000 or .11% of total assets; compared to $707,000 or .19% of total assets at December 31, 1994.
NON-INTEREST INCOME - Total non-interest income increased $858,000 from $6,734,000 to $7,592,000, or 12.7%. The largest portion of the increase occurred in service charges and other fees which were $774,000 over the prior year. The number of customer accounts has increased substantially which has resulted in the increased fee income.
NON-INTEREST EXPENSE - Total non-interest expense increased from $12,922,000 to $14,680,000 an increase of $1,758,000, or 13.6%. Compensation, employee benefits, and related expenses increased 13.9% from 1994 the result of establishing the full-service branch in Billings, full year operation of the trust department, Saturday banking, and other normal increases. Occupancy expense increased 23% from 1994 the result of adding the Billings branch, leasing of additional space for the main office, and remodeling of other branch offices. Other expense increased 14.7% from 1994 with advertising and promotional expenses, pre-payment fees on higher rate FHLB advances, increased amortization of premiums on subsidiary purchases, and other normal increases resulting from account activity, making up the increase. The efficiency ratio (non-interest expense)/(net interest income + non-interest income) was 52% in 1995, and 52% in 1994, as compared with similar sized bank holding companies nationally which average about 65%.
(1) Incorporated by reference to the identically numbered exhibit included in the Company's Registration Statement on Form S-4 (No. 33-37025), declared effective by the Securities and Exchange Commission on October 4, 1990.
(2) Incorporated by reference to Exhibit 10.2 of the Company's Registration Statement on Form S-4 (No. 333-13595).
(3) Incorporated by reference to the exhibits 10(i), 10(k), and 10(h) included in the Company's Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to Exhibit 99.1 of the Company's S-8 Registration Statement (No. 33-94648).
(b) No reports on Form 8-K were filed during the quarter ended December 31, 1996.
(c) See Item 14(a) (3) above for all exhibits filed herewith and the Exhibit Index.