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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 28, 2001
GLACIER BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation)
000-18911 81-0519541
------------------------ ------------------
(Commission File Number) IRS Employer
Identification No.
49 Commons Loop
Kalispell, MT 59901
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 406-756-4200
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ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements -- Consolidated balance sheets of WesterFed
Financial Corporation and Subsidiaries as of December 31, 2000
and 1999 and the related consolidated statements of income,
stockholders' equity and comprehensive income, and cash flows
for the year ended December 31, 2000, the six months ended
December 31,1999 and the years ended June 30, 1999 and 1998.
(b) Pro forma financial information -- Unaudited Combined Condensed
Pro Forma Statement of Financial Condition as of December 31,
2000 and Unaudited Combined Condensed Pro Forma Statement of
Operations for the year ended December 31, 2000.
(c) Exhibits:
(23) Consent of KPMG LLP, independent auditors for WesterFed
Financial Corporation
(99) Press Release issued by Glacier Bancorp, Inc. and
WesterFed Financial Corporation, dated March 1, 2001 *
* Previously Filed
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: May 3, 2001
GLACIER BANCORP, INC.
By: /s/ Michael J. Blodnick
-----------------------------------
Michael J. Blodnick
President and
Chief Executive Officer
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ITEM 7(a)
WESTERFED FINANCIAL CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2000
(With Independent Auditors' Report Thereon)
5
Independent Auditors' Report
The Board of Directors
WesterFed Financial Corporation:
We have audited the accompanying consolidated balance sheets of WesterFed
Financial Corporation and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for the year ended December 31, 2000, the
six months ended December 31, 1999 and the years ended June 30, 1999 and 1998.
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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WesterFed Financial
Corporation and subsidiaries as of December 31, 2000 and 1999, and the results
of their operations and their cash flows for the year ended December 31, 2000,
the six months ended December 31, 1999 and the years ended June 30, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
Billings, Montana
February 23, 2001
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WesterFed Financial Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share data)
December 31, December 31,
2000 1999
------------ ------------
ASSETS
Cash and due from banks .................................................................... $ 17,400 20,233
Interest-bearing bank deposits ............................................................. 2,545 5,910
----------- ----------
Cash and cash equivalents ................................................... 19,945 26,143
Interest-bearing deposits .................................................................. 100 100
Investment securities available-for-sale (includes securities pledged to creditors with
the right to sell or repledge of $1,207 and $0 at December 31, 2000 and 1999,
respectively) ...................................................................... 140,945 187,488
Investment securities, at amortized cost (estimated fair value of $71,204 and $87,121
at December 31, 2000 and 1999, respectively; includes securities pledged
to creditors with the right to sell or repledge of $16,602 and $0 at
December 31, 2000 and 1999, respectively) .......................................... 69,665 86,877
Loans available-for-sale ................................................................... 3,041 4,470
Loans receivable, net ...................................................................... 623,131 616,281
Interest receivable ........................................................................ 6,629 7,492
Stock in Federal Home Loan Bank of Seattle, at cost ........................................ 13,062 15,154
Premises and equipment, net ................................................................ 25,110 27,477
Core deposit intangible .................................................................... 2,821 3,401
Goodwill ................................................................................... 14,097 14,763
Cash surrender value of life insurance policies ............................................ 8,562 8,164
Other assets ............................................................................... 2,069 3,075
----------- ----------
$ 929,177 1,000,885
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits ................................................................................... $ 606,100 658,404
Repurchase agreements ...................................................................... 9,032 7,731
Borrowed funds ............................................................................. 198,571 227,078
Advances from borrowers for taxes and insurance ............................................ 2,863 3,296
Income taxes -- current and deferred ....................................................... 1,376 597
Accrued interest payable ................................................................... 8,293 6,476
Accrued expenses and other liabilities ..................................................... 8,720 7,778
----------- ----------
Total liabilities ........................................................... 834,955 911,360
----------- ----------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none outstanding ............................................................ -- --
Common stock, $.01 par value, 10,000,000 shares authorized;
5,989,145 shares issued, 4,116,373 outstanding at December 31, 2000;
5,904,661 shares issued, 4,351,404 outstanding at December 31, 1999 ......... 57 56
Paid-in capital .................................................................... 71,115 70,040
Common stock acquired by ESOP/RRP .................................................. (1,825) (2,090)
Treasury stock, at cost; 1,872,772 and 1,553,257 at December 31, 2000 and
1999, respectively .......................................................... (33,537) (28,974)
Accumulated other comprehensive income (loss) ...................................... 170 (2,930)
Retained earnings .................................................................. 58,242 53,423
----------- ----------
Total stockholders' equity .................................................. 94,222 89,525
----------- ----------
Commitments and contingencies
$ 929,177 1,000,885
=========== ==========
Book value per common share outstanding .................................................... $ 22.89 20.57
=========== ==========
See accompanying notes to consolidated financial statements.
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WesterFed Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, --------------------
2000 1999 1999 1998
------------ ------------ ------ ------
Interest income:
Loans receivable ............................................... $ 52,714 25,980 53,773 56,261
Investment securities .......................................... 17,326 9,274 16,081 17,256
Interest-bearing deposits ...................................... 175 172 606 675
Other .......................................................... 459 180 338 332
-------- ------ ------ ------
Total interest income ............................ 70,674 35,606 70,798 74,524
-------- ------ ------ ------
Interest expense:
NOW and money market demand .................................... 4,118 1,947 3,379 3,321
Savings ........................................................ 1,981 1,097 2,264 2,658
Certificates of deposit ........................................ 20,100 9,398 20,444 21,824
-------- ------ ------ ------
26,199 12,442 26,087 27,803
Borrowed funds and repurchase agreements ....................... 14,165 6,943 13,157 14,483
-------- ------ ------ ------
Total interest expense ........................... 40,364 19,385 39,244 42,286
-------- ------ ------ ------
Net interest income ..................................... 30,310 16,221 31,554 32,238
Provision for loan losses .............................................. 2,600 880 1,300 840
-------- ------ ------ ------
Net interest income after provision for loan
losses ......................................... 27,710 15,341 30,254 31,398
-------- ------ ------ ------
Non-interest income:
Loan origination fees on loans sold ............................ 1,720 957 2,633 2,268
Service fees ................................................... 6,017 2,600 4,471 4,486
Net gain on sale of loans and securities available-for-sale .... (699) 290 1,149 1,053
Net gain on sale of branches ................................... 1,878 -- -- --
Other .......................................................... 593 118 1,045 574
-------- ------ ------ ------
Total non-interest income ........................ 9,509 3,965 9,298 8,381
-------- ------ ------ ------
Non-interest expense:
Compensation and employee benefits ............................. 11,945 6,156 13,695 13,149
Net occupancy expense of premises .............................. 1,843 781 2,035 2,153
Equipment and furnishings ...................................... 1,777 985 2,313 1,846
Data processing ................................................ 1,648 820 1,627 1,644
Deposit insurance premium ...................................... 129 170 344 358
Intangibles amortization ....................................... 1,245 673 1,443 1,391
Marketing and advertising ...................................... 662 475 616 789
Other .......................................................... 5,268 2,788 6,153 6,429
-------- ------ ------ ------
Total non-interest expense ....................... 24,517 12,848 28,226 27,759
-------- ------ ------ ------
Income before income taxes ....................... 12,702 6,458 11,326 12,020
Income taxes ........................................................... 4,883 2,483 4,403 4,760
-------- ------ ------ ------
Net income ....................................... $ 7,819 3,975 6,923 7,260
======== ====== ====== ======
Net income per common share:
Basic .......................................................... $ 1.98 0.93 1.43 1.37
======== ====== ====== ======
Diluted ........................................................ $ 1.91 0.89 1.37 1.29
======== ====== ====== ======
See accompanying notes to consolidated financial statements.
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WesterFed Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Dollars in thousands, except per share data)
Accumulated
other
Common Paid-in ESOP/ Treasury comprehensive Retained
stock capital RRP stock income (loss) earnings Total
------ ------- ------ -------- ------------- -------- --------
Balance at June 30, 1997 ............... $56 67,941 (2,936) (3,081) (35) 42,314 104,259
Comprehensive income:
Net income for the year ended
June 30, 1998 ..................... -- -- -- -- -- 7,260 7,260
Unrealized gain on securities
available-for-sale, net of
reclassification adjustment ....... -- -- -- -- 58 -- 58
--------
Total comprehensive income ...... 7,318
Purchase of treasury stock, at cost
-- 17,500 shares .................... -- -- -- (379) -- -- (379)
ESOP shares committed to be released ... -- 425 227 -- -- -- 652
Amortization of RRP .................... -- -- 188 -- -- -- 188
Shares forfeited by RRP participants
(75 shares) ......................... -- -- 1 (1) -- -- --
Common stock options exercised
(37,978 shares) ..................... -- 557 -- -- -- -- 557
Cash dividends declared ($.54 per
share) .............................. -- -- -- -- -- (2,895) (2,895)
--- ------- ------ ------- -------- ------- --------
Balance at June 30, 1998 ............... 56 68,923 (2,520) (3,461) 23 46,679 109,700
Comprehensive income:
Net income for the year ended
June 30, 1999 ..................... -- -- -- -- -- 6,923 6,923
Unrealized loss on securities
available-for-sale, net of
reclassification adjustment ....... -- -- -- -- (1,740) -- (1,740)
--------
Total comprehensive income ...... 5,183
Purchase of 1,082,854 shares of
treasury stock, net of
acquisition costs of $200 ........... -- -- -- (21,858) -- -- (21,858)
ESOP shares committed to be
released ............................ -- 245 227 -- -- -- 472
Amortization of RRP .................... -- -- 77 -- -- -- 77
Common stock options exercised
(36,116 shares) ..................... -- 404 -- -- -- -- 404
Cash dividends declared
($.62 per share) .................... -- -- -- -- -- (2,829) (2,829)
--- ------- ------ ------- -------- ------- --------
Balance at June 30, 1999 ............... 56 69,572 (2,216) (25,319) (1,717) 50,773 91,149
Comprehensive income:
Net income for the six months
ended December 31, 1999 ........... -- -- -- -- -- 3,975 3,975
Unrealized loss on securities
available-for-sale, net
of reclassification adjustment .... -- -- -- -- (1,213) -- (1,213)
Total comprehensive income ...... 2,762
Purchase of 219,006 shares of
treasury stock, at cost ............. -- -- -- (3,655) -- -- (3,655)
ESOP shares committed to be
released ............................ -- 92 113 -- -- -- 205
Amortization of RRP .................... -- -- 13 -- -- -- 13
Common stock options exercised
(35,716 shares) ..................... -- 443 -- -- -- -- 443
Security Bancorp shares not
exchanged (3,862 shares) ............ -- (67) -- -- -- -- (67)
Cash dividends declared ($0.315
per share) .......................... -- -- -- -- -- (1,325) (1,325)
--- ------- ------ ------- -------- ------- --------
Balance at December 31, 1999 ........... 56 70,040 (2,090) (28,974) (2,930) 53,423 89,525
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WesterFed Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND
COMPREHENSIVE INCOME, CONCLUDED
(Dollars in thousands, except per share data)
Accumulated
other
Common Paid-in ESOP/ Treasury comprehensive Retained
stock capital RRP stock income (loss) earnings Total
------ ------- ------ -------- ------------- ------- -------
Balance at December 31, 1999 .............. $56 70,040 (2,090) (28,974) (2,930) 53,423 89,525
Comprehensive income:
Net income for the year ended
December 31, 2000 .................... -- -- -- -- -- 7,819 7,819
Unrealized gain on securities available
-for-sale, net of reclassification
adjustment ........................... -- -- -- -- 3,100 -- 3,100
-------
Total comprehensive income ......... 10,919
Purchase of 319,515 shares of treasury
stock, at cost ......................... -- -- -- (4,563) -- -- (4,563)
ESOP shares committed to be released ...... -- 163 227 -- -- -- 390
Amortization of RRP ....................... -- -- 38 -- -- -- 38
Common stock options exercised
(84,484 shares) ........................ 1 912 -- -- -- -- 913
Cash dividends declared
($0.76 per share) ...................... -- -- -- -- -- (3,000) (3,000)
--- ------ ------ ------- ------ ------- -------
Balance at December 31, 2000 .............. $57 71,115 (1,825) (33,537) 170 58,242 94,222
=== ====== ====== ======= ====== ======= =======
A summary of the reclassification amounts and related tax effects for other
comprehensive income follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, --------------------
2000 1999 1999 1998
------------ ------------ ------ ----
Disclosure of reclassification amount:
Unrealized holding gains (losses)
arising during the period, net of income tax expense (benefit) of
$1,502, $(742), $(1,032), and $73 for the year ended December 31,
2000, the six months ended December 31, 1999 and the years ended
June 30, 1999 and 1998, respectively ............................... $2,439 (1,205) (1,685) 118
Reclassification adjustment for (gains) losses included in net income,
net of income tax of $(403), $5, $36 and $37 for the year ended
December 31, 2000, the six months ended December 31, 1999 and the
years ended June 30, 1999 and 1998,
respectively ....................................................... 661 (8) (55) (60)
------ ------ ------ ----
Net unrealized gain (loss) on
available-for-sale securities ...................................... $3,100 (1,213) (1,740) 58
====== ====== ====== ====
See accompanying notes to consolidated financial statements.
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WesterFed Financial Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ---------------------
2000 1999 1999 1998
------------ ----------- -------- --------
Net cash provided by operating activities ............... $ 39,197 17,935 39,663 30,735
----------- -------- -------- --------
Cash flows from investing activities:
Decrease (increase) in interest-bearing
deposits ................................. -- 1,885 (1,885) 1,900
Purchases of:
FHLB stock ............................... -- -- -- (1,129)
Investment securities .................... -- -- -- (5,483)
Investment securities available-for-sale . (18,738) (40,864) (204,637) (150,269)
Proceeds from maturities:
Investment securities .................... 3,813 38 7,636 16,316
Investment securities available-for-sale . 3,865 11,600 127,651 70,545
Proceeds from sales of:
Investment securities available-for-sale . 50,467 3,314 21,961 19,287
Real estate owned ........................ 215 321 204 --
Principal payments from:
Investment securities .................... 13,968 6,151 18,782 15,661
Investment securities available-for-sale . 14,655 8,053 13,729 11,392
Redemption of FHLB stock ................. 3,000 -- -- --
Decrease (increase) in loans receivable, net .... (20,757) 10,532 21,557 (24,516)
Proceeds from sales of premises and
equipment ................................ 1,057 33 611 1,162
Purchases of premises and equipment ............. (1,621) (317) (1,003) (5,682)
Purchase of life insurance policies ............. -- (1,087) -- (285)
Disposition of branches, net of cash
and net cash equivalents of $190 ......... (35,983) -- -- --
----------- -------- -------- --------
Net cash provided by (used in)
investing activities ....... 13,941 (341) 4,606 (51,101)
----------- -------- -------- --------
Cash flows from financing activities:
Net change in deposits .......................... (25,386) 755 (15,212) (21,366)
Net change in repurchase agreements ............. 1,301 1,029 469 (1,553)
Proceeds from borrowings ........................ 1,052,393 244,100 319,560 344,165
Payments on borrowings .......................... (1,080,920) (261,527) (324,078) (286,719)
Net change in advances from borrowers for
taxes and insurance ...................... (407) (6) (750) 299
Dividends paid to stockholders .................. (2,667) (1,536) (2,926) (2,729)
Proceeds from exercise of options and
stock issuances .......................... 913 443 404 557
Payments to acquire treasury stock .............. (4,563) (3,655) (21,858) (379)
----------- -------- -------- --------
Net cash provided by (used in)
financing activities ....... (59,336) (20,397) (44,391) 32,275
----------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents .... (6,198) (2,803) (122) 11,909
Cash and cash equivalents at beginning of period ........ 26,143 28,946 29,068 17,159
----------- -------- -------- --------
Cash and cash equivalents at end of period .............. $ 19,945 26,143 28,946 29,068
=========== ======== ======== ========
See accompanying notes to consolidated financial statements.
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WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
WesterFed Financial Corporation ("WesterFed," and collectively with its
subsidiary, the "Company") serves the financial needs of communities located in
western and central Montana through its wholly-owned subsidiary, Western
Security Bank (the "Bank"), a federally chartered savings bank. In addition to
traditional financial institution services, the Company provides insurance,
investment and other related services through Western Security Investment
Services, Inc., Service Corporation of Montana and Monte Mac I, Inc., all
wholly-owned subsidiaries of the Bank.
The Company's consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America.
All significant intercompany balances and transactions have been eliminated in
consolidation. In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from those
estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses. A
substantial portion of the Company's loans are secured by collateral in the
state of Montana. Accordingly, as with most financial institutions in the market
area, the collectibility of a substantial portion of the carrying value of the
Company's loan portfolio is susceptible to changes in market conditions.
Management believes 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 the
Company's market area and the composition of the loan portfolio. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
SEGMENT REPORTING
The Company currently operates in one significant business segment -- community
banking. Management evaluates the Company's performance and allocates resources
to this segment based on consolidated performance measurements consistent with
those of the consolidated financial statements.
CASH EQUIVALENTS
For purposes of the statements of cash flows, cash equivalents consist of daily
interest demand deposits, non-interest-bearing deposits with banks and
interest-bearing deposits having original maturities of three months or less.
At December 31, 2000, the Company was required to have aggregate reserves with
the Federal Reserve Bank of approximately $200.
INVESTMENT SECURITIES
Investment securities available-for-sale include securities that management
intends to use as part of its overall asset/liability management strategy and
that may be sold in response to changes in interest rates and resultant
prepayment risk and other related factors. Investment securities
available-for-sale are carried at fair value, and unrealized gains and losses
(net of related tax effects) are excluded from earnings and included as a
separate component of stockholders' equity. Upon realization, gains and losses
are included in earnings using the specific identification method. Investment
securities, other than those designated as available-for-sale or trading, are
comprised of debt securities for which the Bank has positive intent and ability
to hold to maturity and are carried at cost. Declines in the fair value of
held-to-maturity and available-for-sale investment securities below their cost
that are deemed to be other than temporary are reflected in earnings as realized
losses. All securities are adjusted for amortization of premiums and accretion
of discounts using the level-yield method over the estimated lives of the
securities.
12
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
Management determines the appropriate classification of investment and mortgage-
backed securities at the purchase date.
STOCK IN FEDERAL HOME LOAN BANK
Member institutions of the Federal Home Loan Bank (FHLB) system are required to
hold common stock of its district FHLB according to predetermined formulas. The
FHLB provides a source of borrowed funds for the Company which are secured, in
part, by this FHLB stock.
LOANS RECEIVABLE, NET
Loans receivable, other than loans available-for-sale, are stated at the unpaid
principal balance, net of premiums, unearned discounts, net deferred loan
origination fees, and the allowance for loan losses.
Loans are placed on nonaccrual status when collection of principal or interest
is considered doubtful (generally loans past due 90 days or more). Interest
income previously accrued on these loans, but not yet received, is reversed in
the current period. Interest subsequently recovered is credited to income in the
period collected. Discounts are accreted and premiums are amortized to income
using the level-yield method over the estimated lives of the loans.
Loan fees and certain direct loan origination costs are deferred, and the net
fee or cost is recognized in interest income using the level-yield method over
the contractual life of the individual loans, adjusted for actual prepayments.
Amortization of deferred loan origination fees are suspended during periods in
which the related loan is on nonaccrual status.
Loans available-for-sale are carried at the lower of cost or market using the
aggregate method. Valuation adjustments, if applicable, are reflected in current
operations. Gains and losses on sales, resulting from the difference between
sales proceeds and the underlying carrying value, are recorded using the
specific identification method. A sale is recognized when control over the
underlying loan is surrendered and exchanged for consideration other than
beneficial interests in the loan sold.
Management determines the appropriate classification of loans as either held to
maturity or available-for-sale at origination, in conjunction with the Company's
overall asset/liability management strategy.
The cost of loan servicing rights is included in other assets and amortized in
proportion to, and over the period of, estimated net servicing revenues.
The carrying value of loan servicing rights and the amortization thereon is
periodically evaluated in relation to estimated future net servicing revenues.
Servicing assets are evaluated for impairment based upon the fair value of the
rights as compared to amortized cost. Impairment is determined by stratifying
rights by predominant characteristics, such as interest rates and terms. Fair
value is determined using prices for similar assets with similar
characteristics, when available, or based upon discounted cash flows using
market-based assumptions. Impairment is recognized through a valuation allowance
for an individual stratum, to the extent that fair value is less than the
capitalized amount for the stratum.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's evaluation of the
adequacy of the allowance, including an assessment of known and inherent risks
in the portfolio, review of individual loans for adverse situations that may
affect the borrower's ability to repay, the estimated value of any underlying
collateral, and consideration of current economic conditions.
Additions to the allowance arise from charges to operations through the
provision for loan losses or from the recovery of amounts previously charged
off. The allowance is reduced by loan charge-offs. Loans are charged off when
management believes there has been permanent impairment of their carrying
values.
2
13
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
The Company also provides an allowance for losses on specific loans which are
deemed to be impaired. Groups of small balance homogeneous basis loans
(generally the Company's consumer loans) are evaluated for impairment
collectively. A loan is considered impaired when, based upon current information
and events, it is probable that the Bank will be unable to collect, on a timely
basis, all principal and interest according to the contractual terms of the
loan's original agreement. When a specific loan is determined to be impaired,
the allowance for possible loan losses is increased through a charge to expense
for the amount of the impairment. For all non-consumer loans, impairment is
measured based on value of the underlying collateral. The value of the
underlying collateral is determined by reducing the collateral's estimated
current value by anticipated selling costs. The Company's impaired loans are the
same as those non-consumer loans currently reported as non-accrual. The Company
recognizes interest income on impaired loans only to the extent that cash
payments are received.
REAL ESTATE OWNED
Real estate owned is recorded at the fair value at the date of acquisition, with
a charge to the allowance for loan losses for any excess of cost over fair
value. Subsequently, real estate owned is carried at the lower of cost or fair
value, less estimated selling costs. Certain costs incurred in preparing
properties for sale are capitalized, and expenses of holding foreclosed
properties are charged to operations as incurred. Other assets include $291 and
$168 of real estate and other personal property acquired through foreclosure at
December 31, 2000 and 1999, respectively.
CASH SURRENDER VALUE OF LIFE INSURANCE
The Company has acquired life insurance policies covering certain key employees
for which the Company is the beneficiary. The Company makes one-time lump-sum
payments as key employees are identified. Earnings on the premiums paid are
expected to exceed future premiums and expenses associated with the policies and
thus result in an increase in the cash surrender value of the policies.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold improvements, are stated at cost,
less accumulated amortization and depreciation. Depreciation and amortization
are computed using the straight-line and double declining balance methods over
the estimated useful lives of the assets or leases ranging from 5 to 40 years.
GOODWILL
Goodwill reflects the excess of cost over fair value of identifiable net assets
which were acquired during 1997. Goodwill is amortized over 25 years.
Accumulated amortization as of December 31, 2000 and 1999 was $2,498 and $1,832,
respectively.
CORE DEPOSIT INTANGIBLE
Core deposit intangible represents the intangible value of depositor
relationships resulting from deposit liabilities assumed in a 1997 acquisition
and is amortized using an accelerated method based on an estimated runoff of the
related deposits, not exceeding 10 years. Accumulated amortization as of
December 31, 2000 and 1999 was $2,787 and $2,207, respectively.
LONG-LIVED ASSETS
Long-lived tangible and intangible assets including goodwill are reviewed for
impairment whenever events or circumstances provide evidence that suggests the
carrying amount of the asset may not be recoverable. An impairment loss is
recognized if the sum of the undiscounted expected future cash flows is less
than the carrying amount of the asset. The amount of the impairment loss, if
any, is based on the asset's fair value which may be estimated by discounting
the expected future cash flows.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted tax
rates applicable to taxable income for 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.
3
14
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
WesterFed and its subsidiaries file consolidated Federal and state income tax
returns.
FINANCIAL INSTRUMENTS
The Company periodically enters into interest rate exchange agreements (Swaps)
and interest rate cap agreements (Caps) as part of its overall asset/liability
management strategies. Estimated amounts to be received or paid on the Swap
settlement dates are accrued when realized. The net Swap settlements are
reflected in interest expense. Transaction fees on Caps are amortized to
interest expense over the life of the related Caps using the straight-line
method. Any payments received on Caps are reflected in operations.
STOCK BASED COMPENSATION
The cost of stock based compensation issued to third parties is measured at the
grant date based on the fair value of the award. For grants to employees,
compensation cost is the excess of the market price of the stock at the grant
date over the amount an employee must pay to acquire the stock.
COMPREHENSIVE INCOME
Comprehensive income includes net income, as well as other changes in
stockholders' equity that result from transactions and economic events other
than those with stockholders. The Company's only significant element of other
comprehensive income is unrealized gains and losses on available-for-sale
investment securities.
EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period less
unvested RRP and unallocated ESOP shares. Diluted earnings per common share is
calculated by dividing net income by the weighted average number of common
shares used to compute basic EPS plus the incremental amount of potential common
stock determined by the treasury stock method.
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1999 and June 30,
1999 and 1998 financial statements to conform with the December 31, 2000
presentation.
(2) CHANGE IN FISCAL YEAR
Effective December 31, 1999, WesterFed changed its reporting period from a
fiscal year ended June 30 to a calendar year end. Accordingly, results of
operations for the transition period ended December 31, 1999 cover a six-month
period. The following condensed statements of income present financial data for
the six months ended December 31, 2000 and the comparable six month period of
the prior year. These statements are for comparative purposes only.
Six Months Ended
December 31,
-----------------------
2000 1999
----------- -------
(Unaudited)
Interest income ............................................. $ 35,195 35,606
Interest expense ............................................ 20,097 19,385
-------- -------
Net interest income ....................................... 15,098 16,221
Provision for loan losses ................................... (1,700) (880)
-------- -------
Net interest income after provision for loan losses ....... 13,398 15,341
4
15
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
Six Months Ended
December 31,
-----------------------
2000 1999
----------- -------
(Unaudited)
Noninterest income .......................................... $ 4,716 3,965
Noninterest expense ......................................... (11,735) (12,848)
-------- -------
Income before income tax expense .......................... 6,379 6,458
Income tax expense .......................................... (2,454) (2,483)
-------- -------
Net income ................................................ $ 3,925 3,975
======== =======
Net income per common share:
Basic ..................................................... $ 1.00 0.93
======== =======
Diluted ................................................... $ 0.97 0.89
======== =======
(3) REGULATORY MATTERS
WesterFed's ability to pay dividends is dependent upon the dividends it receives
from the Bank, which are subject to regulations and the Bank's continued
compliance with all regulatory capital requirements as specified by the Office
of Thrift Supervision (OTS). A "Tier 1" institution, which is defined as an
institution that has capital immediately prior to a proposed capital
distribution that is equal to or greater than the amount of its fully phased-in
capital requirement, is authorized to make capital distributions during a
calendar year up to the higher of 100% of its net income to date during the
calendar year plus the amount that would reduce by one-half its surplus capital
ratio at the beginning of the calendar year, or 75% of its net income over the
most recent four-quarter period. The Bank is a Tier 1 institution.
The OTS has amended its capital distribution regulation effective April 1, 1999.
Associations that are subsidiaries of a savings and loan holding company must
file a notice with the OTS at least 30 days before the proposed declaration of a
dividend or approval of the proposed capital distribution by its Board of
Directors. In addition, the savings institution now must obtain prior approval
from the OTS if it fails to meet certain regulatory conditions or if, after
giving effect to the proposed distribution, the institution's capital
distributions in a calendar year would exceed its year-to-date net income plus
retained net income for the preceding two years or the association would not be
at least adequately capitalized.
The Bank may also not declare or pay a cash dividend on, or repurchase any of,
its common stock if the effect thereof would cause the regulatory capital of the
Bank to be reduced below the amount required for a liquidation account, which
was established at the date the Bank completed its conversion from a mutual to a
stock form of savings bank.
Capital standards require the Bank to have minimum regulatory tangible capital
equal to 1.5% of adjusted total assets, a minimum 3.0% core capital ratio and an
8.0% risk-based capital ratio. In addition, federal banking agencies have
adopted regulations which establish a system for prompt regulatory corrective
action with respect to depository institutions which do not meet minimum capital
requirements. The "prompt corrective action" (PCA) regulations established five
categories related to the level of capital of the depository institution: (1)
well-capitalized, (2) adequately capitalized, (3) under-capitalized, (4)
significantly undercapitalized, and (5) critically undercapitalized. At December
31, 2000, the most recent notification from the OTS categorized the Bank as well
capitalized for PCA purposes.
5
16
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
The Bank's compliance with capital requirements follows:
Minimum to Minimum
be adequately to be well
capitalized under capitalized under
prompt corrective prompt corrective
Actual action provision action provision
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ -------- ------ -------- ------
As of December 31, 2000:
Total capital (to risk-weighted assets) ............ $ 80,199 13.50% $ 47,537 8.00% $ 59,421 10.00%
Core (Tier 1) capital (to risk-weighted assets) .... 73,925 12.44 23,768 4.00 35,653 6.00
Core (Tier 1) capital (to adjusted assets) ......... 73,925 8.14 36,312 4.00 45,390 5.00
Tangible capital (to tangible assets) .............. 73,925 8.14 13,617 1.50 13,617 1.50
======== ====== ======== ====== ======== ======
As of December 31, 1999:
Total capital (to risk-weighted assets) ............ $ 74,336 12.09% $ 49,179 8.00% $ 61,473 10.00%
Core (Tier 1) capital (to risk-weighted assets) .... 69,142 11.25 24,589 4.00 36,884 6.00
Core (Tier 1) capital (to adjusted assets) ......... 69,142 7.06 39,177 4.00 48,971 5.00
Tangible capital (to tangible assets) .............. 69,142 7.06 14,691 1.50 14,691 1.50
======== ====== ======== ====== ======== ======
The following is a reconciliation of total stockholders' equity as shown on the
consolidated balance sheet and tangible, core and risk-based regulatory capital
of the Bank at December 31, 2000 and 1999:
December 31, December 31,
2000 1999
------------ ------------
Total stockholders' equity .................................................... $ 94,222 89,525
Less: Nonqualifying equity of WesterFed and nonqualifying subsidiaries ...... (2,861) (4,622)
Goodwill and other intangibles ........................................ (16,918) (18,164)
Nonqualifying mortgage loan servicing ................................. (355) (527)
Unrealized (gains) losses on certain securities available-for-sale .... (163) 2,930
-------- --------
Tangible and Core capital ..................................................... 73,925 69,142
Add: Allowance for loan losses ............................................. 7,356 5,161
Unrealized gain on certain available-for-sale equity securities ....... 46 33
Equity investments and other assets ................................... (1,128) --
-------- --------
Risk-based capital ............................................................ $ 80,199 $ 74,336
======== ========
6
17
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
(4) INVESTMENT SECURITIES
The amortized cost and estimated fair values of investment securities follow:
December 31, 2000
--------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
INVESTMENT SECURITIES HELD-TO-MATURITY:
Corporate obligations ................................... $ 3,999 2 -- 4,001
Other investments ....................................... 2,088 495 -- 2,583
-------- -------- -------- --------
6,087 497 -- 6,584
Mortgage-backed securities .............................. 63,578 1,197 (155) 64,620
-------- -------- -------- --------
Total investment securities held-to-maturity ......... $ 69,665 1,694 (155) 71,204
======== ======== ======== ========
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
Federal agency obligations .............................. $ 39,653 104 (258) 39,499
Corporate obligations ................................... 14,851 99 (74) 14,876
Other ................................................... 3,772 310 -- 4,082
-------- -------- -------- --------
58,276 513 (332) 58,457
Mortgage-backed securities .............................. 82,395 474 (381) 82,488
-------- -------- -------- --------
Total investment securities available-for-sale ....... $140,671 987 (713) 140,945
======== ======== ======== ========
December 31, 1999
--------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
--------- ---------- ---------- ---------
INVESTMENT SECURITIES HELD-TO-MATURITY:
Corporate obligations ................................... $ 6,991 7 (17) 6,981
Other investments ....................................... 2,214 -- -- 2,214
-------- -------- -------- --------
9,205 7 (17) 9,195
Mortgage-backed securities .............................. 77,672 738 (484) 77,926
-------- -------- -------- --------
Total investment securities held-to-maturity ......... $ 86,877 745 (501) 87,121
======== ======== ======== ========
INVESTMENT SECURITIES AVAILABLE-FOR-SALE:
Federal agency obligations .............................. $ 87,331 -- (2,164) 85,167
Corporate obligations ................................... 18,432 6 (378) 18,060
Other ................................................... 2,893 92 -- 2,985
-------- -------- -------- --------
108,656 98 (2,542) 106,212
Mortgage-backed securities .............................. 83,563 229 (2,516) 81,276
-------- -------- -------- --------
Total investment securities available-for-sale ....... $192,219 327 (5,058) 187,488
======== ======== ======== ========
7
18
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
Expected maturities may differ from contractual maturities because issuers may
have the right to call or repay obligations at par value without prepayment
penalties. The cost and estimated fair value of investment securities at
December 31, 2000, by contractual maturity, are shown below:
Fair
Cost value
------- ------
INVESTMENT SECURITIES HELD-TO-MATURITY
Due in:
Less than one year ................................... $ 999 1,000
One to five years .................................... 3,199 3,226
Five to ten years .................................... 331 436
After ten years ...................................... 1,558 1,922
------- ------
$ 6,087 6,584
======= ======
INVESTMENT SECURITIES AVAILABLE-FOR-SALE
Due in:
Less than one year ................................... $ 9,256 9,245
One to five years .................................... 41,024 40,962
Five to ten years .................................... 2,649 2,660
After ten years ...................................... 5,344 5,484
Other ................................................ 3 106
------- ------
$58,276 58,457
======= ======
Gross proceeds from sales of investment securities available-for-sale for the
year ended December 31, 2000, the six months ended December 31, 1999 and for the
years ended June 30, 1999 and 1998 were $50,467, $3,314, $21,961, and $19,287,
respectively. These sales resulted in gross gains of $18, $13, $89 and $108 for
the year ended December 31, 2000, the six months ended December 31, 1999 and for
the years ended June 30, 1999 and 1998, respectively, and gross losses of
$1,082, $0, $0 and $11 for the year ended December 31, 2000, the six months
ended December 31, 1999 and for the years ended June 30, 1999 and 1998,
respectively.
Pursuant to a collateral agreement with the FHLB, all unpledged, qualifying
investment securities, including those available-for-sale, are pledged to secure
advances from the FHLB.
Expected maturities of mortgage-backed securities will differ from contractual
maturities because issuers may have the right to prepay obligations with or
without penalties. The contractual weighted average life of mortgage-backed
securities is approximately 14 years at December 31, 2000.
Mortgaged backed securities with amortized cost of $35,537 and $38,621 at
December 31, 2000 and 1999, respectively, were pledged to secure public deposits
and securities sold under repurchase agreements. The approximate market value of
securities pledged at December 31, 2000 and 1999 was $36,016 and $38,597,
respectively. All pledged securities are held in a custody account by a third
party.
8
19
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
(5) LOANS RECEIVABLE
A summary of loans receivable follows:
December 31, December 31,
2000 1999
------------ ------------
Loans secured by real estate:
1-4 residential units .............................. $ 234,803 259,570
5 or more residential units ........................ 30,356 35,563
Construction ....................................... 34,605 18,775
Commercial ......................................... 95,183 78,833
Agriculture ........................................ 14,701 11,625
Other nonresidential ............................... 11,075 8,348
FHA insured or VA guaranteed ....................... 5,350 6,781
--------- ---------
Total real estate loans ..................... 426,073 419,495
Less:
Net deferred loan origination fees ................. (919) (1,145)
Undisbursed loan funds ............................. (5,005) (5,240)
Purchased discounts ................................ (646) (852)
Allowance for loan losses .......................... (1,735) (2,353)
--------- ---------
Net real estate loans ....................... 417,768 409,905
Other loans:
Commercial (Non real estate) ....................... 59,244 45,361
Agriculture (Non real estate) ...................... 21,195 22,825
Loans to depositors, secured by deposits ........... 1,183 1,387
Indirect consumer loans ............................ 32,017 54,418
Other consumer loans -- real estate secured ........ 35,381 36,153
Other consumer loans ............................... 65,005 53,510
Allowance for loan losses .......................... (5,621) (2,808)
--------- ---------
Net other loans ............................. 208,404 210,846
--------- ---------
Net loans .................................................. 626,172 620,751
Less loans available-for-sale .............................. (3,041) (4,470)
--------- ---------
Loans receivable, net ...................................... 623,131 $ 616,281
========= =========
A summary of nonperforming loans follows:
December 31, June 30,
---------------- ----------------
2000 1999 1999 1998
------ ------ ------ ------
Nonaccrual loans ........................... $4,021 2,893 3,049 3,989
Loans 90 days or more delinquent
and still accruing ................. -- 60 775 626
------ ------ ------ ------
Total nonperforming loans .......... $4,021 2,953 3,824 4,615
====== ====== ====== ======
Contractual interest due ................... $ 292 193 223 271
====== ====== ====== ======
9
20
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(Dollars in thousands, except per share data)
Interest income recognized on nonaccrual loans during the year ended December
31, 2000 and the six months ended December 31, 1999 and for the years ended June
30, 1999 and 1998 was insignificant. At December 31, 2000, there were no
commitments to lend additional funds to borrowers whose loans are classified as
nonperforming.
Impaired loans at December 31, 2000 and 1999 are $3,312 and $2,385,
respectively, of which no impairment allowance was deemed necessary. The average
recorded investment in impaired loans for the year ended December 31, 2000 and
the six months ended December 31, 1999 and for the years ended June 30, 1999 and
1998 was approximately $2,849, $2,111, $2,161 and $1,715, respectively. Interest
income recognized on impaired loans for the year ended December 31, 2000 and the
six months ended December 31, 1999 and for the years ended June 30, 1999 and
1998 was not significant.
An analysis of the allowance for loan losses follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ----------------------
2000 1999 1999 1998
------------ ------------ ------ ------
Balance at beginning of period ............. $ 5,161 5,079 4,907 4,651
Provision charged to operations ............ 2,600 880 1,300 840
Charge-offs ................................ (745) (986) (1,228) (637)
Recoveries ................................. 340 188 100 53
------- ------ ------ ------
Balance at end of period ................... $ 7,356 5,161 5,079 4,907
======= ====== ====== ======
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. The unpaid balances of these loans were
approximately $212,700, $219,800, $223,400 and $260,300 at December 31, 2000 and
1999 and June 30, 1999 and 1998, respectively.
Mortgage servicing rights are included in other assets and an analysis of
activity follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ----------------------
2000 1999 1999 1998
------------ ------------ ------ ------
Balance at beginning of period ............. $ 527 602 1,062 1,239
Additions .................................. 24 15 23 37
Amortization ............................... (196) (90) (213) (214)
Provision for impairment ................... -- -- (270) --
----- ---- ------ ------
Balance at end of period ................... $ 355 527 602 1,062
===== ==== ====== ======
At December 31, 2000, the fair value of all mortgage servicing rights was
approximately $3,344. The fair value was obtained from the Office of Thrift
Supervision Risk Management Division.
10
21
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(6) INTEREST RECEIVABLE
A summary of interest receivable follows:
December 31, December 31,
2000 1999
------------ ------------
Loans ................................................. $4,662 4,445
Investment securities ................................. 1,967 3,044
Interest-bearing deposits ............................. -- 3
------ -----
$6,629 7,492
====== =====
(7) PREMISES AND EQUIPMENT
Premises and equipment is summarized as follows:
December 31, December 31,
2000 1999
------------ ------------
Land ................................................ $ 5,567 5,822
Office buildings and leasehold improvements ......... 25,759 26,847
Furniture, fixtures and equipment ................... 10,580 10,814
-------- -------
41,906 43,483
Less accumulated depreciation and amortization ...... (16,796) (16,006)
-------- -------
$ 25,110 27,477
======== =======
(8) DEPOSITS
Deposits are summarized as follows:
December 31, December 31,
2000 1999
------------ ------------
Certificates of deposit ....................... $335,582 371,486
Savings accounts .............................. 71,769 87,206
Money market accounts ......................... 78,162 78,482
NOW accounts .................................. 78,290 82,506
-------- -------
Total interest-bearing ................ 563,803 619,680
Noninterest-bearing demand .................... 42,297 38,724
-------- -------
$606,100 658,404
======== =======
11
22
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Certificates of deposit at December 31, 2000 mature as follows:
Less One to Two to Three Four to
than two three to four five There-
one year years years years years after Total
--------- ------ ------ ------- -------- ------ -------
2.00% to 3.99%.............................. $ 1,835 53 5 1 -- -- 1,894
4.00% to 4.99%.............................. 9,579 1,538 151 252 -- -- 11,520
5.00% to 5.99%.............................. 52,399 8,073 2,998 1,707 426 22 65,625
6.00% to 6.99%.............................. 177,638 13,829 6,248 237 3,374 -- 201,326
7.00% to 8.99%.............................. 5,926 381 241 10 65 -- 6,623
--------- ------ ------ ----- ----- ---- -------
247,377 23,874 9,643 2,207 3,865 22 286,988
Jumbo ($100,000 or more).................... 43,591 2,508 2,028 245 222 -- 48,594
--------- ------ ------ ----- ----- ---- -------
Total certificates of deposit....... $ 290,968 26,382 1,671 2,452 4,087 22 335,582
========= ====== ====== ===== ===== ==== =======
(9) REPURCHASE AGREEMENTS
Repurchase agreements generally mature on the next banking day. The securities
underlying agreements to repurchase are for the same securities originally sold
and are held in a custody account by a third party. For the years ended December
31, 2000 and 1999, securities sold under agreements to repurchase averaged
approximately $7,347 and $7,995, respectively. The maximum outstanding at any
month end during the years ended December 31, 2000 and 1999 was approximately
$10,146 and $9,568, respectively. Interest rates at December 31, 2000 and 1999
were 5.44% and 4.92%, respectively.
(10) BORROWED FUNDS
Advances from the FHLB and other borrowings are summarized as follows:
December 31, December 31,
2000 1999
------------ ------------
Advances from FHLB ........................... $198,404 226,769
8.5% contract payable ........................ 167 186
Collateralized mortgage obligations .......... -- 123
-------- --------
$198,571 227,078
======== ========
Advances from FHLB bear interest at rates from 4.77% to 8.11% (weighted average
rate of 6.30% at December 31, 2000). Principal requirements are presented at the
earlier of call or maturity date as follows:
Years ending December 31,
-------------------------
2001............................................. $125,430
2002............................................. 45,746
2003............................................. 9,895
2004............................................. 6,307
2005............................................. 2,234
Thereafter....................................... 8,792
--------
$198,404
========
12
23
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Advances from the FHLB are secured by pledges of FHLB stock of $13,062 and
$15,154 at December 31, 2000 and 1999, respectively, and a blanket assignment of
the Bank's unpledged, qualifying mortgage loans and investment securities.
The contract payable requires monthly payments of principal and interest of $3,
maturing in November 2016. The contract payable is secured by real estate. The
Bank has amounts available for borrowing under the FHLB Cash Management Advance
Program up to $99,461. There was $800 outstanding at December 31, 2000. There
were no amounts outstanding under the program as of December 31, 1999.
(11) INCOME TAXES
A summary of the provision for income taxes follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, -------------------
2000 1999 1999 1998
------------ ------------ ----- -----
Federal:
Current ............. $ 5,027 2,034 3,469 3,582
Deferred ............ (1,025) 2 141 315
------- ------ ----- -----
4,002 2,036 3,610 3,897
------- ------ ----- -----
State:
Current ............. 1,056 426 762 753
Deferred ............ (175) 21 31 110
------- ------ ----- -----
881 447 793 863
------- ------ ----- -----
$ 4,883 2,483 4,403 4,760
======= ====== ===== =====
The effective tax rates for the year ended December 31, 2000, the six months
ended December 31, 1999 and for the years ended June 30, 1999 and 1998 are
38.4%, 38.4%, 38.9% and 39.6%, respectively. A reconciliation between income tax
expense and the amount computed by multiplying the applicable statutory federal
income tax rate of 34% follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ----------------------
2000 1999 1999 1998
------------ ------------ ------ ------
Computed "expected" Federal tax expense .................... $ 4,319 2,196 3,851 4,086
Earnings and payout on life insurance policies ............. (131) (56) (147) (99)
State income taxes, net of Federal income tax benefit ...... 581 295 523 567
Goodwill amortization ...................................... 226 113 226 215
Low income housing credit .................................. (77) (75) (75) (77)
Other ...................................................... (35) 10 25 68
------- ----- ----- -----
$ 4,883 2,483 4,403 4,760
======= ===== ===== =====
13
24
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
The tax effects of temporary differences that give rise to deferred tax assets
and liabilities are as follows:
December 31, December 31,
2000 1999
------------ ------------
DEFERRED TAX ASSETS:
Loans, principally allowance for loan losses ................................... $2,829 1,985
Employee benefits, principally deferred compensation and accrued vacation ...... 1,328 1,194
Purchased excess tax bases ..................................................... 988 1,106
Loans, principally differences in bases ........................................ 249 328
Investment securities, principally differences in bases ........................ 525 633
Market value adjustment of investment securities available-for-sale ............ -- 1,801
------ -----
Gross deferred income tax assets ................................. 5,919 7,047
------ -----
DEFERRED TAX LIABILITIES:
FHLB stock dividends ........................................................... 3,964 3,614
Fixed assets, principally difference in bases and depreciation ................. 1,331 1,576
Core deposit intangible ........................................................ 1,085 1,308
Deferred loan fees and origination costs ....................................... 288 340
Market value adjustment of investment securities available-for-sale ............ 104 --
Life insurance contract income ................................................. 52 49
Loans, due primarily to tax bad debt reserves in excess of base year amount .... 80 284
Loan servicing premium ......................................................... 62 104
Other .......................................................................... 216 330
------ -----
Gross deferred income tax liabilities ............................ 7,182 7,605
------ -----
Net deferred income tax liability ..................................... $1,263 558
====== =====
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the existence of, or generation of, taxable income in the periods
which those temporary differences are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in carryback years,
projected future taxable income, and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projection for
future taxable income over the periods which the deferred tax assets are
deductible, at December 31, 2000, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences.
(12) COMMITMENTS AND CONTINGENCIES
The Company leases certain land, premises and equipment from third parties under
operating leases. Total rental expense for the year ended December 31, 2000, the
six months ended December 31, 1999 and for the years ended June 30, 1999 and
1998 was $186, $97, $198 and $197, respectively. The total future minimum rental
commitments required under operating leases that have initial or remaining
noncancelable lease terms in excess of one year at December 31, 2000 are as
follows:
Years ended December 31, Amount
------------------------ -------
2001 $ 150
2002 137
2003 137
2004 137
2005 137
Thereafter 1,167
-------
Total minimum future rental expense $ 1,865
=======
14
25
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
The Company is the lessor of office space in certain of its branch office
buildings under operating leases expiring in future years. Management expects as
operating leases expire in the normal course of business, they will be renewed
or replaced by leases on other properties at current market rental rates at the
time of renewal. Approximate minimum future rentals to be received under
non-cancelable leases subsequent to December 31, 2000 are as follows:
Years ended December 31, Amount
------------------------ ------
2001 $ 648
2002 215
2003 110
2004 71
------
Total minimum future rental income $1,044
======
The Bank is a defendant in various matters of litigation generally incidental to
its business. In the opinion of management, following consultation with legal
counsel, liabilities arising from these proceedings, if any, will not have a
material impact on the Company's liquidity, financial condition or results of
operations.
On February 15, 2000 the Company announced the authorization of a plan to
repurchase up to 7.5% of its outstanding shares in the open market during a
twelve month period depending on market conditions. During the year ended
December 31, 2000, the Company repurchased 319,500 shares under this plan.
(13) EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
Effective July 1, 1993 the Board of Directors approved the adoption of an ESOP
covering substantially all employees. The ESOP purchased 354,933 shares of
WesterFed's common stock for $10 per share in connection with the conversion to
stock ownership. The ESOP borrowed $3,549 from WesterFed to fund the purchase,
evidenced by a note receivable recorded by WesterFed, secured by the common
stock purchased by the ESOP. The terms of the note require quarterly principal
payments from the ESOP of approximately $57, bearing interest at 7.26%, maturing
December 2008. Contributions of cash or common stock are made from the Bank to
the ESOP at the discretion of the Board of Directors. Dividends on common shares
held by the ESOP are paid to the ESOP and, together with Bank contributions, are
used by the ESOP to repay principal and interest on the outstanding note. For
financial reporting purposes, the note receivable is classified as a reduction
of consolidated stockholders' equity and amounts paid to WesterFed for interest
have been eliminated in consolidation. The dividends on the unallocated ESOP
shares are not recorded as dividends in the consolidated statements of
stockholders' equity.
The Company records compensation expense equal to the fair value of shares at
the date such shares are made available for allocation to plan participants'
accounts. Shares become available for allocation as the ESOP repays the note
receivable recorded by WesterFed. The Company recognized expense relating to the
ESOP of $305, $150, $372 and $580 for the years ended December 31, 2000, the six
months ended December 31, 1999 and the years ended June 30, 1999 and 1998,
respectively.
The ESOP shares were as follows:
December 31, December 31,
2000 1999
------------ ------------
Allocated shares ....................................... 202,925 179,128
Unallocated shares ..................................... 152,008 175,805
-------- --------
Original ESOP common shares ........................ 354,933 354,933
Shares distributed to participants ..................... (49,198) (31,718)
-------- --------
Common shares held by ESOP ............................. 305,735 323,215
======== ========
At December 31, 2000, the fair value of the unallocated shares was approximately
$3,306,000.
15
26
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
STOCK OPTION AND INCENTIVE PLAN
The stockholders have approved a Stock Option and Incentive Plan (the Stock
Option Plan). The terms of the Stock Option Plan provide for the granting of up
to 443,665 shares of common stock to certain officers and directors. The Stock
Option Plan provides for the granting of incentive stock options, nonqualified
stock options, stock appreciation rights, limited stock appreciation rights, or
restricted stock, or any combination thereof (collectively, the Awards).
At June 30, 1997, the Company had granted all options available (the options)
under the Stock Option Plan. The term of the outstanding options may not exceed
10 years from the date the options are granted. Stock options are generally
granted at an option price of not less than the fair market value of the related
stock at the grant date. For incentive stock options, a maximum of 10,000 shares
per Stock Option Plan participant are exercisable per year. All stock options
awarded were exercisable at the grant date.
EQUITY INCENTIVE PLAN
In conjunction with the acquisition of Security Bancorp (see Note 25), the
stockholders of the Company approved the Equity Incentive Plan (the "Incentive
Plan"). The Incentive Plan provides for granting various awards to directors,
officers, and employees of WesterFed or any of its subsidiary corporations of
various awards up to 250,000 shares of Common Stock. The Incentive Plan provides
for awards in the form of stock options, stock appreciation rights, other
securities and property and restricted stock (collectively, Incentive Awards).
The Company has granted Incentive Awards in the form of stock options during the
year ended December 31, 2000, the six months ended December 31, 1999 and the
year ended June 30, 1999 which allow holders to acquire 50,000, 48,500 and
50,000 common shares, respectively. The term of the options may not exceed 15
years from the date the options are granted. The exercise price for the purchase
of shares subject to a stock option may not be less than 100% of the market
value of the shares covered by the option on the date of grant. During any
calendar year, no participant may be granted Incentive Awards under the
Incentive Plan with respect to more than 50,000 shares. There were no awards
granted in the year ended June 30, 1998.
The Board of Directors of the Company periodically grants stock options on a
discretionary basis to employees. During the year ended June 30, 1999,
discretionary options were granted for the option holder to acquire 10,000
shares. There were no such grants in the year ended December 31, 2000, the six
months ended December 31, 1999 or the year ended June 30, 1998.
RECOGNITION AND RETENTION PLAN (RRP)
Under the RRP, common stock has been granted to certain officers, directors and
employees. Deferred compensation is recorded at the date of the stock award
based on the fair value of the shares granted. Vesting occurs in four equal,
annual installments and the related deferred compensation is expensed over the
same period. For financial reporting purposes the unamortized deferred
compensation balance is classified as a reduction of consolidated stockholders'
equity. Officers, directors and employees awarded shares retain voting rights
and, if dividends are paid, dividend privileges during the vesting period. RRP
compensation expense of $38, $13, $77 and $188 has been recorded for the year
ended December 31, 2000, the six months ended December 31, 1999 and for the
years ended June 30, 1999 and 1998, respectively.
The following table reflects option activity for both the Stock Option Plan and
Incentive Plan:
Common Weighted Average
Shares Exercise Price
------- ----------------
Year ending June 30, 1998:
Options outstanding, beginning of period .... 572,804 $11.25
Granted ..................................... -- --
Exercised ................................... (37,978) 14.67
-------
Outstanding, end of period .................. 534,826 11.34
=======
Exercisable, end of period .................. 533,340 11.34
=======
16
27
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Common Weighted Average
Shares Exercise Price
------- ----------------
Year ending June 30, 1999:
Granted ................................. 60,000 $ 16.16
Exercised ............................... (36,116) 11.19
-------
Outstanding, end of period .............. 558,710 12.11
=======
Exercisable, end of period .............. 483,510 11.20
=======
Six months ending December 31, 1999:
Granted ................................. 48,500 16.50
Exercised ............................... (35,716) 12.40
-------
Outstanding, end of period .............. 571,494 12.61
=======
Exercisable, end of period .............. 447,794 11.30
=======
Year ending December 31, 2000:
Granted ................................. 50,000 15.70
Exercised ............................... (84,484) 10.81
Expired/forfeited ....................... (4,971) 10.76
-------
Outstanding, end of period .............. 532,039 13.35
=======
Exercisable, end of period .............. 441,364 12.54
=======
Information regarding options outstanding and exercisable at December 31, 2000
follows:
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Weighted average Weighted
Range of Common average remain Common average
exercise price shares exercise price life in yrs. shares exercise price
--------------- ------ -------------- ------------ ------ --------------
$ 3.65 -- 6.54 2,047 $ 6.33 1.8 2,047 $6.33
10.00 -- 12.72 300,823 10.23 3.1 300,823 10.23
16.16 -- 21.50 229,169 17.50 8.0 138,494 17.66
------- -------
532,039 13.35 5.2 441,364 12.54
======= =======
No compensation cost has been recognized in the consolidated statements of
income for options granted under the plans. Had compensation cost for options
granted been determined based on the estimated fair value of the options issued
at the dates of grant, the Company's net income and income per common share
amounts would have been as follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, -------------------
2000 1999 1999 1998
----------- ------------ ----- -----
Net income, as reported .................... $7,819 3,975 6,923 7,260
====== ===== ===== =====
Net income, pro forma ...................... $7,532 3,929 6,865 7,228
====== ===== ===== =====
17
28
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, -----------------------
2000 1999 1999 1998
------------ ------------ ------ ------
Income per common share:
As reported:
Basic .......................... $ 1.98 0.93 1.43 1.37
====== ====== ====== ======
Diluted ........................ $ 1.91 0.89 1.37 1.29
====== ====== ====== ======
Pro forma:
Basic .......................... $ 1.90 0.92 1.42 1.36
====== ====== ====== ======
Diluted ........................ $ 1.84 0.88 1.35 1.29
====== ====== ====== ======
The fair value of the options granted was estimated using the Black-Scholes
model with the following assumptions: for the year ended December 31, 2000;
dividend yield of 3.3%; expected life of 1.5 years; volatility of 26%; and a
risk-free interest rate of 5.1%; for the six months ended December 31, 1999;
dividend yield of 2.5%; expected life of 7 years; volatility of 21%; and a
risk-free interest rate of 6.3%; for the year ended June 30, 1999; dividend
yield of 2.6%; expected life of 5 years; volatility of 22%; and a risk-free
interest rate of 5.6%. No options were granted during the year ended June 30,
1998. The average fair value of options granted for the year ended December 31,
2000, the six months ended December 31, 1999 and for the year ended June 30,
1999 was $6.50, $3.81 and $4.40, respectively. Additional awards in future years
are anticipated.
PENSION PLAN
The Company participates in a non-contributory multi-employer defined benefit
pension plan covering substantially all employees. Actuarially determined
pension costs are funded as accrued. Separate actuarial valuations are not
prepared for each employer in the plan. Substantially all employees who attain
the age of 21 years and complete one year of service are eligible to participate
in this plan. Retirement benefits are based upon a formula utilizing years of
service and average compensation, as defined. Participants are vested 100% upon
the completion of five years of service. Total pension expense, including
administrative charges, was approximately $10, $16, $33 and $20 for the year
ended December 31, 2000, the six months ended December 31, 1999 and for the
years ended June 30, 1999 and 1998, respectively. On January 1, 2001, the
Company terminated its participation in this plan. There was no significant gain
or loss upon termination.
DEFERRED COMPENSATION AGREEMENTS
The Company has entered into deferred compensation agreements with certain key
employees that provide for predetermined periodic payments over 10 to 15 years
upon retirement or death. The agreements specify a vesting schedule, but are not
eligible for benefits if termination occurs prior to completing three years of
service beginning on the date of the agreement. In the event of acquisition of
the Company by a third party, the deferred compensation agreements require any
successor corporation to assume the obligations of the agreements.
Amounts expensed under these agreements totaled approximately $404, $109, $154
and $346 for the year ended December 31, 2000, the six months ended December 31,
1999 and the years ended June 30, 1999 and 1998, respectively.
SAVINGS PLAN
The Company has adopted an employee savings plan. To be eligible for the plan,
an employee must complete one year of full time employment. Company
contributions match 50% of an employee's contributions, up to a maximum of 3% of
the participating employee's wages. Savings plan expense for the year ended
December 31, 2000, the six months ended December 31, 1999 and for the years
ended June 30, 1999 and 1998 totaled approximately $175, $89, $166 and $184,
respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment contracts with certain senior officers
that provide benefits under certain conditions following a termination without
cause or a change in control of the Company.
18
29
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
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 and
to reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and interest rate cap
agreements. These instruments involve, to varying degrees, elements of credit
and interest rate risk in excess of amounts recognized in the consolidated
balance sheets. The contract or notional amounts of these instruments reflect
the extent of involvement the Company has in particular classes of financial
instruments.
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. For interest rate cap agreements, the
contract or notional amounts do not represent exposure to credit loss. The
Company controls the credit risk of those instruments through credit approvals,
limits, and monitoring procedures.
COMMITMENTS TO EXTEND CREDIT
Commitments to extend credit are as follows:
December 31, December 31,
2000 1999
------------ ------------
Fixed rate ................................. $ 2,100 2,435
Variable rate .............................. 9,762 6,559
------- -----
$11,862 8,994
======= =====
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have terms which specify commitment periods of 45 days at interest
rates which approximate current market rates, adjusted for management's
assessment of the creditworthiness of the customer. In some cases, customers may
be required to pay a fee for the Company's commitment to lend. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary, upon extension of credit is
based on management's evaluation of the counterparty. Collateral held varies but
may include personal property, residential real property, and income-producing
commercial properties.
COMMITMENTS TO SELL LOANS
At December 31, 2000, the Company had commitments to sell $3,081 of loans. These
loans are recorded at fair value and are classified as held for sale on the
accompanying consolidated balance sheet.
INTEREST RATE CAP
At December 31, 1999, the Company had a $5,000 notional amount interest rate cap
agreement expiring July 2000. The interest rate cap entitles the Company to
receive interest payments in exchange for payment of a transaction fee, provided
the three-month LIBOR exceeds 6%. The transaction fee paid in connection with
the interest rate cap agreement is amortized to interest expense as an
adjustment of the interest cost of liabilities. Interest rate cap agreements are
used to manage interest rate risk by synthetically extending the life of
interest-bearing liabilities. At December 31, 2000, there were no outstanding
interest rate cap agreements.
19
30
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(15) RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
In June 2000, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 138, "Accounting for Derivative
Instruments and Hedging Activities," an amendment to SFAS No. 133. SFAS No. 133
and SFAS No. 138 establish accounting and reporting standards requiring that
every derivative instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. These standards require that changes in
the derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. As of December 31, 2000, the Company was not
engaged in hedging activities nor did it hold any derivative instruments that
will require adjustments to carrying values under SFAS No. 133 and SFAS No. 138.
The Company adopted the standards on January 1, 2001.
(16) RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
The reconciliation of net income to net cash provided by operating activities
follows:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ----------------------
2000 1999 1999 1998
------------ ------------ -------- --------
Net income ............................................................. $ 7,819 3,975 6,923 7,260
Adjustments to reconcile net income to net cash provided by operating
activities:
Amortization of:
Deferred loan origination fees ................................... (337) (186) (470) (440)
Premiums and discounts on securities, loans and borrowings ....... (520) (260) (632) (900)
RRP deferred compensation .......................................... 38 13 77 188
ESOP shares committed to be released ............................... 390 205 472 652
Provision for loan losses .......................................... 2,600 880 1,300 840
Net (gain) loss on sales of:
Investment securities available-for-sale ......................... 1,064 (13) (89) (97)
Loans ............................................................ (365) (277) (1,060) (956)
Real estate owned ................................................ 43 26 (13) --
Premises and equipment ........................................... (242) (12) (276) (17)
Branches ......................................................... (1,878) -- -- --
Depreciation and amortization of premises and equipment ............ 2,112 1,088 2,488 2,147
Goodwill and core deposit amortization ............................. 1,246 673 1,443 1,391
FHLB stock dividends ............................................... (908) (539) (1,055) (975)
Origination of loans available-for-sale ............................ (51,354) (41,609) (105,129) (96,520)
Proceeds from sales of loans available-for-sale .................... 53,150 41,156 109,370 94,254
Decrease (increase) in interest receivable ......................... 762 143 143 (821)
Interest expense credited to deposit accounts ...................... 23,590 12,100 24,320 26,938
Changes in other assets and liabilities ............................ 1,987 572 1,851 (2,209)
-------- -------- -------- --------
Net cash provided by operating activities ....................... $ 39,197 17,935 39,663 30,735
======== ======== ======== ========
20
31
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(17) NON-CASH INVESTING AND FINANCING ACTIVITIES
On December 19, 2000, the Company declared a dividend of approximately $1,030
which is recorded in accrued expenses and other liabilities at December 31,
2000.
On December 21, 1999, the Company declared a dividend of approximately $697
which is recorded in accrued expenses and other liabilities at December 31,
1999.
On June 24, 1999, the Company declared a dividend of approximately $908 which is
recorded in accrued expenses and other liabilities at June 30, 1999.
On June 23, 1998, the Company declared a dividend of approximately $1,005 which
is recorded in accrued expenses and other liabilities at June 30, 1998.
Real estate owned acquired through foreclosures of loans receivable was
approximately $341, $227, $559 and $546 for the year ended December 31, 2000,
the six months ended December 31, 1999 and for the years ended June 30, 1999 and
1998, respectively.
Treasury stock of approximately $1 and $2 was recorded due to forfeitures of
unearned RRP shares for the year ended June 30, 1998.
During the six months ended December 31, 1999, the Company reduced paid-in
capital and recorded a liability in the amount of $67 related to Security
Bancorp shares not tendered for Company shares. Company shares had been provided
in escrow for the exchange, however, will now be paid in cash upon redemption.
(18) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following fair value estimates, methods and assumptions were used to measure
the fair value of each class of financial instrument for which it is practical
to estimate that value.
For cash and short-term investments, the carrying amount was considered to be a
reasonable estimate of fair value.
For investment securities, fair values were based on quoted market prices or
dealer quotes. If a quoted market price was not available, fair values were
estimated using quoted market prices for similar securities.
For FHLB stock, the carrying amount was considered to be a reasonable estimate
of fair value.
Fair values were estimated for portfolios of performing and nonperforming loans
with similar financial characteristics. For certain similar categories of loans,
such as residential mortgages, home equity loans, non-residential mortgages, and
consumer loans, fair value was estimated using the quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other performing loan types was estimated by
discounting the future cash flows using market discount rates that reflect the
credit, collateral, and interest rate risk inherent in the loan.
The fair values of commitments to extend credit at fixed rates were not
significant at December 31, 2000 and 1999.
The fair value of demand deposits, savings deposits and money market accounts
were the amounts payable on demand at December 31, 2000 and 1999. The fair value
of certificates of deposit is estimated based on the discounted value of
contractual cash flows using rates derived from the U.S. Treasury yield curve,
adjusted for certificate redemption features.
For short-term borrowings, the carrying amount was considered to be a reasonable
estimate of fair value.
The fair value for long-term borrowings was based upon the discounted value of
the cash flows. The discount rates utilized were based on rates currently
available with similar terms and maturities.
21
32
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
The estimated fair values of financial instruments are as follows:
December 31, 2000 December 31, 1999
--------------------- ---------------------
Carrying Fair Carrying Fair
value value value value
-------- -------- -------- --------
Financial assets:
Cash and cash equivalents ..................... $ 19,945 19,945 26,143 26,143
Interest-bearing deposits ..................... 100 100 100 100
Investment securities available-for-sale ...... 140,945 140,945 187,488 187,488
Investment securities ......................... 69,665 71,204 86,877 87,121
Loans available-for-sale ...................... 3,041 3,041 4,470 4,470
Loans, net .................................... 623,131 618,063 616,281 602,658
Stock in FHLB of Seattle ...................... 13,062 13,062 15,154 15,154
Financial liabilities:
Deposits ...................................... $606,100 606,483 658,404 656,813
Repurchase agreements ......................... 9,032 9,032 7,731 7,731
Borrowed funds ................................ 198,571 199,233 227,078 224,663
Off-balance-sheet items:
Interest rate cap agreements:
notional amount of $0 and $5,000 ............ -- -- 4
======== ======== ======== ========
LIMITATIONS
The foregoing fair value estimates are made at a specific point in time, based
on pertinent market data and relevant information on the financial instrument.
These estimates do not include any premium or discount that could result from an
offer to sell, at one time, the entire holdings of a particular financial
instrument or category thereof. Since no market exists for a substantial portion
of the financial instruments, fair value estimates were necessarily based on
judgments with respect to future expected loss experience, current economic
conditions, risk assessments of various financial instruments involving a myriad
of individual borrowers, and other factors. Given the innately subjective nature
of these estimates, the uncertainties surrounding them and the matters of
significant judgment that must be applied, these fair value estimations cannot
be calculated with precision. Modifications in such assumptions could
meaningfully alter these estimates.
Since these fair value approximations were made solely for on- and off-balance
sheet financial instruments, no attempt was made to estimate the value of
anticipated future business and the value of nonfinancial statement assets and
liabilities. Other important elements which are not deemed to be financial
assets or liabilities include the value of the Company's retail branch delivery
system, its existing core deposit base, premises and equipment and goodwill.
Further, certain tax implications related to the realization of the unrealized
gains and losses could have a substantial impact on these fair value estimates
and have not been incorporated into any of the estimates.
22
33
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(19) WESTERFED INFORMATION
The summarized condensed financial information for WesterFed Financial
Corporation is presented below:
CONDENSED BALANCE SHEETS
December 31, December 31,
2000 1999
------------ ------------
Assets:
Cash and cash equivalents .............................. $ 450 268
Interest-bearing and due from banks deposits ........... 445 2,096
Investment securities available-for-sale ............... 1,566 1,636
Other assets ........................................... 54 47
Investment in subsidiaries ............................. 92,778 86,335
-------- -------
Total assets ............................. $ 95,293 90,382
======== =======
Liabilities and Stockholders' Equity:
Other liabilities ...................................... $ 1,071 857
Stockholders' Equity:
Common stock .................................... 57 56
Additional paid-in capital ...................... 71,115 70,040
Common stock acquired by ESOP/RRP ............... (1,825) (2,090)
Treasury stock at cost .......................... (33,537) (28,974)
Accumulated other comprehensive income (loss) ... 170 (2,930)
Retained earnings ............................... 58,242 53,423
-------- -------
Total stockholders' equity ............... 94,222 89,525
-------- -------
Total liabilities and stockholders'
equity ................................. $ 95,293 90,382
======== =======
CONDENSED STATEMENTS OF INCOME
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, --------------------
2000 1999 1999 1998
------------ ------------ -------- ------
Dividends from the Bank ........................... $ 4,940 7,000 20,000 5,000
Interest income ................................... 131 39 266 233
Non-interest expense .............................. (660) (234) (653) (677)
-------- -------- -------- ------
Income before income taxes ...................... 4,411 6,805 19,613 4,556
Income tax benefit ................................ 95 70 120 79
-------- -------- -------- ------
Income before undistributed earnings
of subsidiaries ............................... 4,506 6,875 19,733 4,635
Undistributed (distributions in excess of)
earnings of subsidiaries ........................ 3,313 (2,900) (12,810) 2,625
-------- -------- -------- ------
Net income ...................................... $ 7,819 3,975 6,923 7,260
======== ======== ======== ======
23
34
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, ----------------------
CONDENSED STATEMENTS OF CASH FLOWS 2000 1999 1999 1998
------------ ------------ -------- --------
Operating Activities:
Net income for the period .................................... $ 7,819 3,975 6,923 7,260
Adjustments to reconcile net income to
net cash provided by operating activities:
Distributions in excess of (equity in
undistributed) earnings of subsidiaries ................ (3,313) 2,900 12,810 (2,625)
Amortization of premiums on investment
securities available-for-sale .......................... 9 (14) (223) (182)
ESOP shares committed to be released ..................... 392 205 472 652
Net change in other assets and liabilities ............... (164) 89 213 (686)
------- ------- -------- --------
Net cash provided by operating activities .............. 4,743 7,155 20,195 4,419
------- ------- -------- --------
Investing Activities:
Decrease (increase) in interest-bearing deposits ............. 1,651 (1,713) 19 561
Purchase of investment securities ............................ (987) (2,542) (37,985) (23,766)
Proceeds from maturities of investment securities ............ 1,093 2,000 42,250 21,350
------- ------- -------- --------
Net cash provided by (used in) investing activities ...... 1,757 (2,255) 4,284 (1,855)
------- ------- -------- --------
Financing Activities:
Dividends paid to stockholders ............................... (2,668) (1,536) (2,926) (2,729)
Proceeds from exercise of stock options and stock issuances .. 913 443 404 557
Purchase of treasury stock ................................... (4,563) (3,655) (21,858) (379)
------- ------- -------- --------
Net cash used in financing activities .................... (6,318) (4,748) (24,380) (2,551)
------- ------- -------- --------
Increase in cash and cash equivalents .......................... 182 152 99 13
Cash and cash equivalents at beginning of period ............... 268 116 17 4
------- ------- -------- --------
Cash and cash equivalents at end of period ..................... $ 450 268 116 17
======= ======= ======== ========
24
35
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
(20) CONDENSED QUARTERLY RESULTS OF OPERATIONS - UNAUDITED
Year Ended December 31, 2000
---------------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
Interest income ........................ $ 17,544 17,651 17,819 17,660
Interest expense ....................... 10,018 10,079 10,352 9,915
-------- -------- -------- --------
Net interest income ................. 7,526 7,572 7,467 7,745
Provision for loan losses .............. (1,250)(1) (450) (450) (450)
Noninterest income ..................... 1,841 2,875 3,000 1,793
Noninterest expense .................... (5,914) (5,821) (6,718) (6,064)
-------- -------- -------- --------
Income before income tax expense .... 2,203 4,176 3,299 3,024
Income tax expense ..................... (845) (1,609) (1,265) (1,164)
-------- -------- -------- --------
Net income .......................... $ 1,358 2,567 2,034 1,860
======== ======== ======== ========
Net income per share:
Basic ........................... $ 0.34 0.66 0.52 0.46
======== ======== ======== ========
Diluted ......................... $ 0.33 0.64 0.51 0.45
======== ======== ======== ========
(1) During the fourth quarter of 2000, an additional provision for loan
losses of $800 was recorded due to the deterioration of a commercial loan
relationship and consumer loans.
Six Months Ended
December 31, 1999
-----------------------
Second First
Quarter Quarter
-------- --------
Interest income ................................ $ 17,861 17,745
Interest expense ............................... 9,734 9,651
-------- --------
Net interest income .......................... 8,127 8,094
Provision for loan losses ...................... (435) (445)
Noninterest income ............................. 1,848 2,117
Noninterest expense ............................ (6,378) (6,470)
-------- --------
Income before income tax expense ............. 3,162 3,296
Income tax expense ............................. (1,195) (1,288)
-------- --------
Net income .................................. $ 1,967 2,008
======== ========
Net income per share:
Basic ................................... $ .47 .46
======== ========
Diluted ................................. $ .45 .44
======== ========
25
36
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Year Ended June 30, 1999
-----------------------------------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- ------- ------- -------
Interest income .................................. $ 17,468 17,082 17,828 18,420
Interest expense ................................. 9,443 9,371 9,865 10,565
-------- ------- ------- -------
Net interest income ..................... 8,025 7,711 7,963 7,855
Provision for loan losses ........................ (445) (345) (270) (240)
Noninterest income ............................... 2,542 2,052 2,377 2,327
Noninterest expense .............................. (7,316) (6,956) (6,985) (6,969)
-------- ------- ------- -------
Income before income tax expense ........ 2,806 2,462 3,085 2,973
Income tax expense ............................... (1,050) (878) (1,256) (1,219)
-------- ------- ------- -------
Net income .............................. $ 1,756 1,584 1,829 1,754
======== ======= ======= =======
Net income per share:
Basic ........................................ $ 40 .37 .35 33
======== ======= ======= =======
Diluted ...................................... $ .39 .35 .33 .31
======== ======= ======= =======
(21) EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
Year Six Months
Ended Ended Year Ended June 30,
December 31, December 31, --------------------------
2000 1999 1999 1998
----------- ------------ ---------- ----------
Number of shares on which basic earnings per
share is calculated:
Average outstanding shares during the
fiscal year ............................. 3,958,789 4,291,092 4,830,068 5,317,577
Add: Incremental shares under stock
option plans ...................... 137,204 170,269 240,270 296,316
Incremental shares related to
RRPs .............................. -- -- 1,225 13,425
---------- ---------- ---------- ----------
Number of shares on which diluted earnings per
share is calculated .............................. 4,095,993 4,461,361 5,071,563 5,627,318
========== ========== ========== ==========
Net income applicable to common stockholders
(000's) .......................................... $ 7,819 3,975 6,923 7,260
========== ========== ========== ==========
Basic earnings per share .............................. $ 1.98 0.93 1.43 1.37
========== ========== ========== ==========
Diluted earnings per share ............................ $ 1.91 0.89 1.37 1.29
========== ========== ========== ==========
26
37
WesterFed Financial Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(Dollars in thousands, except per share data)
Stock options to purchase 180,669 and 72,169 shares for the six months ended
December 31, 1999 and the year ended June 30, 1999, respectively, were
outstanding, but were not included in the computation of diluted earnings per
share because the options' exercise price was greater than the average market
price of the common shares and, therefore, the effect would be antidilutive. No
stock options were excluded from the computation of diluted earnings per share
in the years ended December 31, 2000 and June 30, 1998.
(22) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Year Six Month
Ended Ended Year Ended June 30,
December 31, December 31, ------------------------
2000 1999 1999 1998
------------ ------------ ------- -------
Payments during the period for:
Interest ....................... $13,799 6,761 12,856 13,900
Income taxes, net .............. 5,937 2,604 3,933 4,080
======= ======= ======= =======
(23) BRANCH SALE
On May 14, 2000, the Company sold the assets and liabilities of six branch
locations to Stockman Bank. The Company recognized a net gain of $1,878. The net
loans and deposits related to the branch sale were approximately $12.1 million
and $50.5 million, respectively. In conjunction with the sale, the Company paid
$35,983 to Stockman Bank.
(24) SUBSEQUENT EVENT
On September 20, 2000, the Company entered into a merger agreement with Glacier
Bancorp, Inc. (Glacier). Glacier, a publicly traded multi-bank holding company
headquartered in Kalispell, Montana, acquired the Company on February 28, 2001
for a combination of cash and stock in a transaction valued at approximately $95
million (Unaudited).
27
38
ITEM 7(b)
UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENT OF FINANCIAL CONDITION
AS OF DECEMBER 31, 2000
Glacier
Glacier and Bancorp, Inc.
(amounts in thousands Glacier Pro forma WesterFed Idaho/Utah after
except per share data) Bancorp, Inc. WesterFed Adjustments(1) Combined Branches(1) acquisitions
------------- ----------- -------------- ----------- ----------- -------------
ASSETS
Cash on hand and in banks ........ $ 41,456 17,400 -- 58,856 2,480 61,336
Interest bearing cash deposits ... 10,330 2,645 -- 12,975 20,000(e) 32,975
----------- ----------- ----------- ----------- ----------- -----------
Cash and cash equivalents ...... 51,786 20,045 -- 71,831 22,480 94,311
Investments
Investment securities,
held-to-maturity ............. -- 69,665 1,539(c) 71,204 -- 71,204
Investment securities,
available-for-sale ........... 211,888 140,945 (27,997)(b) 324,836 119,550 444,386
----------- ----------- ----------- ----------- ----------- -----------
Total Investments ............ 211,888 210,610 (26,458) 396,040 119,550 515,590
Loans receivable ................. 741,360 633,528 (5,929)(c) 1,368,959 37,698 1,406,657
Allowance for losses ............. (7,799) (7,356) -- (15,155) (1,125) (16,280)
----------- ----------- ----------- ----------- ----------- -----------
Total Loans, net ............. 733,561 626,172 (5,929) 1,353,804 36,573 1,390,377
Premises and equipment, net ...... 25,016 25,110 1,654(c) 51,780 6,449 58,229
Real estate and other assets
owned .......................... 291 291 -- 582 -- 582
Federal Home Loan Bank of
Seattle stock, at cost ......... 16,436 13,062 -- 29,498 -- 29,498
Federal Reserve stock, at cost ... 1,662 -- -- 1,662 -- 1,662
Accrued interest receivable ...... 6,637 6,629 -- 13,266 -- 13,266
Core deposit intangible .......... 1,547 2,821 4,628(c) 8,996 1,514(d) 10,510
Goodwill ......................... 4,946 14,097 (14,097)(c) 24,578 17,402(d) 41,980
19,632(c)
Other assets ..................... 2,942 10,340 1,663(c) 14,945 -- 14,945
----------- ----------- ----------- ----------- ----------- -----------
Total assets ................. $ 1,056,712 929,177 (18,907) 1,966,982 203,968 2,170,950
=========== =========== =========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Deposits - non-interest
bearing ........................ $ 141,207 45,160 -- 186,367 30,000 216,367
Deposits - interest bearing ...... 579,363 563,803 383(c) 1,143,549 153,518 1,297,067
Advances from Federal Home
Loan Bank of Seattle ........... 196,791 198,404 -- 395,195 -- 395,195
Securities sold under
agreements to repurchase ....... 24,877 9,032 -- 33,909 -- 33,909
Other borrowed funds ............. 4,652 167 -- 4,819 -- 4,819
Accrued interest payable ......... 4,591 8,293 -- 12,884 450 13,334
Current income taxes ............. 17 113 -- 130 -- 130
Deferred income taxes ............ 578 1,263 (684)(c) 1,157 -- 1,157
Other liabilities ................ 6,185 8,720 4,925(c) 19,830 -- 19,830
Minority interest ................ 338 -- 338 -- 338
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities ............ 958,599 834,955 4,624 1,798,178 183,968 1,982,146
----------- ----------- ----------- ----------- ----------- -----------
Trust preferred securities ....... -- -- 15,000(e) 15,000 20,000(e) 35,000
Common stock, $.01 par value
per share ...................... 114 57 (57)(a) 160 -- 160
46(b)
Paid-in capital .................. 101,828 71,115 (71,115)(a) 157,473 -- 157,473
55,645(b)
Common stock acquired
by ESOP/RRP .................... -- (1,825) 1,825(a) -- -- --
Treasury stock, at cost .......... -- (33,537) 33,537(a) -- -- --
Retained earnings (deficit) -
substantially restricted........ (4,087) 58,242 (58,242)(a) (4,087) -- (4,087)
Accumulated other comprehensive
income ......................... 258 170 (170)(a) 258 -- 258
----------- ----------- ----------- ----------- ----------- -----------
Total stockholders' equity ... 98,113 94,222 (38,531) 153,804 -- 153,804
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
stockholders' equity ... $ 1,056,712 929,177 (18,907) 1,966,982 203,968 2,170,950
=========== =========== =========== =========== =========== ===========
(1) See accompanying notes to unaudited combined condensed pro forma financial
statements to which specific references above also refer.
39
UNAUDITED COMBINED CONDENSED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
Glacier
Glacier and Bancorp, Inc.
(amounts in thousands Glacier Pro forma WesterFed Idaho/Utah after
except per share data) Bancorp, Inc. WesterFed Adjustments(1) Combined Branches(1) acquisitions
------------- ----------- -------------- ----------- ----------- -------------
Interest income
Loans .......................... $ 63,197 52,714 847(e) 116,758 3,431 120,189
Investments and interest
bearing deposits ............. 15,640 17,960 (1,881)(e) 31,411 9,769 41,180
(308)(e)
----------- ----------- ----------- ----------- ----------- -----------
Total interest income .......... 78,837 70,674 (1,341) 148,170 13,200 161,369
Interest expense
Deposits ....................... 22,674 26,199 128(e) 49,001 6,601 55,602
Borrowings ..................... 14,683 14,165 28,848 28,848
Trust preferred securities ..... -- -- 1,560(e) 1,560 2,080(e) 3,640
----------- ----------- ----------- ----------- ----------- -----------
Total interest expense ......... 37,357 40,364 1,688 79,409 8,681 88,090
Net interest income ............ 41,480 30,310 (3,029) 68,760 4,519 73,279
Provision for loan losses ........ 1,864 2,600 -- 4,464 119 4,583
----------- ----------- ----------- ----------- ----------- -----------
Net interest income after
provision for loan losses .... 39,616 27,710 (3,029) 64,296 4,400 68,696
Non-interest income
Fees and service charges ....... 9,756 6,017 -- 15,773 1,823 17,596
Net gains on sale of loans .... 2,049 1,720 -- 3,769 -- 3,769
Net gains on sale of
investments .................. 51 (699) -- (648) -- (648)
Other income ................... 1,438 2,471 (238)(e) 3,671 -- 3,671
----------- ----------- ----------- ----------- ----------- -----------
Total non-interest income ...... 13,294 9,509 (238) 22,565 1,823 24,388
Non-interest expense
Employee compensation and
benefits ..................... 16,214 11,945 -- 28,159 1,749 29,908
Occupancy & equipment .......... 4,830 1,843 66(e) 6,739 486 7,225
Other expense .................. 9,680 9,484 -- 19,164 1,193 20,357
Deposit premium amortization ... 199 579 463(e) 1,241 249(e) 1,490
Goodwill amortization .......... 343 666 277(e) 1,286 870(e) 2,156
Minority interest .............. 61 -- -- 61 -- 61
----------- ----------- ----------- ----------- ----------- -----------
Total non-interest expense ..... 31,327 24,517 806 56,650 4,547 61,197
Earnings before income taxes ..... 21,583 12,702 (4,073) 30,212 1,676 31,886
Federal and state income tax
expense ........................ 7,580 4,883 (1,481) 10,982 654 11,636
----------- ----------- ----------- ----------- ----------- -----------
Net earnings ................... $ 14,003 7,819 (2,593) 19,229 1,022 20,251
=========== =========== =========== =========== =========== ===========
Average common shares
outstanding - basic ............ 11,440 3,959 15,829 15,829
Average common shares
outstanding - diluted .......... 11,544 4,096 16,089 16,089
Basic net earnings per share
of common stock ................ $ 1.22 1.98 1.21 1.28
Diluted net earnings
per share of common stock ...... $ 1.21 1.91 1.20 1.26
(1) See accompanying notes to unaudited combined condensed pro forma financial
statements to which specific references above also refer.
2
40
Notes to Unaudited Combined Condensed Pro Forma Financial Statements
NOTE A: BASIS OF PRESENTATION
The unaudited combined condensed pro forma statement of financial condition
combines the historical consolidated statements of financial condition of
Glacier Bancorp, Inc. ("Glacier"), WesterFed Financial Corporation
("WesterFed"), and the anticipated effects of the branch acquisitions in Idaho
and Utah from Wells Fargo/First Security Bank of Utah ("Branch Acquisitions") as
if the WesterFed and Branch Acquisitions had become effective on December 31,
2000. The unaudited pro forma combined statements of operations for the year
ended December 31, 2000, combines the historical consolidated statements of
operations of Glacier and WesterFed, and the anticipated effects of the Branch
Acquisitions as if the merger of Glacier and WesterFed (the "Merger") and Branch
Acquisitions had become effective on January 1, 2000. Certain amounts in the
historical financial statements of WesterFed have been reclassified in the
unaudited combined condensed pro forma financial statements to conform to
Glacier's historical financial statements.
The Merger and Branch Acquisition will be accounted for using the purchase
method of accounting. Under this method of accounting, assets and liabilities
acquired are adjusted to their estimated fair value and combined with the
historical book values of the assets and liabilities of Glacier Additionally,
WesterFed's Common Stock, additional paid in capital, unrealized gains and
losses on securities-available-for-sale, and retained earnings is eliminated.
Applicable income tax effects of such adjustments are included as a component of
Glacier's net deferred taxes with a corresponding offset to goodwill. The actual
revaluation of the net assets acquired is subject to the completion of studies
and evaluations by management and will be based on the estimated fair value of
the net assets acquired at the Effective Dates of the Merger and Branch
Acquisition.
Any transactions conducted in the ordinary course of business between Glacier,
WesterFed, and Wells Fargo/First Security of Utah would be immaterial and,
accordingly, have not been eliminated.
Following the Merger and, subject to regulatory approvals, Glacier may merge
certain branches of Western Security Bank, a wholly-owned subsidiary of
WesterFed, with other Glacier subsidiaries, and may close branches that are
considered non-strategic or are located close to other branches of the combined
company. The impact of any such merger, or closings is not expected to be
material. Glacier also expects to achieve certain operating cost savings as a
result of the Merger; however, no pro forma adjustment has been included in the
unaudited pro forma combined financial information for the anticipated cost
savings.
The branches acquired in the Branch Acquisitions will become branches of
Mountain West Bank of Coeur d' Alene, Idaho, a wholly-owned subsidiary of
Glacier.
NOTE B: PURCHASE PRICE OF WESTERFED
Total purchase price consideration for accounting purposes is calculated as
follows (in thousands, except per share amounts):
Acquisition of 4,118,868 shares of WesterFed Common Stock
for total consideration of $22.25 per share ............... $91,640
Valuation adjustment for stock option shares .................... 1,348
Estimated direct acquisition costs .............................. 5,700
-------
Total purchase price .......................... $98,688
=======
3
41
59.3% of the acquisition cost of WesterFed will be paid through the issuance of
Glacier Common Stock. The value of those shares was $12.00 which was the average
closing price for the three days prior to and subsequent to the announcement of
the transaction.
Acquisition cost of WesterFed common stock ........................................... $ 91,640
Percentage to be paid through issuance of stock ....................................... 59.3%
----------
Acquisition cost to be paid through the issuance of stock ........... 54,343
Valuation adjustment for stock option shares .......................................... 1,348
----------
Total acquisition cost to be paid through issuance of stock ......... 55,691
Divided by the assumed value per share of shares issued ............................... $ 12.00
----------
Total Glacier shares to be issued ..................................................... 4,642,750
==========
The acquisition cost to be paid through the issuance of stock will be recorded
as follows:
Acquisition cost to be paid through the issuance of common stock ..... $ 55,691
Less par value of common stock issued ................................ (46)
--------
Additional paid-in capital ........................................... $ 55,645
========
The cash consideration is assumed to be funded with the proceeds of trust
preferred securities and with the sale of investment securities which are
classified as available-for-sale and whose carrying value approximates market
value. The total cash consideration is assumed as follows:
Acquisition cost of WesterFed common stock ....... $91,640
Percentage to be paid in cash at closing ......... 40.7%
-------
Acquisition cost to be paid in cash ...... 37,297
Estimated direct acquisition costs ............... 5,700
-------
Total acquisition costs paid in cash ............. $42,997
=======
NOTE C: ALLOCATION OF PURCHASE PRICE OF WESTERFED
Certain matters are still pending that will have an effect on the ultimate
allocation of the purchase price. Accordingly, the allocation of the purchase
price has not been finalized and the portion of the purchase price allocated to
fair value adjustments, identifiable intangibles and goodwill is subject to
change.
Subject to the foregoing, the purchase price has been allocated as described
below (in thousands):
WesterFed's net assets at December 31, 2000 ................................. $94,222
Increase (decrease) to WesterFed's net assets as a result of estimated fair
value adjustments:
Investment securities held-to-maturity .................. $ 1,539
Premises and equipment .................................. 1,654
Loans receivable, net ................................... (5,929)
Deposits ................................................ (383)
Accrued expenses(1) ..................................... (4,925)
Mortgage servicing rights ............................... 1,663
Core deposit intangible ................................. 4,628
--------
$ (1,753)
Applicable income tax effects (2) ....................... 684
--------
Net fair value adjustments ................................................ (1,069)
Eliminate WesterFed's existing goodwill ................................... (14,097)
--------
Estimated fair value of identifiable tangible and intangible net assets ... $ 79,056
Goodwill .................................................................. 19,632
--------
Total purchase price consideration ........................................ $ 98,688
========
4
42
(1) Includes $2,733,000 of estimated severance costs under existing WesterFed
employment agreements.
(2) Estimated marginal tax rate of 39%.
NOTE D: BRANCH PURCHASE
The acquisition of the Idaho and Utah branches is structured as a purchase of
assets and assumption of liabilities. With certain exceptions all of the
deposits of the branches, real and personal property at each of the branch
locations, vault cash, and loans associated with the deposit accounts will be
acquired. The net difference between the assets acquired and liabilities
assumed, (estimated to be approximately $126.255 million), and acquisition
consideration paid by Mountain West Bank of Coeur d'Alene, will be paid in cash
by the selling banks. The amounts shown in the Idaho/Utah Branches column on the
unaudited combined condensed pro forma statements were based on information
provided by the selling banks and management's estimates of operating results.
The acquisition consideration paid is expected to be as follows:
Core deposit intangible .............................. $ 1,514
Goodwill ............................................. 17,402
-------
Total acquisition consideration .... $18,916
=======
NOTE E: PRO FORMA ADJUSTMENTS
For the unaudited combined condensed pro forma statements of operations, the pro
forma adjustments are based on the allocated purchase price of the net assets
acquired based on the fair value estimates at December 31, 2000 described above.
Investment securities will be adjusted to fair value based on current securities
yields and the fair value adjustment will be amortized to interest income as a
yield adjustment using the level yield method over the average estimated life of
the securities, currently estimated to be five years.
Loans receivable will be adjusted to fair value based on current loan interest
rates and the fair value adjustment will be amortized to interest income as a
yield adjustment using the level yield method over the average estimated life of
the underlying loans receivable, currently estimated to be seven years.
Premises and equipment will be adjusted to fair value based on current market
value evaluations and the new basis will be depreciated on a straight line basis
over the remaining estimated economic life of the related assets, currently
estimated at 25 years.
Mortgage servicing rights will be adjusted to fair value based on current market
evaluations and the fair market value adjustment will be amortized on a straight
line basis over the weighted average maturity of the associated loans, currently
estimated to be 7 years.
Interest-bearing time deposits will be adjusted to fair value based on current
time deposit interest rates and the fair value adjustment will be amortized into
interest expense using the interest method over the estimated duration of the
related deposit, currently estimated to be three years.
Borrowed funds will be paid off prior to the close of the acquisition;
therefore, no fair value adjustments have been made.
For purposes of calculating pro forma adjustments, straight-line amortization
has been used as any differences between the interest method and the
straight-line method would not be significant.
Core deposit intangible will be amortized over the expected economic life which
is assumed to be ten years. It is anticipated that the amortization amount will
be larger in the earlier years of the amortization period. Goodwill will be
amortized over a twenty year period on a straight-line basis.
5
43
Securities sold to fund the acquisition's cash consideration is estimated to be
$28 million with an assumed interest rate of 6.72%.
In addition to the sale of securities, funding of the transactions will be
obtained from proceeds of $35 million trust preferred securities to be issued by
Glacier with an interest rate of 9.4%. The amortization of origination costs
over a five year call period will result in an effective interest cost of
approximately 10.4%.
Pro forma combined weighted average shares outstanding is based on the number of
shares assumed to be issued to WesterFed stockholders of 4,799,167 as described
above combined with the actual weighted average shares outstanding for Glacier
for the respective periods. No options to acquire WesterFed common stock are
assumed to be outstanding after the Effective Date of the Merger.
The incremental effect on pro forma combined net earnings of the WesterFed
purchase accounting adjustments for the year ended December 31, 2000 is
estimated to be an after-tax increase in expense as follows, using an estimated
marginal tax rate of 39%:
6
44
Amortization Quarterly Annual
(Dollars in thousands) Adjustment Period in Amortization Amortization
Amount Years Amount Amount
---------- ------------ ------------ ------------
Fair value adjustments:
Investment securities ........... $ 1,539 5 $ 77 $ 308
Loans receivable ................ (5,929) 7 (212) (847)
Premises and equipment .......... 1,654 25 17 66
Deposits ........................ (383) 3 (32) (128)
Accrued expenses ................ (4,925) --
Mortgage servicing rights ....... 1,663 7 59 238
Core deposit intangible ......... 4,628 10 116 463
Goodwill ........................ 5,535 20 69 277
------- ------- ------- -------
Total adjustments ..................... $ 3,782 94 376
=======
Income taxes .................... 10 39
------- -------
Incremental decrease on
pro forma combined net earnings . $ 84 338
======= =======
(Dollars in thousands) Estimated amortization for the year ended December 31,
2001 2002 2003 2004 2005
------- ------- ------- ------- -------
Fair value adjustments:
Investment securities ........... $ 308 $ 308 $ 308 $ 308 $ 308
Loans receivable ................ (847) (847) (847) (847) (847)
Premises and equipment .......... 66 66 66 66 66
Deposits ........................ (128) (128) (128) -- --
Accrued expenses ................
Mortgage servicing rights ....... 238 238 238 238 238
Core deposit intangible ......... 1,418 1,169 934 748 603
Goodwill ........................ 277 277 277 277 277
------- ------- ------- ------- -------
Total adjustments ..................... 1,331 1,083 848 789 644
Income taxes .................... 411 825 728 200 143
------- ------- ------- ------- -------
Incremental decrease on
pro forma combined net earnings . 920 258 120 589 501
======= ======= ======= ======= =======
NOTE (F) PRO FORMA INCOME PER SHARE
Pro forma combined weighted average shares outstanding is based on the number of
shares assumed to be issued to WesterFed shareholders as described above
combined with the actual weighted average shares outstanding for Glacier for the
respective periods.
7