As filed with the Securities and Exchange Commission on July 24, 2003.
Registration No. 333-106522
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
PRE-EFFECTIVE AMENDMENT NO. 1 TO THE
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FIRSTBANK NW CORP.
----------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Washington 6035 84-1389562
- ------------------------------- ------------------------------ -------------------------------
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization Classification Code Number) Identification Number)
920 Main Street
Lewiston, Idaho 83501
(208) 746-9610
----------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
----------------------------------------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
FirstBank NW Corp.
920 Main Street
Lewiston, Idaho 83501
Copies to:
John F. Breyer Jr., Esq. John P. Soukenik, Esq.
Breyer & Associates PC Elias, Matz, Tiernan & Herrick LLP
8180 Greensboro Drive, Suite 785 734 15th Street, N.W., 12th Floor
McLean, Virginia 22102 Washington, DC 20005
(703) 883-1100 (202) 347-0300
- --------------------------------------------------------------------------------
(Name, Address, Including Zip Code, and
Telephone Number, Including Area Code, of Agent For Service)
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ] _________
If this form is a post-effective amendment filed pursuant to rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ] _________
----------------------------------
CALCULATION OF REGISTRATION FEE
=============================== ================== ============================ ======================= =======================
Proposed Maximum
Title Of Each Class of Amount To Be Proposed Maximum Aggregate Offering Amount of
Securities To Be Registered Registered (1) Offering Price Per Unit(2) Price(2) Registration Fee(2)(3)
- ------------------------------- ------------------ ---------------------------- ----------------------- -----------------------
Common Stock, 2,291,481 $24.91 $45,730,077.00 $3,700.00
$0.01 par value
=============================== ================== ============================ ======================= =======================
<FN>
(1) Represents the estimated maximum number of shares of common stock issuable
by FirstBank NW Corp. upon the consummation of the merger with Oregon Trail
Financial Corp. and computed based on the estimated maximum number of
shares of Oregon Trail to be received by the registrant from the
shareholders of Oregon Trail, including shares underlying all options to
purchase Oregon Trail common stock, whether or not exercised before the
consummation of the merger. Pursuant to Rule 416, this Registration
Statement also covers an indeterminate number of shares of common stock as
may become issuable as a result of stock splits, stock dividends or similar
transactions.
(2) Computed pursuant to Rules 457(f) and 457(c) under the Securities Act based
on the average of the high and low share prices of Oregon Trail common
stock on the Nasdaq National Market on June 20, 2003 based on the maximum
number of shares of Oregon Trail common stock that may be exchanged in the
merger including stock options. Pursuant to Rule 457(f)(3), the cash
portion of the merger consideration to be paid by FirstBank NW Corp. in
connection with the transaction has been deducted from the value of the
securities to be received by Oregon Trail Financial Corp. in the
transaction.
(3) Previously paid.
</FN>
----------------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section8(a), may determine.
[FIRSTSBANK LOGO] [OREGON TRAIL LOGO]
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
The boards of directors of FirstBank NW Corp. and Oregon Trail
Financial Corp. have agreed to a merger of our companies. In the merger, each
share of Oregon Trail common stock will be converted into either $22.00 in cash
or 1.028 shares of FirstBank common stock, as provided in the merger agreement.
On July 21, 2003, the last reported sale price of FirstBank common
stock was $29.24. FirstBank common stock is listed on The Nasdaq National Market
under the symbol "FBNW."
Shareholders of Oregon Trail will be able to elect to receive cash or
FirstBank common stock for their shares of Oregon Trail common stock. Regardless
of their choice, however, elections will be limited by the requirement that 46%
of the shares of Oregon Trail common stock be exchanged for FirstBank common
stock. In addition, the per share amount of stock to be received by each Oregon
Trail shareholder in the merger is based on the number of shares of Oregon Trail
common stock that was issued as of February 23, 2003. If holders of Oregon Trail
stock options exercise their right, prior to the closing of the merger, to
purchase Oregon Trail common stock, the number of issued shares of Oregon Trail
common stock will increase and the amount of FirstBank common stock to be
received by each Oregon Trail shareholder will decline. Therefore, the amount of
FirstBank common stock that an Oregon Trail shareholder will receive will depend
on the elections of other Oregon Trail shareholders and holders of stock
options. The federal income tax consequences of the merger to an Oregon Trail
shareholder will depend on whether the shareholder receives cash or stock in
exchange for their shares of Oregon Trail common stock.
We cannot complete the merger unless we obtain the necessary government
approvals and the approval of the merger by the shareholders of both Oregon
Trail and FirstBank. Shareholders of both companies will vote on the merger at
their upcoming annual meetings of shareholders and will also take action at
those meetings on the election of directors and ratification of auditors. Oregon
Trail will hold its annual meeting of its shareholders on September 3, 2003 at
10:00 a.m., local time at the Sunridge Inn and Conference Center, One Sunridge
Lane, Baker City, Oregon. FirstBank will hold its annual meeting of shareholders
on September 4, 2003 at 2:00 p.m., local time, at the Quality Inn, 700 Port
Drive, Clarkston, Washington. Whether or not you plan to attend the meetings,
please take the time to vote by completing and mailing the enclosed proxy card
to us. If you sign, date and mail your proxy card without indicating how you
want to vote, your proxy will be counted as a vote FOR the merger and the
transactions contemplated by the merger agreement. If you do not return your
proxy card, or if you do not instruct your broker how to vote any shares held
for you in "street name," the effect will be a vote against the merger.
This document contains a more complete description of the annual
meetings of shareholders, the terms of the merger and the procedures for
electing to receive stock or cash. This document also contains information
regarding the business of FirstBank and Oregon Trail. In particular, see "Risk
Factors" beginning on page 15. Please review this entire document carefully.
Your boards of directors believe that the merger is in your best
interest, and recommend that you vote in favor of the merger.
/s/ CLYDE E. CONKLIN /s/ BERNIEL L. MAUGHAN
Clyde E. Conklin Berniel L. Maughan
President and Chief Executive Officer President and Chief Executive Officer
FirstBank NW Corp. Oregon Trail Financial Corp.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the FirstBank common stock to be
issued in the merger or determined if this document is accurate or adequate. Any
representation to the contrary is a criminal offense. The shares of FirstBank
common stock we are offering through this document are not savings or deposit
accounts or other obligations of any bank or non-bank subsidiary
of either of our companies, and they are not insured by the Federal Deposit
Insurance Corporation, the Savings Association Insurance Fund, the Bank
Insurance Fund or any other governmental agency.
Proxy Statement-Prospectus dated July 28, 2003
This document incorporates important business and financial information
about FirstBank and Oregon Trail from documents filed with the Securities and
Exchange Commission that have not been included in or delivered with this
document. You may read and copy these documents at the SEC's public reference
facilities. Please call the SEC at 1-800-SEC-0330 for information about these
facilities. This information is also available at the Internet site the SEC
maintains at http://www.sec.gov. See "Where You Can Find More Information" on
page 104.
You also may request copies of these documents. We will provide you
with copies of these documents, without charge, upon written or oral request to
the appropriate company at the following addresses:
FirstBank NW Corp. Oregon Trail Financial Corp.
920 Main Street 2055 First Street
Lewiston, Idaho 83501 Baker City, Oregon 97814
Attention: Larry K. Moxley Attention: Zane F. Lockwood
Corporate Secretary Corporate Secretary
Telephone: (208) 746-9610 Telephone: (541) 523-6327
In order to receive timely delivery of the documents in advance of the
annual meetings of shareholders, you should make your request no later than
August 27, 2003.
[Map Appears Here]
FIRSTBANK NW CORP.
920 MAIN STREET
LEWISTON, IDAHO 83501
(208) 746-9610
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 4, 2003
- --------------------------------------------------------------------------------
To FirstBank Shareholders:
We will hold an annual meeting of shareholders of FirstBank NW Corp. at
the Quality Inn, 700 Port Drive, Clarkston, Washington on September 4, 2003, at
2:00 p.m., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the merger
contemplated by the Merger Agreement, dated as of February 24,
2003, by and between FirstBank NW Corp. and Oregon Trail
Financial Corp., including the issuance of FirstBank common
stock in the merger;
2. To elect three directors of FirstBank;
3. To approve the appointment of Moss-Adams, LLP as FirstBank's
independent auditors for the fiscal year ending March 31,
2004; and
4. To transact any other business as may properly come before the
annual meeting or any adjournment or postponement of the
annual meeting.
Action may be taken on the proposals above at the annual meeting on the
date specified above or any date or dates to which the annual meeting may be
adjourned or postponed. Only shareholders of record at the close of business on
July 21, 2003 will be entitled to notice of and to vote at the meeting and at
any adjournment or postponement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ LARRY K. MOXLEY
LARRY K. MOXLEY
SECRETARY
Lewiston, Idaho
July 28, 2003
The FirstBank board of directors unanimously recommends that you vote
"FOR" the proposals listed above. Whether or not you plan to attend the meeting,
please complete, sign, date and return the enclosed proxy in the accompanying
pre-addressed postage-paid envelope.
- --------------------------------------------------------------------------------
Important: The prompt return of proxies will save FirstBank the expense of
further requests for proxies to ensure a quorum at the annual meeting. Please
complete, sign and date the enclosed proxy and promptly mail it in the enclosed
return envelope. You may revoke your proxy in the manner described in the proxy
statement-prospectus at any time before it is exercised.
- --------------------------------------------------------------------------------
OREGON TRAIL FINANCIAL CORP.
2055 FIRST STREET
BAKER CITY, OREGON 97814
(541) 523-6327
- --------------------------------------------------------------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On September 3, 2003
- --------------------------------------------------------------------------------
To Oregon Trail Shareholders:
We will hold an annual meeting of shareholders of Oregon Trail
Financial Corp. at the Sunridge Inn and Conference Center, One Sunridge Lane,
Baker City, Oregon on September 3, 2003, at 10:00 a.m., local time, for the
following purposes:
1. To consider and vote upon a proposal to approve the Merger
Agreement, dated as of February 24, 2003, by and between
FirstBank NW Corp. and Oregon Trail Financial Corp., pursuant
to which Oregon Trail will merge with and into FirstBank, all
on and subject to the terms and conditions contained therein;
2. To elect two directors of Oregon Trail;
3. To approve the appointment of Deloitte & Touche LLP as Oregon
Trail's independent auditors for the fiscal year ending March
31, 2004; and
4. To transact any other business as may properly come before the
annual meeting or any adjournment or postponement.
Action may be taken on the proposals above at the annual meeting on the
date specified above or any date or dates to which the annual meeting may be
adjourned or postponed. Only Oregon Trail shareholders of record at the close of
business on July 21, 2003 will be entitled to notice of and to vote at
the meeting and at any adjournment or postponement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ZANE F. LOCKWOOD
ZANE F. LOCKWOOD
CORPORATE SECRETARY
Baker City, Oregon
July 28, 2003
The Oregon Trail board of directors unanimously recommends that you
vote "FOR" the proposals listed above including the proposal to approve the
merger agreement. Whether or not you plan to attend the meeting, please
complete, sign, date and return the enclosed proxy in the accompanying
pre-addressed postage-paid envelope.
- --------------------------------------------------------------------------------
Important: The prompt return of proxies will save Oregon Trail the expense of
further requests for proxies to ensure a quorum at the annual meeting. Please
complete, sign and date the enclosed proxy and promptly mail it in the enclosed
return envelope. You may revoke your proxy in the manner described in the proxy
statement- prospectus at any time before it is exercised.
- --------------------------------------------------------------------------------
Please do not send in any stock certificates at this time.
TABLE OF CONTENTS
Page
----
Questions and Answers about the Merger and the Meetings......................1
Summary......................................................................5
Risk Factors................................................................15
Comparative Per Share Data..................................................17
Selected Historical Financial Information...................................18
Selected Historical Financial Information for FirstBank................19
Selected Historical Financial Information for Oregon Trail.............20
Summary Selected Pro Forma Combined Data....................................21
Market Price And Dividend Information.......................................23
Annual Meeting of FirstBank Shareholders....................................24
Place, Date and Time...................................................24
Matters to be Considered...............................................24
Who Can Vote at the Meeting; Record Date...............................24
Quorum and Vote Required...............................................25
Shares Held by FirstBank Officers and Directors and by Oregon Trail....25
Voting by Proxy........................................................25
Revocability of Proxies................................................26
ESOP and 401(k) Profit Sharing Plan Participants.......................26
Solicitation of Proxies................................................26
Recommendation of the FirstBank Board of Directors.....................26
Ownership of FirstBank Common Stock.........................................27
Annual Meeting of Oregon Trail Shareholders.................................28
Place, Date and Time...................................................28
Matters to be Considered...............................................28
Who Can Vote at the Meeting; Record Date...............................28
Quorum and Vote Required...............................................28
Shares Held by Oregon Trail Officers and Directors and by FirstBank....29
Voting by Proxy........................................................29
Revocability of Proxies................................................30
ESOP Participants......................................................30
Solicitation of Proxies................................................30
Recommendation of the Oregon Trail Board of Directors..................30
Ownership of Oregon Trail Common Stock......................................31
The Merger..................................................................32
The Parties to the Merger..............................................32
Overview of the Merger.................................................33
Conversion of Oregon Trail Common Stock................................34
Background of and Reasons for the Merger...............................34
Opinion of FirstBank's Financial Advisor...............................45
(i)
Opinion of Oregon Trail's Financial Advisor............................53
Material Federal Income Tax Consequences...............................57
Accounting Treatment of the Merger.....................................60
Cash or Stock Election.................................................60
Election Procedures; Surrender of Stock Certificates...................61
Conditions to Completing the Merger....................................62
Conduct of Business Before the Merger..................................63
Covenants of Oregon Trail and FirstBank in the Merger Agreement........66
Representations and Warranties Made by FirstBank and Oregon
Trail in the Merger Agreement........................................68
Termination and Amendment of the Merger Agreement......................68
Directors and Officers of FirstBank Following the Merger...............69
Interests of Our Directors and Officers in the Merger that
Differ From Your Interests...........................................69
Regulatory Approvals Needed to Complete the Merger.....................71
Resale of FirstBank Common Stock.......................................71
When Will the Merger be Completed......................................72
Expenses...............................................................72
Dissenters' Rights.....................................................72
Pro Forma Financial Information.............................................72
A Warning About Forward-Looking Statements..................................77
Description of FirstBank Common Stock.......................................78
General................................................................78
Common Stock...........................................................78
Preferred Stock........................................................78
Comparison of Rights of Shareholders........................................78
Authorized Stock.......................................................79
Voting Rights..........................................................79
Required Vote for Authorization of Certain Actions....................79
Dividends..............................................................80
Shareholders' Meetings.................................................80
Action by Shareholders Without a Meeting...............................80
Board of Directors.....................................................81
Amendment of the Bylaws................................................81
Amendment of the Articles of Incorporation ............................81
Selected Provisions in the Articles of Incorporation
and Bylaws of FirstBank.....................................................82
Business Combinations with Related Persons.............................82
Limitation on Voting Rights............................................82
Board of Directors.....................................................83
Special meetings of Shareholders.......................................83
Advance Notice Provisions for Shareholder Nominations and Proposals...83
Preferred Stock .......................................................83
Amendment of Articles of Incorporation.................................84
Election of Directors of FirstBank (FirstBank Proposal 2)...................84
General................................................................84
Information with Respect to Nominees and Continuing Directors..........84
Meetings and Committees of the Board of Directors......................85
Directors' Compensation................................................86
Executive Compensation.................................................87
Employment and Severance Agreements....................................88
Executive Non-Qualified Retirement Plan................................89
(ii)
Deferred Compensation Plan.............................................90
Audit Committee Matters................................................90
Compliance with Section 16(a) of the Exchange Act......................91
Transactions with Management...........................................91
Election of Directors of Oregon Trail (Oregon Trail Proposal 2).............92
General................................................................92
Information with Respect to Nominees and Continuing Directors..........92
Meetings and Committees of the Board of Directors......................93
Directors' Compensation................................................94
Executive Compensation.................................................95
Employment Agreements..................................................96
Audit Committee Matters................................................97
Compensation Committee Matters.........................................98
Performance Graph.....................................................100
Compliance with Section 16(a) of the Exchange Act.....................101
Transactions with Management..........................................101
Change in FirstBank's Independent Auditors.................................101
Approval of Appointment of FirstBank's Independent Auditors (FirstBank
Proposal 3)................................................................102
Approval of Appointment of Oregon Trail's Independent Auditors (Oregon
Trail Proposal 3)..........................................................102
Legal Matters..............................................................103
Experts ...................................................................103
Future Proposals of Shareholders...........................................103
Where You Can Find More Information........................................104
APPENDIX A Merger Agreement, dated as of February 24, 2003, by and
between FirstBank NW Corp. and Oregon Trail Financial Corp.
APPENDIX B Opinion of Keefe, Bruyette & Woods, Inc.
APPENDIX C Opinion of Sandler O'Neill & Partners, L.P.
APPENDIX D Oregon Trail Financial Corp. 2003 Annual Report to Shareholders
APPENDIX E FirstBank NW Corp. 2003 Annual Report to Shareholders
(iii)
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE MEETINGS
Q. What will Oregon Trail shareholders receive in the merger?
A. Oregon Trail shareholders will be offered the opportunity to elect to
receive either FirstBank common stock or cash in exchange for their
Oregon Trail shares. The value of the merger consideration for each
Oregon Trail share will equal 1.028 shares of FirstBank common stock or
$22.00 in cash. The exchange ratio in the merger could decrease as
described below. The cash portion of the merger consideration will not
change from $22.00 per share.
Q. Will the exchange ratio of 1.028 shares of FirstBank common stock for a
share of Oregon Trail common stock adjust under any circumstances?
A. Perhaps. The per share amount of stock to be received by each Oregon
Trail shareholder in the merger is based on the number of shares of
Oregon Trail common stock that was issued as of February 23, 2003. If
holders of Oregon Trail stock options exercise their right, prior to
the closing of the merger, to purchase Oregon Trail common stock, the
number of issued shares of Oregon Trail common stock will increase and
the amount of FirstBank common stock to be received by each Oregon
Trail shareholder will decline. Therefore, the amount of FirstBank
common stock that an Oregon Trail shareholder will receive will depend
on the elections of other Oregon Trail shareholders and holders of
stock options.
Q. When do Oregon Trail shareholders make their election to receive cash
or stock?
A. Before the expected closing date of the merger, we will send an
election form to you that you may use to indicate your preference to
receive either cash or FirstBank common stock.
The deadline for returning the election form will be after the annual
shareholder meetings and at least 20 business days after the mailing of
the election form. If you do not return an election form, you will have
no control over the form of consideration you will receive.
Q. Are shareholders guaranteed of receiving the merger consideration
elected?
A. No. Regardless of the choice of cash or stock consideration elected,
you may actually receive a combination of cash and stock because the
total amount of Oregon Trail common stock to be converted into
FirstBank common stock is fixed at 46% of the total outstanding Oregon
Trail shares as of the record date. See "The Merger -Cash or Stock
Election" beginning on page 60.
Q. Have the parties' financial advisors reviewed the merger consideration?
A. Yes. Sandler O'Neill & Partners, L.P. reviewed the merger consideration
and has issued an opinion to FirstBank's board of directors as to the
fairness of the merger consideration to FirstBank from a financial
point of view. Keefe, Bruyette & Woods, Inc. reviewed the merger
consideration and has issued an opinion to Oregon Trail's board of
directors as to the fairness of the merger consideration to Oregon
Trail shareholders from a financial point of view. Copies of the
fairness opinions are attached as Appendices B and C to this document.
Q. What are the tax consequences of the merger?
A. We have structured the merger so that our shareholders and the Oregon
Trail shareholders will not recognize any gain or loss for federal
income tax purposes in the merger, except for gain attributable to cash
received by Oregon Trail shareholders in exchange for their Oregon
Trail common stock or in lieu of fractional shares of FirstBank. See
pages 57 through 60 for a full discussion of the tax consequences of
the merger.
1
Q. Why are FirstBank and Oregon Trail proposing to merge?
A. We share a strong belief that community banking should emphasize
responsiveness to local markets and the delivery of personalized
services to customers. We believe that merging our two financial
institutions will not change that commitment, but, rather result in a
stronger organization, permitting the combined organization to provide
additional services and products to its customers and make larger loans
to its borrowers.
We believe the merger will enhance shareholder value by allowing the
combined organization to increase revenues and earnings while
capitalizing on a more efficient cost structure.
We also believe the merger will afford all shareholders the benefit of
increased liquidity in trading their shares and will provide an
increased market value to Oregon Trail shareholders for their existing
shares.
Q. When do you expect the merger to be completed?
A. We are working to complete the merger as quickly as possible and we
anticipate the merger will be completed in the fourth calendar quarter
of 2003. Because the merger is subject to shareholder and regulatory
approval and other factors beyond our control, we cannot predict with
accuracy the exact timing for completing the merger.
Q. Who will manage the combined company?
A. Following the merger, the FirstBank and FirstBank Northwest boards of
directors will consist of eight and 10 directors, respectively, one of
whom will be selected from among the current Oregon Trail directors.
All of the current FirstBank and FirstBank Northwest directors will
continue to serve following the merger. Clyde E. Conklin, President and
Chief Executive Officer of FirstBank, will continue in that position
with the combined company and will continue to serve as President and
Chief Executive Officer of FirstBank Northwest. Larry K. Moxley,
Executive Vice President and Chief Financial Officer of FirstBank and
First Bank Northwest will continue to serve in those roles after the
merger. Certain other senior officers of Oregon Trail are expected to
remain with the combined company.
Questions and Answers About the Annual Meetings
Q. What vote is required to approve the merger agreement?
A. The merger agreement will be approved if the holders of a majority of
the shares of Oregon Trail and FirstBank outstanding on the record date
vote in favor of the merger agreement. Accordingly, a failure to vote
or an abstention will have the same effect as a vote against the merger
agreement.
Q. Are there dissenters appraisal rights?
A. No. Under Oregon law, shareholders do not have the right to exercise
appraisal rights. If the merger is approved, Oregon Trail shareholders
who voted against the merger agreement will be treated the same as
other Oregon Trail shareholders.
Q. Have Oregon Trail's and FirstBank's board of directors approved the
merger?
A. Yes. The board of directors of each of the companies had unanimously
adopted the merger agreement and recommended that their respective
shareholders approve the agreement.
2
Q. What do I need to do now?
A. First carefully read this document in its entirety. Then, vote your
shares by one of the following methods:
o Mark, sign, date and return your proxy card in the enclosed
return envelope as soon as possible;
o Call the toll-free number on the proxy card, enter the control
number on your proxy card, and follow the directions provided;
o Go to the website listed on the proxy card, enter the control
number of your proxy card, and follow the instructions
provided; or
o Attend the annual meeting and submit a properly executed proxy
or ballot. If a broker holds your shares in "street name," you
will need to get a proxy from your broker to vote in person at
the meeting.
Q. Can I change my vote after I have mailed my signed proxy card or voted
by telephone or electronically?
A. Yes. If you have not voted through your broker, you can change your
vote at any time before your shares are voted at the annual meeting.
You can do this by:
o calling the toll free number on the proxy card and following
the instructions provided;
o going to the website listed on the proxy card and following
the instructions provided;
o submitting a properly executed proxy on a later date;
o notifying Oregon Trail's or FirstBank's corporate Secretary,
as the case may be, in writing of the revocation of your
proxy; or
o voting in person at the annual meeting; however, simply
attending the meeting will not, of itself, revoke a proxy.
Q. If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
A. No. If your shares are held by your broker (or other nominee), you
should receive this document and an instruction card from your broker.
Your broker will vote your shares only if you provide instructions on
how to vote. If you do not tell your broker how to vote, your broker
cannot vote your shares. This will have the same effect as a vote
against the merger.
Q. If I am an Oregon Trail shareholder, should I send in my stock
certificates at this time?
A. No please do not send in your stock certificates with your proxy card.
You will receive an election form, which will permit you to elect to
receive cash or FirstBank common stock for your Oregon Trail shares. At
that time you will also be asked to submit your Oregon Trail stock
certificates. Do not send in your certificates until you receive
instructions to do so. If you do not know where your stock certificates
are located, you may want to find then now so you do not experience
delays in making your election or receiving your merger consideration.
If you have lost or misplaced your Oregon Trail stock certificates,
contact Oregon Trail's stock transfer agent, Registrar and Transfer
Company, at (908) 497- 2300. If your Oregon Trail shares are held by
your broker in street name, the broker will submit your shares at your
direction. FirstBank shareholders will continue to hold their current
shares unaffected by the merger.
3
Q. Where do I get more information?
A. If you have questions about the merger or submitting your proxy, or if
you need additional copies of this document or proxy card or any
documents incorporated by reference, you should contact one of the
following:
Clyde E. Conklin, President Berniel L. Maughan, President
and Chief Executive Officer and Chief Executive Officer
FirstBank NW Corp. Oregon Trail Financial Corp.
920 Main Street 2055 First Street
Lewiston, Idaho 83501 Baker City, Oregon 97814
(208) 746-9610 (voice) (541) 523-6327 (voice)
(208) 750-7119 (fax) (541) 523-6029 (fax)
cconklin@fbnw.com (e-mail) bmaughan@pioneerbankfsb (e-mail)
4
SUMMARY
This summary, which does not contain all of the information that is
important to you, highlights selected information from this proxy
statement-prospectus and documents incorporated herein by reference. You should
carefully read this entire document and the other documents which accompany this
document to fully understand the merger. See "Where You Can Find More
Information."
The Companies
FirstBank NW Corp. FirstBank NW Corp. is a Washington
920 Main Street corporation and a savings and loan
Lewiston, Idaho 83501 holding company headquartered in
(208) 746-9610 Lewiston, Idaho. At March 31, 2003,
FirstBank had assets of $332.4 million,
net loans of $251.8 million, deposits of
$214.3 million and shareholders' equity
of $30.1 million. FirstBank was formed in
1997 for the purpose of becoming the
holding company for FirstBank Northwest.
FirstBank Northwest is a
Washington-chartered stock savings bank
serving Idaho and Eastern Washington
through a network of eight full service
offices, three real estate loan
production offices and three commercial
and agricultural loan production loan
centers. FirstBank Northwest is regulated
by the Washington Department of Financial
Institutions and the Federal Deposit
Insurance Corporation, and its deposits
are insured by the Federal Deposit
Insurance Corporation under the Savings
Association Insurance Fund.
For financial statements and a discussion
of FirstBank's recent results of
operations, see FirstBank's 2003 annual
report to shareholders which accompanies
this proxy statement-prospectus in
Appendix E.
Oregon Trail Financial Corp. Oregon Trail is an Oregon corporation and
2055 First Street a savings and loan holding company
Baker City, Oregon 97814 headquartered in Baker City, Oregon. At
(541) 523-6327 March 31, 2003, Oregon Trail had assets
of $377.5 million, net loans of $228.3
million, deposits of $249.1 million and
shareholders' equity of $60.1 million.
Oregon Trail was formed in 1997 for the
purpose of becoming the holding company
for Pioneer Bank.
Pioneer Bank is a federally chartered
stock savings bank with nine full-service
offices located in seven eastern Oregon
counties. Pioneer Bank is regulated by
the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation,
and its deposits are
5
insured by the Federal Deposit Insurance
Corporation under the Savings Association
Insurance Fund.
For financial statements and a discussion
of Oregon Trail's recent results of
operations, see Oregon Trail's 2003
annual report to shareholders which
accompanies this proxy
statement-prospectus in Appendix D.
Oregon Trail Annual Meeting
Place, Date and Time (page 28) The annual meeting of shareholders of
Oregon Trail will be held at the Sunridge
Inn and Conference Center, One Sunridge
Lane, Baker City, Oregon on September 3,
2003 at 10:00 a.m., local time.
Purpose of the Meeting At the annual meeting, Oregon Trail
(page 28) shareholders will be asked to:
o approve the merger agreement with
FirstBank,
o elect two directors,
o ratify the appointment of Deloitte
& Touche LLP, and
o to transact any other business that
may properly come before the
meeting.
Who Can Vote at the Meeting You can vote at the annual meeting of
(page 28) Oregon Trail shareholders if you owned
Oregon Trail common stock at the close of
business on July 21, 2003. You will be
able to cast one vote for each share of
Oregon Trail common stock you owned at
that time. As of July 21, 2003, there
were 3,108,153 shares of Oregon Trail
common stock outstanding.
What Vote is Required for In order to approve the merger agreement,
Approval of the Merger the holders of at least a majority of the
Agreement (page 29) the holders of at least a majority of the
outstanding shares of Oregon Trail common
stock entitled to vote must vote in its
favor. Oregon Trail shareholders can vote
your shares by attending the annual
meeting and voting in person or by
completing and mailing the enclosed proxy
card. As of July 21, 2003, directors and
executive officers of Oregon Trail owned
approximately 7.5% of the outstanding
common stock of Oregon Trail.
FirstBank Annual Meeting
Place, Date and Time (page 24) The annual meeting of shareholders of
FirstBank will be held at the Quality
Inn, 700 Port Drive, Clarkston,
Washington on September 4, 2003 at 2:00
p.m., local time.
6
Purpose of the Meeting At the annual meeting, FirstBank
(page 24) shareholders will be asked to:
o approve the merger with Oregon
Trail including the issuance of
FirstBank common stock in the
merger,
o elect three directors,
o ratify the appointment of
Moss-Adams LLP, and
o to transact any other business that
may properly come before the
meeting.
Who Can Vote at the Meeting You can vote at the annual meeting of
(page 24) FirstBank shareholders if you owned
FirstBank common stock at the close of
business on July 21, 2003. You will be
able to cast one vote for each share of
FirstBank common stock you owned at that
time. As of July 21, 2003, there were
1,297,374 shares of FirstBank common
stock outstanding.
What Vote is Required for In order to approve the issuance of
Approval of the Merger FirstBank common stock, the holders of at
Agreement (page 25) least a majority of the outstanding
shares of FirstBank common stock entitled
to vote must vote in its favor. You can
vote your shares by attending the annual
meeting and voting in person or by
completing and mailing the enclosed proxy
card. As of July 21, 2003, directors and
executive officers of FirstBank owned
approximately 19.7% of the outstanding
common stock of FirstBank.
The Merger and the Merger Agreement
We have attached the merger agreement to this document as Appendix A.
Please read the entire merger agreement carefully. It is the legal document that
governs the merger.
Overview of the Transaction We propose a business combination in
(page 33) which Oregon Trail will merge with
FirstBank with FirstBank as the surviving
corporation in the merger. Immediately
after the merger of Oregon Trail into
FirstBank, Pioneer Bank will merge into
FirstBank Northwest.
You May Elect to Receive Cash Upon the closing of the merger of Oregon
or Shares of FirstBank Trail into FirstBank, shares of Oregon
(page 60) Trail common stock will automatically be
converted into the right to receive
either 1.028 shares of FirstBank common
stock or $22.00 in cash.
7
On July 21, 2003, FirstBank common stock
closed at $29.24 per share on The Nasdaq
National Market.
The amount of cash or stock that you
receive may differ from the amounts that
you elect because of the allocation and
proration procedures in the merger
agreement. The merger agreement provides
that 46% of the Oregon Trail common stock
will be converted into FirstBank common
stock and 54% of the Oregon Trail common
stock will be converted into cash. In
addition, the per share amount of stock
to be received by each Oregon Trail
shareholder in the merger is based on the
number of shares of Oregon Trail common
stock that was issued as of February 23,
2003. If holders of Oregon Trail stock
options exercise their right, prior to
the closing of the merger, to purchase
Oregon Trail common stock, the number of
issued shares of Oregon Trail common
stock will increase and the amount of
FirstBank common stock to be received by
each Oregon Trail shareholder will
decline. Therefore, the amount of
FirstBank common stock that an Oregon
Trail shareholder will receive will
depend on the elections of other Oregon
Trail shareholders and holders of stock
options. Because the tax consequences of
receiving cash will differ from the tax
consequences of receiving stock, you
should carefully read the tax information
beginning on page 57.
How to Elect to Receive Cash The exchange agent or, if your Oregon
or Stock and Exchange Your Trail common stock is held in "street
Oregon Trail Stock Certificates name," your broker, bank or nominee, will
(page 61) send you a form for making the election
after the date this proxy
statement-prospectus is being mailed. The
election form allows you to elect to
receive cash or FirstBank common stock or
to make no election.
Registrar and Transfer Company will act
as exchange agent in the merger and in
that role will process the exchange of
Oregon Trail stock certificates for
either cash or FirstBank common stock.
Shortly after the closing of the merger,
the exchange agent will allocate cash and
FirstBank common stock among Oregon Trail
shareholders, consistent with their
elections and the allocation and
proration procedures in the merger
agreement. If you do not submit an
election form, you will receive
instructions on where to surrender your
Oregon Trail stock certificates from the
exchange agent after the merger is
completed. In any event, you should not
forward your Oregon Trail stock
certificates with your proxy card.
8
If you have a preference for receiving
either FirstBank stock or cash for your
Oregon Trail stock, you should complete
and return the election form. If you do
not make an election you will be
allocated FirstBank common stock or cash
depending on the elections made by other
Oregon Trail shareholders. Please
remember, however, that even if you do
make an election, you might not receive
the amount of cash or stock that you
elect due to the requirement that exactly
46% of the shares of Oregon Trail common
stock be exchanged for FirstBank common
stock and the requirements of the
Internal Revenue Code for the receipt of
shares to be tax free.
We make no recommendation as to whether
you should elect to receive cash or stock
in the merger. You must make your own
decision with respect to your election.
Market Prices and Share The following table shows the closing
Information (page 23) price per share of FirstBank common stock
and the equivalent per share price for
Oregon Trail common stock assuming a
shareholder receives only FirstBank
common stock in exchange for his or her
Oregon Trail common stock and giving
effect to the merger on (1) February 24,
2003, which is the last day on which
FirstBank common stock traded preceding
the public announcement of the proposed
merger; and (2) July 21, 2003, which is
the last practicable trading day before
the printing of this document. The
equivalent per share price of Oregon
Trail common stock was computed by
multiplying the price of FirstBank common
stock by an exchange ratio of 1.028
shares of FirstBank common stock for each
share of Oregon Trail common stock.
Equivalent
FirstBank Price Per Share
Common of Oregon Trail
Stock Common Stock
-------------- ---------------
February 24, 2003 $ 22.45 $23.08
July 21, 2003 29.24 30.06
Tax Consequences of the Your federal income tax treatment will
Merger (page 57) depend primarily on whether you exchange
your Oregon Trail common stock for
FirstBank common stock or for cash. If
you exchange your Oregon Trail shares for
FirstBank common stock, you should not
recognize any gain or loss except with
respect to the cash you receive instead
of a fractional share. If you exchange
your Oregon Trail shares for cash, you
should recognize a capital gain or loss
on the exchange. The actual federal
income tax consequences to you of
9
electing to receive cash or FirstBank
common stock will not be ascertainable at
the time you make your election because
we will not know at that time if, or to
what extent, the allocation and proration
procedures will apply.
This tax treatment may not apply to all
Oregon Trail shareholders. Determining
the actual tax consequences of the merger
to you can be complicated. You should
consult your own tax advisor for a full
understanding of the merger's tax
consequences that are particular to you.
We will not be obligated to complete the
merger unless we each receive a tax
opinion, dated the closing date, that the
merger will be treated as a transaction
of a type that is generally tax-free to
FirstBank and Oregon Trail for U.S.
federal income tax purposes. In that
case, the U.S. federal income tax
treatment of the merger will be as we
have described it above. This opinion,
however, will not bind the Internal
Revenue Service and thus the tax
consequences could be different than set
forth in the opinion.
Recommendation of the Boards FirstBank's and Oregon Trail's boards of
of Directors directors believe that the merger is fair
and in the shareholders' best interests,
and unanimously recommends that you vote
"FOR" the proposal to approve the merger
agreement.
For a discussion of the circumstances
surrounding the merger and the factors
considered by FirstBank's and Oregon
Trail's boards of directors in approving
the merger agreement see pages 34 through
45.
Oregon Trail's Financial Advisor Keefe, Bruyette & Woods, Inc. has
Believes the Merger Consideration delivered to Oregon Trail's board of
Is Fair to Shareholders of Oregon directors its opinion that, as of the
Trail (page 53) date of the opinion, the merger
consideration is fair to the holders of
Oregon Trail common stock from a
financial point of view. A copy of this
opinion is provided as Appendix B to this
document. You should read this opinion
and the description of it in this proxy
statement-prospectus completely to
understand the procedures followed,
assumptions made, matters considered, and
qualifications and limitations on the
review made by Keefe, Bruyette & Woods in
providing this opinion. Oregon Trail has
agreed to pay Keefe, Bruyette & Woods an
amount equal to 1% of the deal value at
closing, plus $15,000. Had the
transaction closed on June 9, 2003, the
amount that would have been paid to
Keefe, Bruyette & Woods would have been
$809,000.
10
FirstBank's Financial Advisor Sandler O'Neill & Partners, L.P. has
Believes the Merger Consideration delivered to FirstBank's board of
Is Fair to FirstBank (page 45) directors its opinion that, as of the
date of the opinion, the merger
consideration is fair to FirstBank from a
financial point of view. A copy of this
opinion is provided as Appendix C to this
document. You should read this opinion
and the description of it in this proxy
statement-prospectus completely to
understand the procedures followed,
assumptions made, matters considered, and
qualifications and limitations on the
review made by Sandler O'Neill in
providing this opinion. FirstBank has
agreed to pay Sandler O'Neill a
transaction fee equal to 0.75% of the
purchase price, or approximately $650,000
(based upon the closing price of
FirstBank common stock on July 21, 2003),
plus $150,000 for its opinion, which will
be credited against the transaction fee
upon the closing of the merger. FirstBank
has also agreed to reimburse certain of
Sandler O'Neill's reasonable
out-of-pocket expenses incurred in
connection with its engagement up to a
maximum of $15,000.
Interests of Oregon Trail's Some of Oregon Trail's directors and
Directors and Officers in the officers have interests in the merger
Merger That Differ From Your that are different from, or are in
Interests (page 69) addition to, their interests as
shareholders in Oregon Trail. The members
of Oregon Trail's board of directors knew
about these additional interests, and
considered them, when they approved the
merger. These additional interests
include:
o payments and waiver agreements
among FirstBank and Oregon Trail
and each of Berniel L. Maughan,
President and Chief Executive
Officer of Oregon Trail, Zane F.
Lockwood, Executive Vice President
and Corporate Secretary of Oregon
Trail, and Jonathan P. McCreary,
Senior Vice President and Chief
Financial Officer of Oregon Trail,
which provide among things, for the
termination of Mr. Maughan's, Mr.
Lockwood's and Mr. McCreary's
rights to receive benefits under
their employment agreements upon
consummation of the merger in
exchange for a cash payment at that
time in the amounts of $616,354,
$382,567 and $379,986,
respectively;
o payments under the Pioneer Bank
Directors Emeritus Plan of
approximately $710,586. For
additional discussion of benefits
to be received by directors under
this plan, see "Election of
Director of Oregon Trail -
Director's Compensation - Directors
Emeritus Plan
o provisions in the merger agreement
relating to the indemnification of
directors and officers of Oregon
Trail and insurance for directors
and officers of
11
Oregon Trail for events occurring
before the merger; and
o the election of one director of
Oregon Trail to the FirstBank and
FirstBank Northwest boards of
directors.
Regulatory Approval Needed to We cannot complete the merger unless it
Complete the Merger (page 71) is first approved by the Office of Thrift
Supervision, the Federal Deposit
Insurance Corporation and the Washington
Department of Financial Institutions. The
U.S. Department of Justice is able to
provide input into the approval process
of federal banking agencies and will have
no less than 15 days and up to 30 days
following any approval of a federal
banking agency to challenge the approval
on antitrust grounds. FirstBank and
Oregon Trail have filed all required
application and notices with the
applicable regulatory agencies. As of the
date of this document, we have not
received the approval of these regulatory
agencies. While we do not know of any
reason why we would not be able to obtain
these approvals in a timely manner, we
cannot be certain when or if we will
receive them.
Purchase Accounting Treatment FirstBank will account for the merger
(page 60) using the purchase method of accounting.
Under this method of accounting,
FirstBank will record the fair market
value of Oregon Trail's assets and
liabilities on its financial statements.
The difference between the purchase price
paid by FirstBank and the fair market
value of Oregon Trail's tangible and
identifiable intangible assets net of its
liabilities will be recorded on
FirstBank's books as "goodwill."
Conditions to Completing the The completion of the merger depends on a
Merger (page 62) number of conditions being met. These
conditions include:
o approval of the merger agreement by
Oregon Trail's and FirstBank's
shareholders;
o approval of the merger by
regulatory authorities;
o receipt of a tax opinion that the
merger qualifies as a tax-free
reorganization; and
o the continued accuracy of certain
representations and warranties made
on the date of the merger
agreement.
We cannot be certain when or if the
conditions to the merger will be
satisfied or waived, or that the merger
will be completed.
12
Terminating the Merger Agreement FirstBank and Oregon Trail can agree at
(page 68) any time not to complete the merger, even
if Oregon Trail's shareholders have
approved it. Also, either of us can
decide, without the consent of the other,
to terminate the merger agreement if:
o the shareholders of Oregon Trail do
not approve the merger;
o the shareholders of FirstBank do
not approve the merger;
o a required regulatory approval is
denied or a governmental authority
blocks the merger;
o we do not complete the merger by
October 31, 2003; or
o the other party makes a
misrepresentation, breaches a
warranty or fails to satisfy or
fulfill a covenant that would have
a material adverse effect on the
party seeking to terminate the
merger agreement. FirstBank may
also terminate the merger agreement
if the Oregon Trail board of
directors withdraws or revises its
recommendation to its shareholders
to approve the merger agreement.
Termination Fee (page 68) Oregon Trail must pay FirstBank a
termination fee of $3.5 million if
FirstBank terminates the merger agreement
as a result of the failure of Oregon
Trail's board of directors to recommend
approval of the merger or the withdrawal,
qualification or revision of its
recommendation to approve the merger.
o if FirstBank terminates the merger
agreement as a result of a willful
breach of the merger agreement by
Oregon Trail, and an acquisition
proposal from a third party has
been publicly announced, disclosed
or communicated or made known to
Oregon Trail at any time after the
date of the merger agreement and
prior to the date of termination;
or
o if either party terminates the
merger agreement as a result of the
failure of Oregon Trail's
shareholders to approve the merger,
and an acquisition proposal from a
third party has been publicly
announced, disclosed or
communicated or made known to
Oregon Trail at any time after the
date of the merger agreement and
prior to the date of the Oregon
Trail shareholders' meeting.
13
We May Amend the Terms of the We can agree to amend the merger
Merger and Waive Some Conditions agreement, and each of us can waive our
(page 68) right to require the other party to
adhere to the terms and conditions of the
merger agreement, where the law allows.
However, if the Oregon Trail shareholders
approve the merger agreement, they must
approve any amendment or waiver that
reduces or changes the consideration to
be received by the Oregon Trail
shareholders in the merger. Any increase
in the consideration to be received by
the Oregon Trail shareholders in the
merger must be approved by the
shareholders of FirstBank.
14
RISK FACTORS
In addition to the other information included in this proxy
statement-prospectus (including the matters addressed in "A Warning About
Forward-Looking Statements"), you should carefully consider the matters
described below in determining whether to approve the merger agreement.
You may receive a form of consideration different from what you elect
The consideration to be received by Oregon Trail shareholders in the
merger is subject to the requirement that 46% of the shares of Oregon Trail
common stock be exchanged for FirstBank common stock and 54% be exchanged for
cash so that the transaction satisfies the overall proportional cash limitations
imposed by the Internal Revenue Code in order for the merger to be tax-free. The
merger agreement contains proration and allocation methods to achieve this
desired result. If you elect all cash and the available cash is oversubscribed,
then you will receive a portion of the merger consideration in FirstBank common
stock. If you elect all stock and the available stock is oversubscribed, then
you will receive a portion of the merger consideration in cash. Therefore, you
may not receive exactly the form of consideration that you elect.
Because the market price of FirstBank common stock may fluctuate, you
cannot be sure of the market value of the FirstBank common stock that you may
receive in the merger.
Upon the closing of the merger, each of your shares of Oregon Trail
common stock will automatically be converted into the right to receive 1.028
shares of FirstBank common stock or $22.00 in cash. The amount of cash or stock
that you receive may differ from the amounts that you elect due to the
allocation and proration procedures in the merger agreement. The merger
agreement provides that 46% of the Oregon Trail common stock will be converted
into FirstBank common stock and 54% of the Oregon Trail common stock will be
converted into cash. In addition, the per share amount of stock to be received
by each Oregon Trail shareholder in the merger is based on the number of shares
of Oregon Trail common stock that was issued as of February 23, 2003. If holders
of Oregon Trail stock options exercise their right, prior to the closing of the
merger, to purchase Oregon Trail common stock, the number of issued shares of
Oregon Trail common stock will increase and the amount of FirstBank common stock
to be received by each Oregon Trail shareholder will decline. Therefore, the
amount of FirstBank common stock that an Oregon Trail shareholder will receive
will depend on the elections of other Oregon Trail shareholders and holders of
stock options.
In addition, changes in the price of FirstBank common stock from the
date of the merger agreement and from the date of this proxy
statement-prospectus may affect the market value of FirstBank common stock that
you will receive in the merger. Stock price changes may result from a variety of
factors, including general market and economic conditions, changes in
FirstBank's businesses, operations and prospects, and regulatory considerations.
Many of these factors are beyond FirstBank's control. In addition, there will be
a time period between the completion of the merger and the time when Oregon
Trail shareholders receiving stock consideration actually receive certificates
evidencing FirstBank common stock. Until stock certificates are received, Oregon
Trail shareholders will not be able to sell their FirstBank shares in the open
market and, thus, will not be able to avoid losses resulting from any decline in
the trading price of FirstBank common stock during this period.
The price of FirstBank common stock might decrease after the merger
Following the merger, many holders of Oregon Trail common stock will
become shareholders of FirstBank. FirstBank common stock could decline in value
after the merger. For example, during the twelve-month period ending on July 21,
2003 (the most recent practicable date prior to the printing of this proxy
statement- prospectus), the closing price of FirstBank common stock varied from
a low of $17.80 to a high of $29.62 and ended that period at $29.24. The market
value of FirstBank common stock fluctuates based upon general market economic
conditions, FirstBank's business and prospects, and other factors.
15
Directors and officers of Oregon Trail have potential conflicts of interest in
the merger
You should be aware that some directors and officers of Oregon Trail
have interests in the merger that are different from, or in addition to, the
interests of Oregon Trail shareholders generally. For example, certain executive
officers and directors will receive severance payments or payments pursuant to
various benefit plans in connection with the merger. These agreements may create
potential conflicts of interest. These agreements and certain other additional
interests of Oregon Trail's directors and officers may cause some of these
persons to view the proposed transaction differently than you view it.
The opinions of Oregon Trail's and FirstBank's financial advisors will not
reflect changes in circumstances prior to the merger
Keefe, Bruyette & Woods and Sandler O'Neill delivered to the Oregon
Trail and FirstBank boards of directors, respectively, their opinions as to the
fairness from a financial point of view to the shareholders of each company, as
of the dates of the opinions, of the aggregate merger consideration to be
received by them under the merger agreement. These opinions did not reflect
changes that may occur or may have occurred after the dates of the opinions, to
the operations and prospects of FirstBank or Oregon Trail, general market and
economic conditions and other factors. As a result of the foregoing,
shareholders of Oregon Trail and FirstBank should be aware that the opinions of
Keefe, Bruyette & Woods and Sandler O'Neill do not address the fairness of the
aggregate merger consideration at any time other than as of the dates of the
opinions.
FirstBank may experience difficulties in managing its growth and in effectively
integrating Oregon Trail
There can be no assurances that FirstBank will be able to adequately
and profitably manage its growth, and effectively integrate the operations of
Oregon Trail. Acquiring Oregon Trail will involve risks including:
o the transaction represents a significant increase in
FirstBank's size and complexity of its operations;
o potential exposure to liabilities of Oregon Trail;
o difficulty and expense of integrating the operations and
personnel of Oregon Trail;
o potential disruption to the business of FirstBank;
o heavy demands on the management resources of FirstBank; and
o impairment of relationships with, and the possible loss of,
key employees and customers of Oregon Trail.
Expected consolidation savings may not materialize
FirstBank anticipates that, as a result of the merger, various cost
savings will accrue to the combined organization by eliminating duplicate
positions and outside services including accounting, legal, regulatory
compliance, marketing and data processing. There is a risk that FirstBank will
not be able to realize the cost savings in the amount or with the time
anticipated.
The tax consequences of the merger for Oregon Trail shareholders will be
dependent on the merger consideration received
The tax consequences of the merger to Oregon Trail shareholders will
depend on the merger consideration received by them. Oregon Trail shareholders
will not recognize any gain or loss on the conversion of shares of Oregon Trail
common stock solely into shares of FirstBank common stock. However, shareholders
who receive cash in exchange for shares of Oregon Trail common stock or instead
of any fractional shares of FirstBank common
16
stock may owe taxes on any gain realized in the exchange. For a detailed
discussion of the tax consequences of the merger to Oregon Trail shareholders,
see "The Merger -- Material Federal Income Tax Consequences."
If the merger is not completed, FirstBank and Oregon Trail will each have
incurred substantial expenses without realizing the expected benefits
FirstBank and Oregon Trail have incurred substantial expenses in
connection with the transaction described in this proxy statement-prospectus.
The completion of the merger depends on the satisfaction of several condition
and the receipt of regulatory approvals. We cannot guarantee that these
conditions will be met or the receipt of all regulatory approvals. If the merger
is not completed, these expenses could have a material adverse impact on the
financial condition of FirstBank and/or Oregon Trail because they would not
realize the expected benefits of the merger.
Unanticipated costs relating to the merger could reduce FirstBank's future
earnings per share
FirstBank believes that it has reasonably estimated the likely costs of
integrating the operations of Oregon Trail into FirstBank, and the incremental
costs of operating as a combined company. However, it is possible that
unexpected transaction costs such as taxes, fees or professional expenses or
unexpected future operating expenses such as increased personnel costs or
increased taxes, as well as other types of unanticipated adverse developments,
could have a material adverse effect on the results of operations and financial
condition of FirstBank after the merger. If unexpected costs are incurred, the
merger could have a significant dilutive effect on FirstBank's earnings per
share. In other words, if the merger is completed and unexpected costs are
incurred, FirstBank believes that its earnings per share could be less than if
the merger had not been completed.
COMPARATIVE PER SHARE DATA
The following table shows information about our income per common
share, dividends per share and book value per share, and similar information as
if the merger had occurred on the date indicated (which we refer to as "pro
forma" information). In presenting the comparative pro forma information for
certain time periods, we assumed that we had been merged throughout those
periods. See "Pro Forma Financial Information."
The information listed as "per equivalent Oregon Trail share" was
obtained by multiplying the pro forma amounts by an exchange ratio of 1.028. We
present this information to reflect the fact that some Oregon Trail shareholders
will receive shares of FirstBank common stock for each share of Oregon Trail
common stock exchanged in the merger. Because the exchange ratio will be based
on the number of shares of FirstBank common stock outstanding at the closing of
the merger, the actual exchange ratio may be less than 1.028. We also anticipate
that the combined company will derive financial benefits from the merger that
include reduced operating expenses and the opportunity to earn more revenue. The
pro forma information, while helpful in illustrating the financial
characteristics of the new company under one set of assumptions, does not
reflect these benefits and, accordingly, does not attempt to predict or suggest
future results. The pro forma information also does not necessarily reflect what
the historical results of the combined company would have been had our companies
been combined during these periods.
17
The information in the following table is based on, and should be read
together with, the historical financial information that we have presented in
this document. See "Pro Forma Financial Information."
Oregon Per Equivalent
FirstBank Trail Pro Forma Oregon Trail
Historical Historical Combined Shares (1)
------------------ ------------------ ----------------- --------------------
Book value per share:
At March 31, 2003 $ 23.51 $20.34 $23.94(2) $24.61
Cash dividends declared per share(3):
Year ended March 31, 2003 0.54 0.42 0.54 0.56
Diluted net income per share:
Year ended March 2.07 1.67 2.47 2.53
31, 2003
<FN>
- --------------
(1) The per equivalent Oregon Trail share amounts are computed by
multiplying the pro forma combined amounts by a factor of 1.028 to
reflect the exchange ratio in the merger.
(2) The pro forma combined book value per share of FirstBank common stock
is based upon the pro forma combined common shareholders' equity for
FirstBank and Oregon Trail divided by total pro forma common shares of
the combined entities.
(3) Pro forma dividends per share represent FirstBank's historical
dividends per share.
</FN>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following tables show summarized historical financial data for
FirstBank and Oregon Trail. You should read this summary financial information
in connection with FirstBank's and Oregon Trail's historical financial
information.
The audited consolidated financial statements of Oregon Trail are
included in Appendix D. The audited consolidated financial statements of
FirstBank are included in Appendix E.
18
SELECTED HISTORICAL FINANCIAL INFORMATION FOR FIRSTBANK
At or For the
Year Ended March 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(In thousands, except per share data)
Financial Condition Data:
Total assets $332,398 $307,840 $281,062 $247,898 $206,745
Securities available-for-sale 24,462 21,817 30,272 30,076 16,671
Securities held-to-maturity 1,969 2,140 2,335 2,484 3,439
Loans receivable, net 251,805 238,136 219,151 187,664 165,617
Deposits 214,340 196,123 157,797 144,907 133,278
Total borrowings 81,816 79,722 90,917 74,578 42,027
Total shareholders' equity 30,064 27,813 27,976 25,866 27,774
Operating Data:
Interest income 20,575 20,248 20,757 16,979 14,961
Interest expense 8,710 9,992 11,617 8,437 7,223
Net interest income 11,865 10,256 9,140 8,542 7,738
Provision for loan losses 1,033 1,064 303 287 296
Net interest income after
provision for loan losses 10,832 9,192 8,837 8,255 7,442
Non-interest income 4,386 4,015 2,594 2,426 3,106
Non-interest expense 11,393 9,766 8,683 8,158 7,593
Income before income tax expense 3,825 3,441 2,748 2,523 2,955
Income tax expense 1,053 1,064 866 818 923
Net income $ 2,772 $ 2,376 $ 1,882 $ 1,705 $ 2,032
Per Share Data:
Basic earnings per share $ 2.15 $ 1.76 $ 1.34 $ 1.11 $ 1.16
Diluted earnings per share 2.07 1.70 1.30 1.06 1.13
Dividends per share 0.54 0.44 0.38 0.36 0.34
Performance Ratios(1):
Return on average assets (2) 0.87% 0.81% 0.71% 0.75% 1.04%
Return on average equity (3) 9.49% 8.47% 7.07% 6.36% 6.94%
Net interest margin (4) 4.16% 3.96% 3.83% 4.15% 4.36%
Operating (noninterest) expense to average
total assets 3.67% 3.39% 3.27% 3.60% 3.86%
Asset Quality Ratios
Non-performing loans as a percent of loans
receivable, net(5) 0.50% 0.25% 0.66% 0.31% 0.38%
Non-performing loans as a percent of
total assets (5) 0.55% 0.36% 0.53% 0.33% 0.54%
Allowance for loan losses as a percent
of gross loans receivable 1.25% 1.04% 0.78% 0.83% 0.76%
<FN>
- -----------------
(1) Ratios have been annualized where applicable.
(2) Net income divided by average assets.
(3) Net income divided by average equity.
(4) Net interest income as a percentage of average interest-earning assets
(tax equivalent basis).
(5) Non-performing loans consist of nonaccrual loans and loans greater than
90 days delinquent and still accruing.
</FN>
19
SELECTED HISTORICAL FINANCIAL INFORMATION FOR OREGON TRAIL
At or For the
Year Ended March 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
(In thousands, except per share data)
Financial Condition Data:
Total assets $377,485 $398,366 $388,881 $370,612 $313,473
Securities available-for-sale 107,935 92,419 96,924 122,051 98,336
Securities held-to-maturity -- -- -- -- 9,338
Loans receivable, net 228,227 265,863 250,897 220,591 185,747
Deposits 249,126 256,078 253,777 237,735 199,589
Total borrowings 64,500 87,100 73,125 76,750 50,250
Total shareholders' equity 60,107 52,823 57,806 53,104 60,083
Operating Data:
Interest income 24,832 27,861 28,279 24,548 20,582
Interest expense 9,174 12,739 15,392 11,776 8,064
Net interest income 15,658 15,122 12,887 12,772 12,518
Provision for loan losses 321 481 794 178 483
Net interest income after
provision for loan losses 15,337 14,641 12,093 12,594 12,035
Noninterest income 3,451 3,479 2,155 1,602 1,098
Noninterest expense 11,263 11,283 11,904 10,115 8,182
Income before income taxes 7,525 6,837 2,344 4,081 4,951
Income tax provision 2,371 1,922 650 1,472 1,797
Net income $ 5,154 $ 4,915 $ 1,694 $ 2,609 $ 3,154
Per Share Data:
Basic earnings per share $ 1.78 $ 1.58 $ 0.51 $ 0.74 $ 0.78
Diluted earnings per share 1.67 1.52 0.50 0.70 0.76
Dividends per share 0.42 0.39 0.32 0.30 0.22
Performance Ratios:
Return on average assets (1) 1.32% 1.24% 0.44% 0.76% 1.14%
Return on average equity (2) 9.07 8.77 3.09 4.60 4.90
Net interest margin (3) 4.33 4.11 3.51 3.61 4.70
Operating (noninterest) expense to
average total assets 2.89 2.86 2.85 2.95 2.96
Asset Quality Ratios:
Non-performing loans as a percent of
loans receivable, net (4) 0.22 0.12 0.02 0.07 0.07
Non-performing assets as a percent of
total assets (5) 0.22 0.10 0.03 0.04 0.01
Allowance for loan losses as a percent 0.96 0.85 0.82 0.63 0.66
of gross loans receivable
<FN>
- ---------------
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Net interest income as a percentage of average interest-earning assets.
(4) Non-performing loans consist of loans accounted for on a nonaccrual
basis, loans greater than 90 days delinquent and restructured loans.
(5) Non-performing assets consist of non-performing loans and real estate
acquired in settlement of loans, but exclude restructured loans.
</FN>
20
SUMMARY SELECTED PRO FORMA COMBINED DATA
The following table shows selected financial information on a pro forma
combined basis giving effect to the merger as if the merger had become effective
at the end of the periods presented, in the case of balance sheet information,
and at the beginning of each period presented, in the case of income statement
information. The pro forma information reflects the purchase method of
accounting.
We anticipate that the merger will provide the combined company with
financial benefits that include reduced operating expenses and opportunity to
earn more revenue. The pro forma information, while helpful in illustrating the
financial characteristics of the new company under one set of assumptions, does
not reflect these benefits and, accordingly, does not attempt to predict or
suggest future results. It also does not necessarily reflect what the historical
results of the new company would have been had our companies been combined
during these periods.
You should read this summary pro forma information in conjunction with
the information under "Pro Forma Financial Information" and with the historical
information in this document on which it is based.
At March 31, 2003
----------------------------
FirstBank Oregon Trail
NW Financial Pro Forma Pro forma
Corp Corp. Adjustments combined
------------- ------------ -------------- -------------
(In thousands)
Total assets $332,398 $377,485 $ 28,588 $738,471
Securities available-for-sale 24,462 107,935 -- 132,397
Securities held-to-maturity 1,969 -- -- 1,969
Loans receivable, net 251,805 228,227 5,600 485,632
Goodwill -- -- 15,695 15,695
Intangible assets -- -- 5,921 5,921
Deposits 214,340 249,126 2,300 465,766
Total borrowings 81,816 64,500 47,509 193,816
Total shareholders' equity 30,064 60,107 (21,674) 68,497
Equity/assets 9.04% 15.92% -- 9.28%
Tangible equity/assets 9.04% 15.92% -- 6.35%
Equity/assets after repayment of bridge loan (1) -- -- -- 9.83%
Tangible equity/assets after repayment of -- -- -- 6.73%
bridge loan (1)
<FN>
- -----------------
(1) FirstBank intends to utilize a $41.9 million bridge loan to provide for
the $36.5 million in cash to purchase shares of Oregon Trail common
stock at $22.00 per share and to pay other related merger expenses. The
bridge loan is expected to be outstanding less than one month, at which
time it will be repaid from the proceeds generated from the sale of
available-for-sale investment securities.
</FN>
21
At or for the Year Ended
March 31, 2003
---------------------------------
FirstBank Oregon Trail Pro Forma
NW Financial Adjustments Pro forma
Corp Corp. debit (credit) combined
---------------- --------------- ---------------- ---------------
(In thousands)
Pro forma combined income statement data:
Interest income $ 20,575 $ 24,832 $ 1,793 $ 43,614
Interest expense 8,710 9,174 (2,094) 15,790
Net interest income 11,865 15,658 (301) 27,824
Provisions for loan losses 1,033 321 -- 1,354
Net interest income after provision
for loan losses 10,832 15,337 (150) 26,470
Non-interest income 4,386 3,451 -- 7,837
Non-interest expense 11,393 11,263 624 23,280
Income before income taxes 3,825 7,525 (323) 11,027
Income tax provision 1,053 2,371 (200) 3,301
Net income 2,772 5,154 (200) 7,726
Pro forma per share data:
Basic net income $ 2.15 $ 1.78 $ (0.14) $ 2.79
Diluted net income 2.07 1.67 (0.12) 2.56
At March 31, 2003
---------------------------------
Weighted average common shares
outstanding - basic 1,287,967 2,902,501 1,480,064 2,768,031
Weighted average common shares
outstanding - diluted 1,341,111 3,081,534 1,679,510 3,020,621
Shares issued 1,380,992 2,954,938 1,480,064 2,861,056
22
MARKET PRICE AND DIVIDEND INFORMATION
FirstBank
FirstBank common stock is listed on The Nasdaq National Market under
the symbol "FBNW". The table below sets forth, for the calendar quarters
indicated, the high and low sales prices of FirstBank common stock as reported
on The Nasdaq National Market and the dividends per share declared on the
FirstBank common stock in each such quarter.
Sale Price
---------------------------- Dividends
Year High Low Declared
- ------------ ------------ ------------ -------------
Fiscal 2003
First quarter $19.07 $17.85 $0.12
Second quarter 19.45 17.80 0.12
Third quarter 20.98 18.95 0.15
Fourth quarter 23.94 20.45 0.15
Fiscal 2002
First quarter 16.000 13.030 0.10
Second quarter 17.900 15.410 0.10
Third quarter 17.950 16.250 0.12
Fourth quarter 18.409 16.500 0.12
You should obtain current market quotations for FirstBank common stock
as the market price of FirstBank common stock will fluctuate between the date of
this document and the date on which the merger is completed, and thereafter. You
can get these quotations from a newspaper, on the Internet or by calling your
broker.
As of July 21, 2003, there were approximately 255 holders of record of
FirstBank common stock. This number does not reflect the number of persons or
entities who may hold their stock in nominee or "street" name through brokerage
firms.
Following the merger, the declaration of dividends will be at the
discretion of FirstBank's board of directors and will be determined after
consideration of various factors, including earnings, cash requirements, the
financial condition of FirstBank, applicable state law and government
regulations and other factors deemed relevant by FirstBank's board of directors.
Federal law limits the ability of FirstBank Northwest to pay dividends to
FirstBank. The merger agreement prohibits Oregon Trail from paying cash
dividends on Oregon Trail common stock pending consummation of the merger. See
"The Merger -- Conduct of Business Before the Merger."
Oregon Trail
Oregon Trail's common stock is traded over-the-counter on the Nasdaq
National Market under the symbol "OTFC". Shareholders of record at July 21, 2003
totaled 685. This total does not reflect the number of persons or entities who
hold stock in nominee or "street" name through various brokerage firms. The
following table shows the reported high and low sale prices of Oregon Trail's
common stock and declared dividends for each quarter within the two most recent
fiscal years.
23
Sale Price
---------------------------- Dividends
Year High Low Declared
- ------------ ------------ ------------ -------------
Fiscal 2003
First quarter $19.70 $18.45 $0.10
Second quarter 21.59 17.95 0.10
Third quarter 21.60 20.20 0.11
Fourth quarter 23.10 20.11 0.11
Fiscal 2002
First quarter 14.99 13.94 0.09
Second quarter 16.10 14.52 0.10
Third quarter 18.63 15.48 0.10
Fourth quarter 18.62 17.51 0.10
You should obtain current market quotations for Oregon Trail common
stock as the market price of Oregon Trail common stock will fluctuate between
the date of this document and the date on which the merger is completed, and
thereafter. You can get these quotations from a newspaper, on the Internet or by
calling your broker.
ANNUAL MEETING OF FIRSTBANK SHAREHOLDERS
Place, Date and Time
The annual meeting of FirstBank will be held at the Quality Inn, 700
Port Drive, Clarkston, Washington on September 4, 2003, at 2:00 p.m., local
time.
Matters to be Considered
The FirstBank annual meeting is being held for the following purposes:
o to consider and approve the merger contemplated by the merger
agreement, including the issuance of FirstBank common stock in
the merger;
o to elect three directors; and
o to approve the appointment of Moss-Adams, LLP as FirstBank's
independent accountants.
The FirstBank shareholders also will consider any other matters that
may properly come before the annual meeting. At the time of the mailing of this
proxy statement-prospectus, the FirstBank board of directors was not aware of
any other matters to be presented for consideration at the annual meeting other
than those listed above.
Who Can Vote at the Meeting; Record Date
You are entitled to vote your FirstBank common stock at the annual
meeting if the records of FirstBank showed that you held your shares as of the
close of business on July 21, 2003. As of the close of business on that date, a
total of 1,297,374 shares of FirstBank common stock were outstanding. Each share
of common stock has one vote.
If you are a beneficial owner of FirstBank common stock held in "street
name" by a broker, bank or other nominee and you want to vote your shares of
FirstBank common stock in person at the meeting, you will have to get a written
proxy in your name from the broker, bank or other nominee who holds your shares.
24
Quorum and Vote Required
Quorum. A quorum must be present at the meeting for any business to be
conducted. The presence at the meeting, in person or by proxy, of at least a
majority of the shares of FirstBank common stock entitled to vote at the annual
meeting as of the record date will constitute a quorum. Proxies received but
marked as abstentions or broker non-votes will be included in the calculation of
the number of shares considered to be present at the annual meeting.
Broker non-votes also will be counted for purposes for determining the
existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner. Under applicable rules, brokers, banks and other nominees may
not exercise their voting discretion on the proposal to approve and adopt the
merger agreement and, for this reason, may not vote shares held for beneficial
owners without specific instructions from the beneficial owners.
Vote Required. The proposal to approve the merger contemplated by the
merger agreement and the issuance of shares of FirstBank common stock in the
merger requires the affirmative vote of the holders of at least a majority of
the outstanding shares of FirstBank common stock entitled to vote at the
meeting, or 648,688 shares of the 1,297,374 shares of FirstBank outstanding and
entitled to vote as of the close of business on July 21, 2003. Failure to return
a properly executed proxy card or to vote in person will have the same effect as
a vote against the merger agreement. Abstentions and broker non-votes will have
the same effect as a vote against the merger agreement.
The election of the three nominees as directors of FirstBank requires
the affirmative vote of a plurality of the votes cast at the annual meeting.
FirstBank's articles of incorporation do not allow shareholders to cumulate
their votes for the election of directors. You may vote in favor of or withhold
authority to vote for one or more nominees for director. Votes that are withheld
and broker non-votes will have no effect on the outcome of the election because
the nominee receiving the greatest number of votes will be elected.
The approval of the appointment of Moss-Adams, LLP as FirstBank's
independent auditors for the fiscal year ending March 31, 2004 requires the
affirmative vote of a majority of the outstanding shares of FirstBank's common
stock present in person or by proxy and entitled to vote at the annual meeting.
Abstentions are not affirmative votes and, therefore, will have the same effect
as a vote against the proposal and broker non-votes will be disregarded and will
have no effect on the outcome of the vote.
Shares Held by FirstBank Officers and Directors and by Oregon Trail
As of July 21, 2003, directors and executive officers of FirstBank
owned 254,843 shares of FirstBank common stock. This equals approximately 19.7%
of the outstanding shares of FirstBank common stock. As of the same date,
neither Oregon Trail nor, to the knowledge of Oregon Trail, any of its directors
and executive officers, beneficially owned any shares of FirstBank common stock.
Voting by Proxy
The board of directors of FirstBank is sending you this document for
the purpose of requesting that you allow your shares of FirstBank common stock
to be represented at the annual meeting by the persons named in the enclosed
proxy card. All shares of FirstBank common stock represented at the meeting by
properly executed proxies will be voted in accordance with the instructions
indicated on the proxy card. If you sign and return a proxy card without giving
voting instructions, your shares will be voted as recommended by FirstBank's
board of directors. FirstBank's board of directors unanimously recommends a
vote:
o FOR approval of the merger contemplated by the merger
agreement, including the issuance of FirstBank's common stock
in the merger;
o FOR the election of the nominees for director; and
25
o FOR the approval of Moss-Adams, LLP as FirstBank's independent
auditors for the fiscal year ending March 31, 2004.
At this time, FirstBank does not know of any other matters, other than
set forth above, to be presented for action at the annual meeting. If any
matters other than set forth above, not described in this document are properly
presented at the annual meeting, the persons named in the proxy card will use
their own judgment to determine how to vote your shares. This includes a motion
to adjourn or postpone the meeting in order to solicit additional proxies for
the adoption of the merger agreement. However, no proxy voted against the
proposal to approve the merger agreement will be voted in favor of an
adjournment or postponement to solicit additional votes in favor of the merger
agreement.
If your FirstBank common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Please see the instruction form that
accompanies this document.
Revocability of Proxies
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must:
o either advise the Secretary of FirstBank in writing before
your common stock has been voted at the annual meeting,
o deliver proxy instructions to FirstBank with a later date; or
o attend the meeting and vote your shares in person.
Attendance at the annual meeting will not in itself constitute revocation of
your proxy.
ESOP and 401(k) Profit Sharing Plan Participants
If you are a participant in FirstBank Northwest's employee stock
ownership plan or if you hold shares through FirstBank Northwest's 401(k) Profit
Sharing Plan, the proxy card represents a voting instruction to the trustees as
to the number of shares in your plan account. Each participant in the employee
stock ownership plan and 401(k) Profit Sharing Plan may direct the trustees as
to the manner in which shares of common stock allocated to the participant's
plan account are to be voted. Unallocated shares of common stock held by the
employee stock ownership plan and allocated shares for which no voting
instructions are received will be voted by the trustees as directed by the plan
administrator.
Solicitation of Proxies
FirstBank will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, directors, officers and employees of FirstBank may
solicit proxies personally and by telephone. None of these persons will receive
additional or special compensation for soliciting proxies. FirstBank, together
with Oregon Trail, is paying Regan & Associates, Inc. a fee of up to $7,500,
including expenses, to help with the solicitation for its and Oregon Trail's
annual meeting. FirstBank also will, upon request, reimburse brokers, banks and
other nominees for their expenses in sending proxy materials to their customers
who are beneficial owners and obtaining their voting instructions.
Recommendation of the FirstBank Board of Directors
The FirstBank board of directors has unanimously approved the merger
agreement and recommends that FirstBank shareholders vote "FOR" approval of the
merger contemplated by the merger agreement and the issuance of shares of
FirstBank common stock in the merger and the other matters to be voted on at the
annual meeting.
26
OWNERSHIP OF FIRSTBANK COMMON STOCK
The following table sets forth certain information as of the record
date regarding the share ownership of: (1) those persons or entities known by
management to beneficially own more than five percent of the common stock, (2)
each officer of FirstBank and its subsidiary bank who made in excess of $100,000
(salary and bonus) during the 2003 fiscal year ("named executive officers"); and
(3) all directors and executive officers of FirstBank and of its subsidiary bank
as a group.
Number of Shares Percent of Shares
Name Beneficially Owned(1)(2) Outstanding
- ----------------------------------- ------------------------ -----------------
Beneficial Owners of More Than 5%
Westport Asset Management, Inc.
253 Riverside Avenue
Westport, Connecticut 06880 100,000(3) 7.11%
FirstBank Northwest 155,423(4) 11.04
Employee Stock Ownership Plan Trust
920 Main Street
Lewiston, Idaho 83501
Directors
Robert S. Coleman, Sr 31,100 2.21
Steve R. Cox 35,100 2.49
W. Dean Jurgens 25,100 1.78
William J. Larson 15,420 1.10
James N. Marker 13,251 *
Named Executive Officers
Clyde E. Conklin (5) 70,293 4.99
Larry K. Moxley (5) 77,498 5.51
Terence A. Otte 28,564 2.03
Donn L. Durgan 22,706 1.61
Richard R. Acuff 17,211 1.22
All Executive Officers and
Directors as a Group (10 persons) 336,243 23.89%
- ---------------
* Less than one percent of shares outstanding.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner, for
purposes of this table, of any shares of common stock if he or she has
voting and/or investment power with respect to such security. The table
includes shares owned by spouses, other immediate family members in
trust, shares held in retirement accounts or funds for the benefit of
the named individuals, and other forms of ownership, over which shares
the persons named in the table may possess voting and/or investment
power.
(footnotes continue on following page)
27
(2) The amounts shown include the following amounts of common stock which
the indicated individuals have the right to acquire within 60 days of
July 21, 2003 through the exercise of stock options granted pursuant to
FirstBank's 1998 Stock Option Plan: Mr. Coleman, 1,400; Mr. Cox, 5,600;
Mr. Jurgens, 5,200; Mr. Larson, 5,600; Mr. Marker, 5,600; Mr. Conklin,
19,200; Mr. Moxley, 19,200; Mr. Otte, 8,800; Mr. Durgan, 8,800; Mr.
Acuff, 2,000 and all executive officers and directors as a group,
81,400.
(3) Information concerning the shares owned by Westport Asset Management,
Inc. was obtained from an amendment to a Schedule 13G dated February
14, 2003. According to this filing, Westport Asset Management, Inc. has
shared voting power with respect to 30,000 shares and shared
dispositive power with respect to 100,000 shares.
(4) Under the terms of the ESOP, the trustees will vote unallocated shares
and allocated shares for which no voting instructions are received in
their sole discretion. As of March 31, 2003, 69,104 shares have been
allocated to participants' accounts. The trustees of the ESOP are Clyde
E. Conklin and Larry K. Moxley.
(5) Messrs. Conklin and Moxley are also directors of FirstBank and
FirstBank Northwest.
ANNUAL MEETING OF OREGON TRAIL SHAREHOLDERS
Place, Date and Time
The annual meeting of Oregon Trail will be held at the Sunridge Inn and
Conference Center, Baker City, Oregon on September 3, 2003, at 10:00 a.m., local
time.
Matters to be Considered
The Oregon Trail annual meeting is being held for the following
purposes:
o to consider and approve the merger agreement;
o to elect two directors; and
o to ratify the appointment of Deloitte & Touche LLP as Oregon
Trail's independent accountants.
The Oregon Trail shareholders also will consider any other matters that
may be properly come before the annual meeting. At the time of the mailing of
this proxy statement-prospectus, the Oregon Trail board of directors was not
aware of any other matters that may be presented for consideration at the annual
meeting other than those listed above.
Who Can Vote at the Meeting; Record Date
You are entitled to vote your Oregon Trail common stock at the annual
meeting if the records of Oregon Trail showed that you held your shares as of
the close of business on July 21, 2003. As of the close of business on that
date, a total of 3,108,153 shares of Oregon Trail common stock were outstanding.
Each share of common stock has one vote.
If you are a beneficial owner of Oregon Trail common stock held in
"street name" by a broker, bank or other nominee and you want to vote your
shares of Oregon Trail common stock in person at the meeting, you will have to
get a written proxy in your name from the broker, bank or other nominee who
holds your shares.
Quorum and Vote Required
Quorum. A quorum must be present at the meeting for any business to be
conducted. The presence at the meeting, in person or by proxy, of at least a
majority of the shares of Oregon Trail common stock entitled to vote at the
annual meeting as of the record date will constitute a quorum. Proxies received
but marked as abstentions or
28
broker non-votes will be included in the calculation of the number of shares
considered to be present at the annual meeting.
Broker non-votes also will be counted for purposes for determining the
existence of a quorum. A broker non-vote occurs when a broker, bank or other
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received voting instructions from the
beneficial owner. Under applicable rules, brokers, banks and other nominees may
not exercise their voting discretion on the proposal to approve and adopt the
merger agreement and, for this reason, may not vote shares held for beneficial
owners without specific instructions from the beneficial owners.
Vote Required. The proposal to approve and adopt the merger agreement
requires the affirmative vote of the holders of at least a majority of the
outstanding shares of Oregon Trail common stock entitled to vote at the meeting,
or 1,554,077 shares of the 3,108,153 shares of Oregon Trail outstanding and
entitled to vote as of the close of business on July 21, 2003. Failure to return
a properly executed proxy card or to vote in person will have the same effect as
a vote against the merger agreement. Abstentions and broker non-votes will have
the same effect as a vote against the merger agreement.
The election of the two nominees as directors of Oregon Trail requires
the affirmative vote of a plurality of the votes cast at the annual meeting.
Oregon Trail's articles of incorporation do not allow shareholders to cumulate
their votes for the election of directors. You may vote in favor of or withhold
authority to vote for one or more nominees for director. Votes that are withheld
and broker non-votes will have no effect on the outcome of the election because
the nominee receiving the greatest number of votes will be elected.
The approval of the appointment of Deloitte & Touche LLP as FirstBank's
independent auditors for the fiscal year ending March 31, 2004 requires the
affirmative vote of a majority of the outstanding shares of Oregon Trail's
common stock present in person or by proxy and entitled to vote at the annual
meeting. Abstentions are not affirmative votes and, therefore, will have the
same effect as a vote against the proposal and broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
Shares Held by Oregon Trail Officers and Directors and by FirstBank
As of July 21, 2003, directors and executive officers of Oregon Trail
owned 234,337 shares of Oregon Trail common stock. This equals approximately
7.5% of the outstanding shares of Oregon Trail common stock. As of the same
date, neither FirstBank nor, to the knowledge of FirstBank, any of its directors
and executive officers beneficially owned any shares of Oregon Trail common
stock, except for 5,186 shares owned by Clyde E. Conklin, President and Chief
Executive Officer of FirstBank. All of the Oregon Trail directors entered into
voting agreements with FirstBank under which they have agreed to vote an
aggregate of 213,781 shares of Oregon Trail common stock owned by them in favor
of the proposal to approve the merger agreement.
Voting by Proxy
The board of directors of Oregon Trail is sending you this document for
the purpose of requesting that you allow your shares of Oregon Trail common
stock to be represented at the annual meeting by the persons named in the
enclosed proxy card. All shares of Oregon Trail common stock represented at the
meeting by properly executed proxies will be voted in accordance with the
instructions indicated on the proxy card. If you sign and return a proxy card
without giving voting instructions, your shares will be voted as recommended by
Oregon Trail's board of directors. Oregon Trail's board of directors unanimously
recommends a vote:
o FOR approval of the merger agreement.
o FOR the election of the nominees for director; and
29
o FOR the approval of Deloitte & Touche LLP as Oregon Trail's
independent auditors for the fiscal year ending March 31,
2004.
At this time, Oregon Trail does not know of any other matters, other
than set forth above, to be presented for action at the annual meeting. If any
matters not described in this document are properly presented at the annual
meeting, the persons named in the proxy card will use their own judgment to
determine how to vote your shares. This includes a motion to adjourn or postpone
the meeting in order to solicit additional proxies for the adoption of the
merger agreement. However, no proxy voted against the proposal to approve the
merger agreement will be voted in favor of an adjournment or postponement to
solicit additional votes in favor of the merger agreement.
If your Oregon Trail common stock is held in street name, you will
receive instructions from your broker, bank or other nominee that you must
follow in order to have your shares voted. Please see the instruction form that
accompanies this document.
Revocability of Proxies
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must:
o either advise the Secretary of Oregon Trail in writing before
your common stock has been voted at the annual meeting,
o deliver proxy instructions to Oregon Trail with a later date;
or
o attend the meeting and vote your shares in person.
Attendance at the annual meeting will not in itself constitute revocation of
your proxy.
ESOP Participants
If you are a participant in the Oregon Trail Financial Corp. employee
stock ownership plan, the proxy card represents a voting instruction to the
trustees of the employee stock ownership plan as to the number of shares in your
plan account. Each participant in the plan may instruct the trustees as to the
manner in which shares of common stock allocated to the participant's plan
account are to be voted. The instructions are confidential and will not be
disclosed to Oregon Trail. Unallocated shares of common stock held by the
employee stock ownership plan and allocated shares for which no voting
instructions are received will be voted by the trustees as directed by the plan
administrators.
Solicitation of Proxies
Oregon Trail will pay the cost of this proxy solicitation. In addition
to soliciting proxies by mail, directors, officers and employees of Oregon Trail
may solicit proxies personally and by telephone. None of these persons will
receive additional or special compensation for soliciting proxies. Oregon Trail,
together with FirstBank, is paying Regan & Associates, Inc. a fee of up to
$7,500, including expenses, to help with the solicitation for its and
FirstBank's annual meeting. Oregon Trail also will, upon request, reimburse
brokers, banks and other nominees for their expenses in sending proxy materials
to their customers who are beneficial owners and obtaining their voting
instructions.
Recommendation of the Oregon Trail Board of Directors
The Oregon Trail board of directors has unanimously approved the merger
agreement and recommends that Oregon Trail shareholders vote "FOR" approval of
the merger agreement and the other matters to be voted on at the annual meeting.
30
OWNERSHIP OF OREGON TRAIL COMMON STOCK
The following table sets forth certain information as of the record
date regarding the share ownership of: (1) those persons or entities known by
management to beneficially own more than five percent of the common stock, (2)
each officer of Oregon Trail and its subsidiary bank who made in excess of
$100,000 (salary and bonus) during the 2003 fiscal year ("named executive
officers"); and (3) all directors and executive officers of Oregon Trail and of
its subsidiary bank as a group.
Number of Shares Percent of Shares
Name Beneficially Owned(1)(2) Outstanding
- ----------------------------------- ------------------------ -----------------
Beneficial Owners of More Than 5%
Oregon Trail Financial Corp. (3) 349,251 10.19%
Employee Stock Ownership Plan Trust
David M. W. Harvey 212,600 6.20
Hot Creek Capital, L.L.C.
P.O. Box 3178
Gardnerville, Nevada 89410
Westport Asset Management, Inc. (4) 181,000 5.28
253 Riverside Avenue
Westport, Connecticut 06880
Directors(5)
John Gentry 73,818 2.15
Albert H. Durgan 63,335 1.85
Edward H. Elms 82,887 2.42
Stephen R. Whittemore 79,274 2.31
Charles H. Rouse 78,818 2.30
Kevin D. Padrick 5,000 *
John A. Lienkaemper (6) 74,043 2.16
Named Executive Officers
Berniel L. Maughan 30,000 *
Zane F. Lockwood 53,932 1.57
Jonathan P. McCreary 11,115 *
All Executive Officers and
Directors as a Group (ten persons) 552,222 16.10%
- ---------------
* Less than one percent of shares outstanding.
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended, a person is deemed to be the beneficial owner, for
purposes of this table, of any shares of common stock if he or she has
voting and/or investment power with respect to such security. The table
includes shares owned by spouses, other immediate family members in
trust, shares held in retirement accounts or funds for the benefit of
the named individuals, and other forms of ownership, over which shares
the persons named in the table may possess voting and/or investment
power.
(footnotes continue on following page)
31
(2) The table includes exercisable stock options under Oregon Trail's 1998
Stock Option Plan ("Option Plan") in the amounts of 39,702 each for
Messrs. Gentry, Lienkaemper, Durgan, Elms, Whittemore and Rouse, and
5,000 for Mr. Padrick. The table also includes exercisable stock
options under the Option Plan in the amounts of 30,000, 37,558 and
7,115 for Messrs. Maughan, Lockwood and McCreary, respectively.
(3) Under the terms of the employee stock ownership plan, the trustees will
vote unallocated shares and allocated shares for which no voting
instructions are received in the same proportion as shares for which
the trustees have received voting instructions from participants. As of
the record date, 159,915 shares have been allocated to participants'
accounts. The trustees of the employee stock ownership plan are William
H. Winegar, Michelle Kaseburg, Anne Raffetto and Jonathan McCreary.
(4) Based on a SEC Schedule 13G, dated February 14, 2003, that discloses
shared voting and dispositive power as to 181,000 shares.
(5) Includes unvested shares in Oregon Trail's Management Recognition and
Development Plan. Participants in the Management Recognition and
Development Plan exercise all rights incidental to ownership, including
voting rights.
(6) Mr. Lienkaemper is a director of Pioneer Bank and is not a director of
Oregon Trail.
THE MERGER
(FirstBank and Oregon Trail Proposal I)
The following discussion of the merger is qualified by reference to the
merger agreement, which we have attached to this document as Appendix A. You
should read the entire merger agreement carefully. It is the legal document that
governs the merger.
The Parties to the Merger
FirstBank. FirstBank, a Washington corporation, was organized in
Delaware in March of 1997 for the purpose of becoming the holding company for
FirstBank Northwest (formerly known as First Federal Bank of Idaho, a Federal
Savings Bank) upon FirstBank Northwest's conversion from a federally chartered
mutual to a federally chartered stock savings bank. FirstBank completed its
conversion and initial public offering on July 1, 1997.
FirstBank Northwest, founded in 1920, is a Washington-chartered state
savings bank located in Lewiston, Idaho. FirstBank Northwest, which was formed
as an Idaho mutual savings and loan association, converted to a federal mutual
savings and loan association in 1935 and adopted the federal mutual savings bank
charter in 1990. In July 1997, FirstBank Northwest relocated its main office to
Clarkston, Washington and on January 30, 1998 converted to a
Washington-chartered savings bank. FirstBank Northwest is regulated by the State
of Washington, its primary regulator, and the Federal Deposit Insurance
Corporation, the insurer of its deposits under the Savings Association Insurance
Fund. FirstBank's deposits have been federally insured since 1933 and it has
been a member of the Federal Home Loan Bank System since 1933.
FirstBank Northwest is a community-oriented financial institution that
engages primarily in the business of attracting deposits from the general public
and using those funds to originate residential mortgage loans, commercial, and
agricultural real estate loans within its market area. FirstBank also is active
in originating construction, consumer and other non-real estate loans. FirstBank
has adopted a mortgage banking strategy pursuant to which it generally sells a
majority of the fixed-rate residential mortgage loans.
Certain information relating to executive compensation, benefit plans,
voting securities and the principal holders thereof, certain relationships and
related transactions and other matters related to FirstBank are included in this
proxy statement-prospectus under the heading "Election of Directors of
FirstBank" on pages 84 to 91.
For financial statements of FirstBank and a discussion of FirstBank's
recent results of operations, see FirstBank's 2003 annual report to shareholders
which accompanies this document as Appendix E.
32
Oregon Trail Financial Corp. Oregon Trail, an Oregon corporation, was
organized on June 9, 1997 for the purpose of becoming the holding company for
Pioneer Bank upon Pioneer Bank's conversion from a federal mutual to a federal
stock savings bank. The mutual to stock conversion was completed on October 3,
1997.
Pioneer Bank was organized in 1901. Pioneer Bank is regulated by the
Office of Thrift Supervision, its primary regulator, and the Federal Deposit
Insurance Corporation, the insurer of its deposits under the Savings Association
Insurance Fund. Pioneer Bank's deposits have been federally-insured since 1934
and it has been a member of the Federal Home Loan Bank System since 1934.
Pioneer Bank is a community oriented financial institution whose
principal business is attracting retail deposits from the general public and
using these funds to originate one- to- four family residential mortgage loans
and consumer loans within its primary market area. Pioneer Bank also actively
originates home equity and second mortgage loans. Beginning in 1996, Pioneer
Bank began supplementing its traditional lending activities with commercial
business loans, agricultural loans, and the purchase of dealer-originated
automobile contracts. In addition to its lending activities, Pioneer Bank
invests excess liquidity in short to long term U.S. Government and government
agency securities and mortgage-backed and related securities issued by U.S.
Government agencies.
Certain information relating to executive compensation, benefit plans,
voting securities and the principal holders thereof, certain relationships and
related transactions and other matters related to Oregon Trail are included in
this proxy statement-prospectus under the heading "Election of Directors of
Oregon Trail" on pages 92 to 101.
For information on Oregon Trail's business and financial statements and
a discussion of Oregon Trail's recent results of operations, see Appendix D.
Overview of the Merger
The merger agreement provides for a business combination in which
Oregon Trail will merge with and into FirstBank. FirstBank will be the surviving
corporation in the merger.
As a result of the merger, except as noted below, each outstanding
share of Oregon Trail common stock will be converted into the right to receive,
at the election of the holder, either shares of FirstBank common stock or $22.00
in cash. See "-- Conversion of Oregon Trail Common Stock" below. FirstBank will
not issue fractions of shares of FirstBank common stock, but instead will pay
each holder of Oregon Trail common stock who would otherwise be entitled to a
fraction of a share of FirstBank common stock an amount in cash determined by
multiplying that fraction by the average closing price of FirstBank common stock
over a measurement period prior to the completion of the merger. If there is a
change in the number or classification of shares of FirstBank outstanding as a
result of a stock split, stock dividend, reclassification, recapitalization, or
other similar transaction, the exchange ratio will be equitably adjusted. Shares
of Oregon Trail common stock held directly or indirectly by FirstBank will be
canceled and retired upon completion of the merger, and no payment will be made
for them. Canceled shares will not include shares held by either Oregon Trail or
FirstBank in a fiduciary capacity or in satisfaction of a debt previously
contracted. Holders of shares for which dissenters' rights have been exercised
will be entitled only to the rights granted by Washington law.
In connection with the execution of the merger agreement, FirstBank
also entered into a standstill agreement with a shareholder of Oregon Trail,
Joseph Stilwell and his affiliated entities, which owned 9.2% of Oregon Trail's
outstanding shares of common stock when the transaction was negotiated. Oregon
Trail had previously entered into a standstill agreement with Mr. Stilwell and
his affiliated entities on March 13, 2002 to settle outstanding claims and
litigation between them. FirstBank's agreement with Mr. Stilwell and his
affiliated entities provides that the Stilwell Group will not propose or seek to
effect a merger or sale of FirstBank, solicit proxies in opposition to
recommendations or proposals of FirstBank's management, or seek to exercise any
control or influence over the management of FirstBank and will dispose of any
FirstBank shares of common stock received in the merger as expeditiously as
possible but in no event later than six months after the closing of the merger.
On March 4, 2003 Mr. Stilwell filed an amended Schedule 13D with the Securities
and Exchange Commission reporting that he and his affiliated entities had sold
their Oregon Trail common stock.
33
Conversion of Oregon Trail Common Stock
When the merger becomes effective, each share of Oregon Trail common
stock issued and outstanding immediately prior to the completion of the merger
will automatically be converted into the right to receive, at the holder's
election, either (a) $22.00 in cash without interest or (b) 1.028 shares of
FirstBank common stock and cash instead of fractional shares. An Oregon Trail
shareholder's receipt of either cash or stock, however, is subject to the
allocation and proration procedures as well as other provisions in the merger
agreement. See "-- Cash or Stock Election."
The per share amount of FirstBank common stock to be received by each
Oregon Trail shareholder in the merger is based on the number of shares of
Oregon Trail common stock that was issued as of February 23, 2003. If holders of
Oregon Trail stock options exercise their right, prior to the closing of the
merger, to purchase Oregon Trail common stock, the number of issued shares of
Oregon Trail common stock will increase and the amount of FirstBank common stock
to be received by each Oregon Trail shareholder will decline. Therefore, the
amount of FirstBank common stock that an Oregon Trail shareholder will receive
will depend on the elections of other Oregon Trail shareholders and holders of
stock options.
Background of and Reasons for the Merger
FirstBank. Since FirstBank's initial public offering, it has been a
strategic objective to utilize capital to support growth. FirstBank's goal has
been to grow through banking operations with the objective of converting the
balance sheet to reflect that of a commercial bank. Growth from operations,
focused on commercial banking, was considered reasonably attainable and
manageable as a highly capitalized publicly traded thrift institution. Growth
through merger and acquisition was also a longer term strategy. FirstBank sought
to identify possible acquisition candidates that would compliment its operations
and business strategies, and to make appropriate contacts in pursuit of this
goal.
Over the past several years, numerous candidates were identified and
pursued, however, none of these discussions resulted in the execution of a
definitive merger agreement. During this period, Oregon Trail, and its
subsidiary, Pioneer Bank, was always considered to be a potential candidate
because it is located in a market area that is geographically contiguous to
FirstBank's existing market areas with no overlapping branches. Oregon Trail was
also considered to be a potential candidate because of its stable deposit
markets, sizable asset base, strong asset quality, and its community banking
philosophy, which is shared by FirstBank. In addition, Pioneer Bank and
FirstBank Northwest have common backgrounds as converted thrift institutions,
and the board of directors and management of FirstBank believed that a
combination of the two companies would enhance FirstBank's competitiveness, and
would have a minimal impact on the staff of Oregon Trail.
Contacts were made at various times with Oregon Trail's previous chief
executive officers by FirstBank's chief executive officer. Initial contact with
Oregon Trail's present chief executive officer, Berniel L. Maughan, was made by
FirstBank's chief executive officer, Clyde E. Conklin, in March 2001. Contact by
telephone was maintained on a regular basis. Specific contact was made in
November 2002 by Oregon Trail to FirstBank regarding the initiation of a focused
discussion on a possible merger/acquisition of the two institutions. An initial
meeting was held on November 5, 2002 in Enterprise, Oregon, between Mr. Maughan
and Mr. Jonathan P. McCreary, chief financial officer, of Oregon Trail, and Mr.
Conklin and Mr. Larry K. Moxley, chief financial officer, of FirstBank. Various
other meetings and telephone discussions followed.
On November 12, 2002, the FirstBank board of directors met in a special
session to consider the proposed transaction with Oregon Trail and the expected
impact on FirstBank and its shareholders as well as other factors. The following
issues were among those identified and discussed by the board of directors:
o The impact of the transaction on FirstBank's earnings and
other related financial issues.
o The existence of a dissident Oregon Trail shareholder and the
perceived impact to FirstBank's operating plan and
shareholders.
34
o The relative size of Oregon Trail compared to FirstBank and
the related capital of the resulting institution and the
regulatory capital requirements.
o Shareholder ownership that would result from the structure of
the transaction.
o Regulatory issues.
o Corporate structure and enhanced staffing necessary to
effectively manage the larger institution.
o Management's and the board's commitment to the combination.
After a lengthy discussion, it was agreed that further consideration and
evaluation of this transaction would be in the best interests of FirstBank and
its shareholders. Mr. Conklin was instructed by FirstBank's board of directors
to convey FirstBank's interest in a possible transaction to Oregon Trail's chief
executive officer.
FirstBank contacted Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") during the week of November 12, 2002 to discuss the possibility of a
potential transaction with Oregon Trail and requested that Sandler O'Neill begin
preparation of preliminary financial analysis of the proposed combination.
On November 14, 2002, Mr. Conklin called Mr. Maughan and conveyed
FirstBank's interest and position which included the opportunity to build a
larger community bank, the desire to operate independently, that the deal must
be priced and structured to allow accretion to earnings immediately, that the
transaction would be approximately 50% cash and 50% stock, that the dissident
shareholder issues were critical, and that if the Oregon Trail's shareholders
were seeking an all cash transaction, then FirstBank might not be an appropriate
partner. Mr. Maughan was receptive to FirstBank's offer of interest and its
position. Subsequently, the two companies agreed that there were potential
financial and strategic benefits as a result of a strategic affiliation and
agreed to continue discussions. On November 25, 2002, FirstBank and Oregon Trail
executed a joint confidentiality agreement.
During the month of November 2002, FirstBank retained the firm of
Darling Consulting Group for asset/liability management consulting and analyses.
Darling Consulting Group provided an analysis of FirstBank's pro forma
asset/liability position following the consummation of the proposed transaction
that showed that the transaction would not have an adverse affect on FirstBank's
asset/liability position.
Sandler O'Neill signed an engagement letter to act as FirstBank's
financial advisor with respect to a potential combination with Oregon Trail on
December 5, 2002. Following its engagement, Sandler O'Neill began exchanging
financial information and discussing preliminary transaction issues with Oregon
Trail's financial advisor, Keefe, Bruyette & Woods.
On December 12, 2002, Sandler O'Neill met with Mr. Conklin and Mr.
Moxley of FirstBank to review financial projections of both companies and the
pro forma implications of a potential combination. As a result of this meeting,
Mr. Conklin and Mr. Moxley decided to present to the FirstBank board of
directors the financial analysis of a transaction at $22.00 per share comprised
of 50% cash and 50% stock.
On December 17, 2002, a special meeting of the FirstBank board of
directors was convened with Sandler O'Neill representatives to review proposed
pricing and structure. After lengthy discussion, the board of directors
unanimously agreed that Sandler O'Neill would contact Oregon Trail's financial
advisor, Keefe, Bruyette & Woods, and convey the targeted pricing of $22.00 per
share for Oregon Trail common stock at approximately 50% cash and 50% stock,
subject to the condition that the dissident shareholder must either dispose of
his shares of Oregon Trail common stock or execute a standstill agreement.
On December 18, 2002, Oregon Trail returned a favorable reply to the
initial terms of the offer made by FirstBank.
On December 30, 2002, FirstBank delivered a preliminary term sheet to
Oregon Trail. During the next two weeks, FirstBank and its advisors negotiated
the terms of the transaction with Oregon Trail and its advisors.
On January 4, 2003, a special meeting of FirstBank's board of directors
was convened to review the terms and conditions of the proposed transaction in
order to assure that the directors remained in favor of the proposed
35
transaction under the specified terms prior to the initiation of due diligence.
All of the directors unanimously agreed that they were in favor of continuing to
proceed.
On January 10, through January 12, 2003, FirstBank conducted extensive
on-site due diligence of Oregon Trail.
On January 30, 2003, a special meeting of the FirstBank board of
directors was convened to review a draft of the proposed Merger Agreement.
Special legal counsel, Mr. John F. Breyer, Jr. of Breyer & Associates PC, joined
the meeting by telephone conference call.
Between January 30, 2003 and February 20, 2003 there were further
discussions between FirstBank and Oregon Trail and their respective advisors of
the terms of the proposed transaction and corresponding revisions to the merger
materials.
On February 21, 2003, a special meeting of the FirstBank board of
directors was convened. Special legal counsel, Breyer & Associates PC, and
financial advisors, Sandler O'Neill, were present at the meeting. Sandler
O'Neill delivered its oral opinion that the merger consideration was fair to
FirstBank from a financial point of view. Business included the review of the
fairness opinion, Merger Agreement, and resolutions necessary to initiate action
and time frames.
On February 23, 2003, a special meeting of the FirstBank board was
convened to further discuss the details of the Merger Agreement.
On February 24, 2003, a special meeting of the FirstBank board was
convened to discuss and take action of the Merger Agreement. At the meeting, the
FirstBank board determined that the merger was in the best interests of
FirstBank and its shareholders. In reaching this determination, the board
considered a number of factors, including that the proposed transaction would:
o Create a strong franchise with assets of approximately $700
million and a market capitalization of $75 million based on
recent market prices.
o Enhance the capacity to expand commercial and retail banking,
and loan production centers into larger markets such as Coeur
d'Alene and Boise, Idaho, Spokane, Washington, and the
TriCities of Central Washington (Kennewick, Richland and
Pasco, Washington).
o Result in a larger bank in terms of assets, market capital,
outstanding shares, larger daily share trading and broader
geographical presence, which should enhance the ability to
attract other banks interested in merging or being acquired.
o Create an opportunity for significant operational benefits,
cost savings and revenue enhancements through the integration
of FirstBank and Oregon Trail. Incorporating the benefits of
the anticipated cost savings from the transaction, it was
believed that pro forma earnings would be higher than
stand-alone earnings.
o Result in pro forma improvement to FirstBank's return on
equity and return on assets.
o Expand FirstBank Northwest's market area and geographically
connect the existing markets of FirstBank Northwest and
Pioneer Bank. Pioneer Bank's market area is very similar to
the north central Idaho markets, where FirstBank Northwest
conducts its business. The economies of both markets are
natural resourced based and more rural in nature.
o Provide a broader and more stable deposit base to facilitate
funding for growth strategies.
36
o Be easier to assess than other possible transactions because
FirstBank's Executive Management team is familiar with the
Pioneer Bank's market area and its history and operations.
o Allow FirstBank and Oregon Trail to combine their
complimentary product lines and services to improve and extend
the combined bank's ability to compete effectively.
Additionally, this should enhance non-interest income and
enhanced expense savings through efficiencies.
o Allow First Bank to obtain possible operating synergies and
cost reductions, net of consolidation costs, including:
o A reduction in personnel expenses, particularly as a
result of the reduction of Pioneer Bank's Executive
Management team.
o A reduction in professional services such as legal,
audit, tax, and consulting.
o A reduction in compensation expenses through
termination and payout of Oregon Trail's stock
benefit plans.
o Spreading securities and shareholder reporting
expenses over a larger base.
o Certain cross-selling opportunities.
At its February 24, 2003 meeting, FirstBank's board of directors
unanimously determined that the terms of the merger, the merger agreement, the
issuance of FirstBank stock in connection with the merger, the Executive
Management team going forward, and the enhanced shareholder value are advisable
and fair to and in the best interest of FirstBank, its shareholders and
FirstBank Northwest. In reaching its decision to approve the merger agreement
and unanimously recommend that FirstBank shareholders approve the merger
agreement, the board considered numerous factors taken as a whole, none of which
were accorded any particular or relative weight, and consulted with senior bank
management as well as its legal, accounting and financial advisors. The factors
considered included:
o The written opinion of Sandler O'Neill delivered to the First
Bank board of directors that the merger consideration was fair
to FirstBank from a financial point of view.
o Information concerning the businesses earnings, operations,
and financial condition, prospects, capital levels, and asset
quality of FirstBank and Oregon Trail individually and as a
combined company.
o The anticipated accretive effect of the combination on
FirstBank's future earnings.
o The anticipated positive effect of the combination on existing
shareholders, employees, officers and customers.
o The demographic, economic and financial characteristics of the
markets is which Oregon Trail operates, including existing
competition, history of the market areas with respect to
financial institutions, and demand for financial services, on
historical and prospective bases.
o The results of FirstBank's due diligence review of Oregon
Trail.
o The terms of the merger agreement.
o The compatibility of the cultures of FirstBank and its
management team with Oregon Trail and its management team and
employees.
37
o The likelihood of receiving required regulatory approvals in a
timely fashion and the likelihood that the merger would be
completed.
o The expected qualification of the Merger as a tax-free
reorganization under Section 368(a) of the Internal Revenue
Code.
o A variety of factors affecting and relating to the overall
strategic focus of FirstBank.
This discussion of the information and factors considered by
FirstBank's board is not intended to be exhaustive, but constitutes the material
factors considered by the board. In reaching its determination to approve and
recommend the definitive agreement, the board did not assign any relative or
specific weights to the foregoing factors, and individual directors may have
weighed factors differently. The terms of the definitive agreement were the
product of arm's length negotiations between representatives of FirstBank and
Oregon Trail.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF FIRSTBANK
HAS UNANIMOUSLY APPROVED AND ADOPTED THE DEFINITIVE AGREEMENT AS ADVISABLE AND
IN THE BEST INTERESTS OF FIRSTBANK AND ITS SHAREHOLDERS AND RECOMMENDS THAT THE
SHAREHOLDERS OF FIRSTBANK VOTE FOR THE APPROVAL OF THE MERGER AND THE ISSUANCE
OF FIRSTBANK COMMON STOCK IN THE MERGER.
Oregon Trail. Oregon Trail, an Oregon corporation, is the holding
company that owns 100% of the issued and outstanding common stock of Pioneer
Bank. Oregon Trail was formed in October 1997 after completing a mutual to stock
conversion (the "Conversion"). Oregon Trail is a thrift holding company
regulated primarily by the Office of Thrift Supervision. The primary activity of
Oregon Trail is overseeing the business of Pioneer Bank. Pioneer Bank is a
federal capital stock savings bank and is headquartered in Baker City, Oregon.
In addition to the executive and administrative offices in Baker City, Pioneer
Bank operates nine banking offices throughout seven counties in Eastern Oregon.
Pioneer Bank was chartered in 1901.
In November 2000, Joseph Stilwell and his affiliated entities (the
"Stilwell Group") filed a Schedule 13D announcing its ownership of 7.5% of
Oregon Trail's outstanding stock. In its 13D, the Stilwell Group stated its
intention to assert shareholder rights and that Oregon Trail could increase
shareholder value by, among other things, (a) repurchasing its shares; (b)
issuing special dividends; (c) liquidating various assets; and/or (d) selling
Oregon Trail. The Stilwell Group also indicated in its filing that Oregon Trail
could better evaluate its options to increase shareholder value by retaining an
investment banking firm to advise it and further indicated that it was strongly
opposed to Oregon Trail expanding in new market areas until Oregon Trail
addressed its poor return on equity. Finally, the Stilwell Group also stated
that members of the group may seek election or appointment to Oregon Trail's
board of directors. In an amended 13D filing on December 13, 2000, the Stilwell
Group indicated that it had increased its ownership to 8.5% of Oregon Trail's
outstanding stock.
On January 9, 2001, the Stilwell Group filed an amended Schedule 13D
indicating that on December 26, 2000 it had delivered a letter to Oregon Trail
demanding that Oregon Trail, pursuant to Oregon law, produce certain corporate
records. The filing further indicated that the Stilwell Group had commenced a
lawsuit in Baker County, Oregon to compel the inspection of records. On January
8, 2001, Circuit Judge Gregory L. Baxter issued an order allowing an alternative
writ of mandamus, scheduling the show cause hearing for January 12, 2001. In an
8-K filing on January 19, 2001 Oregon Trail indicated that the records were made
available to the Stilwell Group on January 16, 2001 in accordance with Oregon
law, and by agreement between the parties.
On February 1, 2001 an amended Schedule 13D was filed indicating that
the Stilwell group had met with Oregon Trail on January 25, 2001 and had
discussed Oregon Trail's business plans and goals for return on equity. In the
course of this meeting, the Stilwell Group proposed to Oregon Trail that it
invite two nominees of the Stilwell Group to sit on Oregon Trail's Board of
Directors through the 2002 annual meeting of shareholders. The Stilwell Group
also indicated in its filing that if Oregon Trail rejected its proposal, the
Group intended to nominate an alternate slate of directors for the 2001 annual
meeting of shareholders, and the Group had retained Beacon Hills
38
Partners, Inc., as its proxy solicitor. On February 14, 2001 Oregon Trail
announced that its Board of Directors had rejected the Stilwell Group's request
that he be allowed to name two persons to the Board of Directors.
On February 16, 2001 an amended Schedule 13D was filed and the Stilwell
Group indicated its intention to file a lawsuit against Charles Henry Rouse, a
director of Oregon Trail. The lawsuit sought a judgment to remove Mr. Rouse from
the Oregon Trail Board of Directors and alleged that Mr. Rouse violated Oregon
Trail's residency requirement when he moved his primary residence away from the
Oregon Trail's market area. The lawsuit also sought the maximum fine against Mr.
Rouse under the Oregon Code for violation of the applicable statute. The
Stilwell Group also reserved the right to proceed against other directors for
breaches of their fiduciary duties with respect to this and other events.
On May 8, 2001, an amended Schedule 13D was filed and the Stilwell
Group indicated that they had sent a letter to Oregon Trail demanding that
Oregon Trail remove Edward H. Elms from the Board on the grounds that he gave
false deposition testimony in the Rouse lawsuit. The Stilwell Group's letter
stated that if Oregon Trail did not demand the resignation of Mr. Elms or
commence an action to remove him by May 18, 2001, the Stilwell Group would
commence a derivative action to remove Mr. Elms. On May 21, 2001 an amended
Schedule 13D was filed and the Stilwell Group indicated that they had filed a
derivative action in the U.S. District Court for the District of Oregon seeking
to remove Mr. Elms. Additionally, the Stilwell Group sought to recover its
reasonable attorney fees from Mr. Elms on the grounds that the action is a
derivative one that will benefit Oregon Trail. In addition, the Stilwell Group
announced its intention to demand that Oregon Trail seek reimbursement from Mr.
Rouse and all other officers and directors found to have engaged in improper
conduct for the costs of their legal defense.
On May 22, 2001, Oregon Trail engaged Keefe, Bruyette & Woods to
provide planning and financial advisory services regarding the strategic
direction of Oregon Trail and its shareholder enhancement efforts. The scope of
Keefe, Bruyette & Woods's engagement ranged from (i) reviewing and evaluating
capital management alternatives; (ii) providing analysis and commentary
regarding equity market developments; (iii) assisting with business plan review
and including advice on strategy execution; and (iv) advising on shareholder
communication matters. Keefe, Bruyette & Woods continued to advise Oregon Trail
on an ongoing basis consistent with the scope of its engagement and generally
presented a quarterly review to Oregon Trail on its progress in relation to its
strategic plan and also provided a quarterly comparison to peer institutions and
a general market overview, which included an update on the capital markets and
merger and acquisition trends.
On May 29, 2001, Oregon Trail and Mr. Elms filed their answer,
defenses, affirmative defenses, counterclaims and third-party complaint against
the Stilwell Group. Oregon Trail and Mr. Elms denied the material allegations of
the May 21, 2001 complaint filed by the Stilwell Group. Additionally, four
counterclaims and third- party claims were asserted against the Stilwell Group.
Two of the counterclaims and third-party claims allege that the May 8, 2001
Schedule 13D and demand letter attached thereto contained defamatory statements
against Mr. Elms and Oregon Trail. Oregon Trail and Mr. Elms maintained that Mr.
Elms did not commit perjury and that the May 8, 2001 Schedule 13D and demand
letter attached thereto was false and misleading. The other two counterclaims
and third-party claims charge the Stilwell Group with filing an incomplete,
inaccurate and misleading Schedule 13D because the Stilwell Group's May 8, 2001
Schedule 13D attached the demand letter which Oregon Trail and Mr. Elms claimed
was defamatory.
On June 30, 2001, Judge Gregory L. Baxter, Circuit Court Judge for
Baker County, Oregon granted Oregon Trail's motion to dismiss the Alternative
Writ of Mandamus he had previously issued in a case filed by the Stilwell Group
in January, 2001. In addition, the judge also ruled that Oregon Trail was
entitled to its attorneys' fees. On July 5, 2001, an amended Schedule 13D was
filed and the Stilwell Group indicated that it had filed a new motion seeking
the Cede & Co. and non objecting shareholder lists of Oregon Trail.
On July 27 2001, the Stilwell Group filed an amended Schedule 13D
indicating that Circuit Judge Gregory L. Baxter in the Baker County shareholder
list litigation issued an order requiring Oregon Trail to turn over to Stilwell
Associates, by no later than July 30, the Oregon Trail's non objecting
shareholders list, including a breakout of the holdings of Cede & Co. On July
30, in the derivative lawsuit filed against director Edward Elms, Stilwell
Associates filed a motion to dismiss the third-party claims and counterclaims
for defamation and section
39
13(d) violations alleging that the statements concerning Mr. Elms are true,
absolutely privileged and do not constitute section 13(d) violations.
On August 17, the Stilwell Group served its notice of intent to
nominate either or both Kevin Padrick, Esq., or Neil Bryant, Esq., to Oregon
Trail's board at the 2001 annual shareholders meeting.
On September 12, 2001 Oregon Trail announced that State Circuit Court
Judge Janice R. Wilson had granted the Motion for Summary Judgment filed by
Charles H. Rouse, an Oregon Trail Director sued by the Stilwell Group. The
Stilwell Group had alleged that Mr. Rouse was holding office illegally because
he violated Oregon Trail's residency requirement for directors. The Judge
granted the motion after hearing oral argument from lawyers for both parties,
and specifically found that there was "no evidence" to support the case.
On September 12, 2001 Oregon Trail filed a lawsuit against members of
the Stilwell Group in the U.S. District Court for the District of Oregon
alleging that its members violated the federal securities laws by making
allegedly false statements in its proxy materials. The Stilwell Group indicated
its intention to defend the action and assert counterclaims against Oregon Trail
for statements made in Oregon Trail's proxy statement which the Stilwell Group
believed violated the federal securities laws.
On September 14, 2001 the Stilwell Group filed its answer and
counterclaims against Oregon Trail alleging, among other things, undue delay,
unclean hands, mootness and that statements made in Oregon Trail's proxy
materials allegedly violate the federal securities laws. On September 17, 2001
Oregon Trail filed a motion for a preliminary injunction against the Stilwell
Group in connection with the litigation. The Stilwell Group opposed the motion
and sought a preliminary injunction against Oregon Trail. The hearing on the
motion was held on September 25, 2001, and on September 26, 2001, the Court
rendered an opinion denying both motions.
On September 20, 2001 Oregon Trail announced that U.S. District Court
Magistrate John Jelderks dismissed the Stilwell Group's suit against Edward Elms
and Oregon Trail. The lawsuit alleged that Mr. Elms should be removed from the
Oregon Trail Board of Directors. The Court's ruling was based in part on Judge
Jelderks' finding that the harm alleged by Stilwell was "speculative". With the
dismissal of the original suit, Oregon Trail agreed to dismiss its counterclaims
alleging false and misleading statements in the Stilwell Group's Schedule 13D
filings.
On September 21, 2001, Oregon Trail announced that its Board of
Directors voted to postpone the annual shareholders meeting originally scheduled
for September 28, 2001. The new meeting date was set for October 12, 2001. A
notice of the rescheduled meeting date was mailed to all shareholders of record
as of August 16, 2001, which remained the record date for shareholders entitled
to notice of and to vote at the annual meeting.
On October 12, 2001 Oregon Trail announced the results of its Annual
Meeting of Shareholders. At the annual meeting, John Gentry and Kevin D. Padrick
were elected to Oregon Trail's Board of Directors for three year terms to expire
in 2004. On October 18, 2001, Oregon Trail agreed to remove Mr. Padrick as a
named defendant in the September 12, 2001 proxy litigation.
During November 2001 and January 2002, the board of directors of Oregon
Trail requested that Keefe, Bruyette & Woods meet with them to review current
operations of Oregon Trail, with a focus on the strategic opportunities to
enhance shareholder value over the next several years, the related risks and
rewards of these options, and the current merger and acquisition market. After a
thorough review, the Oregon Trail board and management identified certain
factors which could potentially limit the ability of Oregon Trail to continue to
further enhance shareholder value. These factors included, among others, (i) the
low growth profile of Oregon Trail's predominantly rural and agricultural
markets; (ii) the increased competition for deposits and specifically the
increasing strategic challenges of attracting low cost core checking, savings
and money market deposits; (iii) the expenditures required to position Oregon
Trail in higher growth markets through a de novo branching strategy and time
required to recover the expenditures; (iv) the challenge of attracting and
retaining talented management and employees given Oregon Trail's recent public
proxy contest; (v) the strategic challenge of leveraging Oregon Trail's excess
capital combined with the low growth profile of its operating footprint; (vi)
the execution risk that accompanies a strategy of
40
remaining an independent community banking institution in an increasingly
competitive banking environment; (vii) the future valuation assigned to a small
capitalization, traditional thrift franchise by the capital markets; (viii) the
low average trading volume and liquidity of Oregon Trail's common stock; (ix)
the record level of current earnings and the prospects for net interest margin
contraction in future years given the high levels of mortgage refinancing and
significantly lower levels of reinvestment rates in the current interest rate
environment; and (x) anticipated expenditures required to implement new
technology to remain competitive.
After considering these challenges, as well as the ability of Oregon
Trail to continue increasing shareholder value, the board decided to explore
opportunities for a strategic alliance with a potential strategic partner that
shared Oregon Trail's philosophy of locally based community banking, operated in
higher growth markets and would have the capacity to leverage Oregon Trail's
excess capital, had a significantly higher market capitalization or had the
capacity to structure a transaction with a significant portion being a cash
component to provide liquidity to Oregon Trail shareholders, and had a solid
reputation in executing a community banking strategy. On February 12, 2002,
Keefe, Bruyette & Woods was engaged by Oregon Trail to explore strategic
alternatives to enhance shareholder value, including a possible strategic
alliance with a larger partner.
On March 12, 2002, Oregon Trail announced it had entered a Standstill
Agreement (the "Agreement") with the Stilwell Group. The parties agreed to
dismiss with prejudice all pending lawsuits between them and to exchange mutual
releases. The dismissals concluded both the lawsuits filed by the Stilwell Group
for the purpose of removing two directors from the board of directors of Oregon
Trail and the pending lawsuit filed by the Oregon Trail against the Stilwell
Group in the United States District Court for the District of Oregon alleging
violations of securities laws. Under the Agreement, Oregon Trail agreed to adopt
an annual target to achieve return on equity greater than the median for all
publicly traded thrift institutions with assets between $250 and $500 million
for the fiscal year beginning April 1, 2001. So long as the Oregon Trail was
successful in meeting this target, the Stilwell Group would not vote for any
nominee for election to Oregon Trail's board of directors other than those
supported by the Oregon Trail's Board of Directors and would vote all shares in
favor of nominees for director nominated by the board of directors and in favor
of any proposal submitted by the Oregon Trail's management. In addition, Oregon
Trail agreed to endeavor to reduce its capital ratio to 11% within one year of
the date of the Agreement, subject to the board's fiduciary duties and Oregon
Trail's applicable regulatory and securities requirements. The Agreement also
provided that the Stilwell Group would not propose or seek to effect a merger or
sale of Oregon Trail, solicit proxies in opposition to recommendations or
proposals of Oregon Trail's management, or seek to exercise any control or
influence over the management of Oregon Trail. If Oregon Trail failed to achieve
its annual return on equity target, it had agreed to utilize its investment
banking firm to help Oregon Trail evaluate alternatives to maximize shareholder
value.
During March 2002, Keefe, Bruyette & Woods, working with Oregon Trail,
prepared a confidential information memorandum (the "Memorandum") containing
financial and operating information about Oregon Trail. Upon completion of the
Memorandum, Keefe, Bruyette & Woods was authorized by the board in March 2002 to
begin the process of identifying potential strategic partners, and if possible,
begin the negotiation of a strategic alliance.
Keefe, Bruyette & Woods subsequently identified and contacted fourteen
potential strategic partners that could enhance the shareholder value of Oregon
Trail. Seven of the aforementioned potential strategic partners executed
confidentiality agreements and the Memorandum was sent out accordingly. By late
April, two parties had submitted written preliminary non-binding indications of
interest. On April 25, 2002, after receipt of the preliminary non-binding
indications of interest, Keefe, Bruyette & Woods reviewed with the board the
pricing and terms of each proposal. After discussion with the board and its
legal counsel, it was determined that both of the submitted non- binding
indications of interest were attractive enough to merit further consideration by
Oregon Trail. Keefe, Bruyette & Woods was instructed to explore the possibility
of more favorable terms, including price, from both parties and seek
clarification of certain items not addressed by the parties in their preliminary
non-binding indications of interest. During May 8 through May 10, 2002, Oregon
Trail management met with both potential strategic partners to discuss certain
due diligence information. Both parties were given access to additional non-
public information and management of Oregon Trail during this time period. Both
potential strategic partners were asked to submit a second non-binding
indication of interest by May 31, 2002 as well as a written term sheet on
41
transaction and social issues by June 4, 2002. As a result of this process two
revised non-binding indications of interest and term sheets were received by the
deadline.
On June 5, 2002 the Oregon Trail board met with Keefe, Bruyette & Woods
and Oregon Trail's legal counsel to review the revised non-binding indications
of interest. The pricing and terms of each non-binding indication of interest
were reviewed by the Oregon Trail board.
Proposal 1 was an 81%/19% stock and cash mixture from a Washington
based thrift holding company ("Company A"). The stock component of the
consideration mixture was a fixed exchange ratio and the ultimate value of this
proposal was dependent upon the price of Company A's stock at transaction
closing and thereafter. The cash component of the consideration was for $24.16
per share. Using a price based on the closing price of the prospective buyer's
common stock on May 31, 2002, Keefe, Bruyette & Woods valued this proposal at
$24.16 per share.
The second proposal was for a mixture of stock and cash from a
Washington based bank holding company ("Company B"). The cash portion of the
consideration mixture would represent between 40% and 49% of the consideration
and the stock portion of the consideration mixture would represent between 51%
and 60% of the consideration. The stock component was based on a floating
exchange ratio so that together the cash and stock offered would have a fixed
transaction value until the closing of the transaction, subject to the buyer's
stock price remaining above a certain price level (the "floor"). If the buyer's
stock price were to drop below the floor, Oregon Trail shareholders would
receive a fixed exchange ratio. Keefe, Bruyette & Woods valued this proposal at
$25.57 per share.
The Oregon Trail board determined that the Company B proposal was the
most attractive proposal and provided the best potential to maximize long term
shareholder value for several reasons, including:
o The higher implied price of the Company B offer.
o The attractive relative valuation of Company B's stock on a
price to earnings and price to tangible book basis when
compared to Company A. As of the May 31, 2002 date when final
indications of interest were submitted, Company B's common
stock had the lower price to earnings ratio of the two
potential strategic partners based upon published 2002 mean
GAAP earnings per share estimates at the time and a
significantly lower price to tangible book ratio.
o The higher portion of cash consideration in Company B's offer
was viewed to present a higher degree of liquidity for Oregon
Trail shareholders.
o The existing operating and branch footprint of Company B was
closer to Oregon Trail's branch footprint (relative to Company
A) and the integration of Oregon Trail was believed to present
a lower degree of integration risk that could potentially have
a materially adverse impact on its stock price.
o The fixed price component, subject to a floor, combined with
the higher cash component of consideration, was viewed by
Oregon Trail to offer higher price stability to shareholders.
Based upon these factors, the Oregon Trail board authorized Oregon
Trail management and Keefe, Bruyette & Woods to negotiate additional social and
transaction issues and conduct additional due diligence review with Company B.
During the week of June 17, 2002 Oregon Trail management met with
Company B for off site due diligence review. Company B performed an extensive
review of Oregon Trail's credit files and interviewed Oregon Trail management at
length. After completion of due diligence, Company B advised Oregon Trail that
it was satisfied with its due diligence review and would like to proceed further
with a strategic partnership.
42
During late June, 2002 Keefe, Bruyette & Woods and Oregon Trail legal
counsel continued negotiating additional transaction structure and social issues
with Company B and its legal counsel. In early July, 2002, the majority of
transaction and social issues had been resolved and Keefe, Bruyette & Woods
advised Company B that Oregon Trail would like to commence the negotiation of a
definitive agreement.
On July 8 and July 9, 2002, Oregon Trail performed on site due
diligence review on Company B with a focus on credit quality review of Company
B's loan files. During this time, the management of Company B disclosed to
Oregon Trail and the capital markets that it would be taking a substantial loan
loss provision for the June 30, 2002 quarter and that earnings for the quarter
would be materially below the Company's historical quarterly net income level.
On July 12, 2002, legal counsel for Company B delivered a preliminary
definitive agreement to Oregon Trail. During this time, Oregon Trail and Keefe,
Bruyette & Woods monitored the capital markets' negative reaction to Company B's
earnings announcement. At this point Company B's stock price was trading below
the floor level of its May 31, 2002 non-binding indication of interest and
Oregon Trail shareholders would now be receiving a fixed exchange ratio. In
light of the weakness of Company B's stock price, Keefe, Bruyette & Woods began
negotiating additional potential transaction structures, including the
possibility of an all cash offer. On July 25, 2002, the chief executive officer
of Company B met with the Oregon Trail board of directors to discuss Company B's
overall strategic plan as well as the recently disclosed developments.
On July 29, 2002, Company B advised Oregon Trail that it would no
longer be in a position at this time to continue discussions concerning a
strategic partnership with Oregon Trail, but would instead be focusing on
internal issues.
During this time, Oregon Trail considered the possibility of resuming
discussions with Company A. During prior discussions with Keefe, Bruyette &
Woods in May 2002 and, at the time aware that they were in a competitive bidding
situation with Company B, Company A communicated to Keefe, Bruyette & Woods that
they were submitting their strongest possible offer for Oregon Trail when they
submitted a non-binding offer of a fixed exchange ratio in an 81%/19% stock and
cash mixture on May 31, 2002. Oregon Trail further considered that between May
31, 2002, when Company A originally submitted their non-binding indication of
interest, and July 29,2002, Company A's stock price had decreased in value by
approximately 20% and was viewed by Oregon Trail to have a reduced capacity to
pay an attractive premium to Oregon Trail shareholders. During late July and
early August 2002, Company A contacted Keefe, Bruyette & Woods regarding the
possibility of resuming strategic discussions with Oregon Trail. Keefe, Bruyette
& Woods communicated to Company A that the terms expressed in its May 31, 2002
non-binding indication of interest were not considered attractive enough to
consider a strategic partnership given the current trading level of Company A's
currency. Company A was advised to contact Keefe, Bruyette & Woods if there was
legitimate interest in a partnership with Oregon Trail at a reasonable premium
for Oregon Trail shareholders. Additional discussions regarding a partnership
with Company A did not materialize.
On August 7, 2002, Keefe, Bruyette & Woods received an unsolicited
query regarding Oregon Trail from a privately held bank holding company
("Company C") based in the southwest region of the United States. Company C
executed a Confidentiality Agreement and Keefe, Bruyette & Woods sent out a
confidential investor memorandum.
Throughout late August and early September 2002, Keefe, Bruyette &
Woods maintained an ongoing dialogue with Company B about the possibility of
resuming discussions of a strategic partnership. On September, 13, 2002
representatives of Keefe, Bruyette & Woods met with management of Oregon Trail
and Company B to discuss the possibility of a strategic partnership. Keefe,
Bruyette & Woods continued to have discussions with Company B throughout
September regarding potential transaction structure and pricing. On October 7,
2002, Company B advised Keefe, Bruyette & Woods that it was still focusing on
internal issues was not in position to pursue a strategic partnership with
Oregon Trail.
In early October, Keefe, Bruyette & Woods continued discussions with
Company C about a potential strategic partnership with Oregon Trail. On October
25, 2002, Company C conducted on-site due diligence with
43
Oregon Trail and interviews with Oregon Trail management. On October 29, 2002,
Company C advised Keefe, Bruyette & Woods that the Oregon Trail franchise was
too far away from its existing footprint and it would not be pursuing a
strategic partnership with Oregon Trail Financial Corp.
In early November 2002, Keefe, Bruyette & Woods and Oregon Trail
reinitiated discussions with two potential strategic partners that had
originally received the confidential investor memorandum in April of 2002 and
had previously declined submitting a non-binding indication of interest. After
preliminary discussions about a potential partnership, both parties declined
pursuing a transaction with Oregon Trail.
In early November 2002, Oregon Trail management began informal
discussions with the management of FirstBank about the possibility of a
strategic partnership. The two companies agreed that there were potential
financial and strategic benefits as a result of a strategic affiliation and
agreed to continue discussions. Oregon Trail and FirstBank executed a joint
confidentiality agreement and on November 25, 2002, Keefe, Bruyette & Woods sent
FirstBank a confidential investor memorandum. Throughout late November and early
December 2002, both companies shared financial information and discussed
potential strategies for operating the combined organization. During the weeks
of December 2 and December 9, 2002, Keefe, Bruyette & Woods began having
preliminary discussions with FirstBank's financial advisor on a variety of
transaction and social issues, including price. FirstBank's financial advisor
verbally indicated a preliminary price of $22.00 per share in a combination of
cash and stock. On December 17, 2002, Keefe, Bruyette & Woods met with the
Oregon Trail board to discuss the preliminary transaction terms. The Oregon
Trail board agreed to continue discussions with FirstBank and authorized Keefe,
Bruyette & Woods to seek more clarification on potential transaction and social
terms.
On December 30, 2002 FirstBank delivered a preliminary term sheet to
Oregon Trail. Throughout early January 2003, Oregon Trail's counsel and Keefe,
Bruyette & Woods negotiated numerous financial and social terms with FirstBank's
financial advisor and legal counsel. On January 10, 2003, Oregon Trail and
FirstBank agreed to the majority of preliminary transaction and social terms and
FirstBank commenced on site due diligence on Oregon Trail. FirstBank conducted
on site due diligence with Oregon Trail on January 10 through 12, 2003 and
interviewed Oregon Trail management about financial and operational matters.
On January 15 and 16, 2003, Oregon Trail performed due diligence on
FirstBank and conducted interviews with FirstBank management. On January 17,
2003, Keefe, Bruyette & Woods and legal counsel met with the Oregon Trail board.
During the board meeting, Oregon Trail management, Keefe, Bruyette & Woods and
legal counsel reported the due diligence findings. The Oregon Trail board was
also provided an update on financial and social terms of the potential
transaction. After deliberating the matter at length, the Oregon Trail board
instructed Keefe, Bruyette & Woods and legal counsel to negotiate a definitive
agreement with FirstBank.
On January 29, 2003 FirstBank delivered the initial draft of the
definitive agreement to Oregon Trail's legal counsel. Throughout late January
and early February, legal counsel for Oregon Trail and FirstBank negotiated
revisions to the definitive agreement. Concurrent with the negotiations of a
definitive agreement, legal counsel for Oregon Trail negotiated a non-disclosure
agreement with the Stilwell Group. On January 31, 2003, Oregon Trail and the
Stilwell Group executed a non-disclosure agreement. Upon execution of the
non-disclosure agreement, legal counsel for FirstBank commenced negotiation of a
Standstill Agreement between FirstBank and the Stilwell Group.
On February 21, 2003, the Oregon Trail board met with Keefe, Bruyette &
Woods and Oregon Trail's legal counsel. Prior to this meeting, the revised
definitive agreement and the fairness presentation were distributed to Oregon
Trail's board for its review. At this board meeting, Oregon Trail's legal
counsel reviewed the terms of the definitive agreement and other relevant
documents and the contemplated transaction. Keefe, Bruyette & Woods delivered
its preliminary opinion that the merger consideration was fair, from a financial
point of view, to the holders of Oregon Trail common stock. After a thorough
discussion of the transaction, the Oregon Trail board voted unanimously to
approve the definitive agreement and authorized execution of the definitive
agreement and related documents. The definitive agreement was subsequently
executed on February 24, 2003.
44
The Oregon Trail board believes that the terms of the definitive
agreement are fair and in the best interests of Oregon Trail and its
shareholders. In the course of reaching its determination to approve the
agreement, the board considered all factors it deemed material. These included:
o The factors for affiliating with a strategic partner discussed
with Keefe, Bruyette & Woods at its November 2001 and January
2002 meetings.
o The financial condition, results of operations, capital
levels, asset quality and prospects for Oregon Trail and
FirstBank.
o The shared community banking philosophy of both organizations
and the familiarity of Oregon Trail's markets by FirstBank.
o The board's consideration of the written opinion of Keefe,
Bruyette & Woods that the consideration to be received by
Oregon Trail's shareholders pursuant to the agreement was fair
to them from a financial point of view.
o The enhanced ability to offer more competitive services and
maintain a stronger competitive presence in its market area as
a result of the partnership.
o The impact of the strategic partnership on the depositors,
employees, customers and communities served by Oregon Trail.
o The types of business that FirstBank conducts in the region
and the expanded service FirstBank can provide Oregon Trail's
customers and its surrounding communities.
o The likelihood of receiving the required regulatory approvals
in a timely manner.
The foregoing discussion of the information and factors considered by
the board is not intended to be exhaustive, but constitutes the material factors
considered by the board. In reaching its determination to approve and recommend
the definitive agreement, the board did not assign any relative or specific
weights to the foregoing factors, and individual directors may have weighed
factors differently. The terms of the definitive agreement were the product of
arm's length negotiations between representatives of Oregon Trail and FirstBank.
FOR THE REASONS SET FORTH ABOVE, THE BOARD OF DIRECTORS OF OREGON TRAIL
HAS UNANIMOUSLY APPROVED AND ADOPTED THE DEFINITIVE AGREEMENT AS ADVISABLE AND
IN THE BEST INTERESTS OF OREGON TRAIL AND ITS SHAREHOLDERS AND RECOMMENDS THAT
THE SHAREHOLDERS OF OREGON TRAIL VOTE FOR THE APPROVAL AND ADOPTION OF THE
DEFINITIVE AGREEMENT.
Opinion of FirstBank's Financial Advisor
Since FirstBank's mutual to stock conversion, FirstBank's board of
directors and senior management have consulted periodically with Sandler O'Neill
regarding the savings institutions environment generally. By letter dated
December 5, 2002, FirstBank retained Sandler O'Neill to act as its financial
advisor in connection with a possible merger transaction with Oregon Trail.
Sandler O'Neill is a nationally recognized investment banking firm whose
principal business specialty is financial institutions. In the ordinary course
of its investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to FirstBank in connection
with the proposed merger and participated in certain of the negotiations leading
to the merger agreement. At the February 21, 2003 meeting at which FirstBank's
board considered and approved the merger agreement, Sandler O'Neill delivered to
the board its oral opinion that, as of such date, the merger consideration was
fair to FirstBank from a financial point of view.
45
Sandler O'Neill confirmed its opinion in writing as of February 24, 2003, the
date the merger agreement was executed. Sandler O'Neill has also delivered to
the board a written opinion dated July 24, 2003, which is substantially
identical to its February 24th opinion. In rendering its updated opinion,
Sandler O'Neill confirmed the appropriateness of its reliance on the analyses
used to render its earlier opinion by reviewing the assumptions upon which their
analyses were based, performing procedures to update certain of their analyses
and reviewing the other factors considered in rendering its opinion. The full
text of Sandler O'Neill's updated opinion is attached as Appendix C to this
proxy statement-prospectus. The opinion outlines the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Sandler O'Neill in rendering its opinion. The description
of the opinion set forth below is qualified in its entirety by reference to the
opinion. We urge you to read the entire opinion carefully in connection with
your consideration of the proposed merger.
Sandler O'Neill's opinion speaks only as of the date of the opinion.
The opinion is directed to the FirstBank board and is directed only to the
fairness of the merger consideration to FirstBank from a financial point of
view. It does not address the underlying business decision of FirstBank to
engage in the merger or any other aspect of the merger and is not a
recommendation to any FirstBank shareholder as to how such shareholder should
vote at the special meeting with respect to the merger.
In connection with rendering its February 24, 2003 opinion, Sandler
O'Neill reviewed and considered, among other things:
1. the merger agreement and certain related documents;
2. certain publicly available financial statements and other
historical financial information of FirstBank that they deemed
relevant;
3. certain publicly available financial statements and other
historical financial information of Oregon Trail that they
deemed relevant;
4. financial projections for FirstBank for the fiscal years
ending March 31, 2003 and 2004 reviewed with management of
FirstBank;
5. financial projections for Oregon Trail for the fiscal year
ending March 31, 2003 furnished by Oregon Trail and reviewed
with managements of FirstBank and Oregon Trail, respectively;
6. the pro forma financial impact of the Merger on FirstBank,
based on assumptions relating to transaction expenses,
purchase accounting adjustments and cost savings determined by
senior managements of FirstBank and Oregon Trail;
7. the publicly reported historical price and trading activity
for FirstBank's and Oregon Trail's common stock, including a
comparison of certain financial and stock market information
for FirstBank and Oregon Trail with similar publicly available
information for certain other companies the securities of
which are publicly traded;
8. the financial terms of certain recent business combinations in
the savings institution industry, to the extent publicly
available;
9. the current market environment generally and the banking
environment in particular; and
10. such other information, financial studies, analyses and
investigations and financial, economic and market criteria as
they considered relevant.
Sandler O'Neill also discussed with certain members of senior
management of FirstBank the business, financial condition, results of operations
and prospects of FirstBank and Oregon Trail and held similar discussions
46
with certain members of senior management of Oregon Trail regarding the
business, financial condition, results of operations and prospects of Oregon
Trail.
In performing its reviews and analyses and in rendering its opinion,
Sandler O'Neill assumed and relied upon the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it and
further relied on the assurances of management of FirstBank and Oregon Trail
that they were not aware of any facts or circumstances that would make such
information inaccurate or misleading. Sandler O'Neill was not asked to and did
not independently verify the accuracy or completeness of any of such information
and they did not assume any responsibility or liability for the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of FirstBank or Oregon Trail
or any of their respective subsidiaries, or the collectibility of any such
assets, nor was it furnished with any such evaluations or appraisals. Sandler
O'Neill is not an expert in the evaluation of allowances for loan losses and it
did not make an independent evaluation of the adequacy of the allowance for loan
losses of FirstBank or Oregon Trail, nor did it review any individual credit
files relating to FirstBank or Oregon Trail. With FirstBank's consent, Sandler
O'Neill assumed that the respective allowances for loan losses for both
FirstBank and Oregon Trail were adequate to cover such losses and will be
adequate on a pro forma basis for the combined entity. In addition, Sandler
O'Neill did not conduct any physical inspection of the properties or facilities
of FirstBank or Oregon Trail. Sandler O'Neill is not an accounting firm and they
relied, with FirstBank's consent, on the reports of the independent accountants
of FirstBank and Oregon Trail for the accuracy and completeness of the audited
financial statements furnished to them.
Sandler O'Neill's opinion was necessarily based upon market, economic
and other conditions as they existed on, and could be evaluated as of, the date
of its opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the merger
agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements and that the conditions precedent in the merger
agreement are not waived. Sandler O'Neill also assumed, with FirstBank's
consent, that there has been no material change in FirstBank's and Oregon
Trail's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
them, that FirstBank and Oregon Trail will remain as going concerns for all
periods relevant to its analyses, and that the merger will qualify as a tax-free
reorganization for federal income tax purposes.
In rendering its February 24, 2003 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The summary includes
information presented in tabular format. In order to fully understand the
financial analyses, these tables must be read together with the accompanying
text. The tables alone do not constitute a complete description of the financial
analyses. The preparation of a fairness opinion is a complex process involving
subjective judgments as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. The process, therefore, is not necessarily susceptible to a
partial analysis or summary description. Sandler O'Neill believes that its
analyses must be considered as a whole and that selecting portions of the
factors and analyses considered without considering all factors and analyses, or
attempting to ascribe relative weights to some or all such factors and analyses,
could create an incomplete view of the evaluation process underlying its
opinion. Also, no company included in Sandler O'Neill's comparative analyses
described below is identical to FirstBank or Oregon Trail and no transaction is
identical to the merger. Accordingly, an analysis of comparable companies or
transactions involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values or merger transaction
values, as the case may be, of FirstBank or Oregon Trail and the companies to
which they are being compared.
The earnings projections for FirstBank and Oregon Trail used and relied
upon by Sandler O'Neill in its analyses were based upon internal projections
furnished by or reviewed with the respective managements of FirstBank and Oregon
Trail. With respect to such financial projections and estimates and all
projections of
47
transaction costs, purchase accounting adjustments and expected cost savings
relating to the merger, FirstBank's and Oregon Trail's managements confirmed to
Sandler O'Neill that they reflected the best currently available estimates and
judgments of such managements of the future financial performance of FirstBank
and Oregon Trail, respectively, and Sandler O'Neill assumed for purposes of its
analyses that such performances would be achieved. Sandler O'Neill expressed no
opinion as to such financial projections or the assumptions on which they were
based. The financial projections for FirstBank and Oregon Trail were prepared
for internal purposes only and not with a view towards public disclosure. These
projections, as well as the other estimates used by Sandler O'Neill in its
analyses, were based on numerous variables and assumptions which are inherently
uncertain and, accordingly, actual results could vary materially from those set
forth in such projections.
In performing its analyses, Sandler O'Neill also made numerous
assumptions with respect to industry performance, business and economic
conditions and various other matters, many of which cannot be predicted and are
beyond the control of FirstBank, Oregon Trail and Sandler O'Neill. The analyses
performed by Sandler O'Neill are not necessarily indicative of actual values or
future results, which may be significantly more or less favorable than suggested
by such analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided such analyses to the FirstBank board at the
February 21st meeting. Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. Such estimates are inherently subject to
uncertainty and actual values may be materially different. Accordingly, Sandler
O'Neill's analyses do not necessarily reflect the value of the common stock of
FirstBank or Oregon Trail or the prices at which FirstBank's or Oregon Trail's
common stock may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of
the proposed transaction. Based upon the closing price of FirstBank's common
stock on February 19, 2003 of $22.34 and assuming all of Oregon Trail's
outstanding shares are converted in the merger into an aggregate of 1,480,064
shares of FirstBank common stock and $36.5 million in cash, Sandler O'Neill
calculated an implied transaction value of $22.45 per share. Based upon Oregon
Trail's December 31, 2002 financial information, Sandler O'Neill calculated the
following ratios:
- --------------------------------------------------------------------------------
Transaction Ratios
- --------------------------------------------------------------------------------
Transaction price/LTM EPS 13.13x
Transaction price/Tangible book value per share 112.11%
Tangible book premium/Core deposits (1) 10.43%
- --------------------------------------------------------------------------------
(1) Assumes Oregon Trail's total core deposits are $144.3 million.
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share. The aggregate transaction value was
approximately $73.8 million, based upon 3.1 million shares of Oregon Trail
common stock outstanding and including the intrinsic value of options to
purchase 403,660 shares of Oregon Trail common stock with a weighted average
exercise price of $12.47 per share. Sandler O'Neill noted that the transaction
value represented a 10.47% premium over the February 19, 2003 closing price of
Oregon Trail's common stock of $20.32.
Stock Trading History. Sandler O'Neill reviewed the history of the
reported trading prices and volume of the common stock of FirstBank and Oregon
Trail and the relationship between the movements in the prices of those stocks
to movements in certain stock indices, including the Standard & Poor's 500
Index, the Standard & Poor's Bank Index, the Nasdaq Bank Index and the median
performance of a composite peer group of publicly traded regional savings
institutions selected by Sandler O'Neill. During the one year period ended
February 19, 2003, the common stock of FirstBank and Oregon Trail underperformed
the regional composite group while outperforming each of the other indices to
which they were compared.
48
- --------------------------------------------------------------------------------
FirstBank's and Oregon Trail's One-Year Stock Performance
================================================================================
Beginning Index Value Ending Index Value
February 19 2002 February 19, 2003
--------------------- ------------------
FirstBank 100.00% 126.65%
Oregon Trail 100.00 111.71
Regional Group 100.00 138.88
Nasdaq Bank Index 100.00 102.23
S&P Bank Index 100.00 98.48
S&P 500 Index 100.00 78.01
- --------------------------------------------------------------------------------
During the three-year period ended February 19, 2003, the common stock
of FirstBank and Oregon Trail outperformed each of the indices to which they
were compared.
- --------------------------------------------------------------------------------
FirstBank's and Oregon Trail's Three-Year Stock Performance
================================================================================
Beginning Index Value Ending Index Value
February 18 2000 February 19, 2003
--------------------- ------------------
FirstBank 100.00% 225.22%
Oregon Trail 100.00 228.96
Regional Group 100.00 211.24
Nasdaq Bank Index 100.00 149.82
S&P Bank Index 100.00 125.70
S&P 500 Index 100.00 62.78
- --------------------------------------------------------------------------------
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
FirstBank, Oregon Trail and two groups of selected financial institutions. The
first group, or Regional Group, consisted of FirstBank, Oregon Trail and the
following eleven publicly traded savings institutions:
United PanAm Financial Corp. Commercial Capital Bancorp
Horizon Financial Corp. First Mutual Bancshares Inc.
EverTrust Financial Group Inc. Monterey Bay Bancorp Inc.
Heritage Financial Corp. Timberland Bancorp Inc.
Riverview Bancorp Inc. Pacific Premier Bancorp
Broadway Financial Corp.
Sandler O'Neill also compared FirstBank and Oregon Trail to a group of
publicly traded savings institutions that had a return on average equity (based
upon earnings for the twelve-months' ended December 31, 2002) greater than 14.5%
and a price-to-tangible book value greater than 164% (the "High Performing
Group"). The High Performing Group was comprised of the following institutions:
NASB Financial, Inc. Coastal Financial Corp.
First Mutual Bancshares Inc. Pamrapo Bancorp Inc.
NorthWest Indiana Bancorp (1) Hingham Institution for Savings
North Central Bancshares Inc.
- -------------
(1) Most recent data for NorthWest Indiana Bancorp was as of or for the
twelve months ending September 30, 2002.
The analysis compared publicly available financial information for
FirstBank and Oregon Trail for each of the years ended March 31, 1997 through
2001 and as of and for the twelve months ended December 31, 2002 and
49
the median data for each of the Regional Group and High Performing Group as of
and for each of the years ended December 31, 1997 through 2001 and as of and for
the twelve months ended December 31, 2002. The table below sets forth the
comparative data as of and for the twelve months ended December 31, 2002, with
pricing data as of February 19, 2003.
- ---------------------------------------------------------------------------------------------------
Comparable Group Analysis
- ---------------------------------------------------------------------------------------------------
Regional High Perform.
FirstBank Oregon Trail Group Group
----------- ------------ ----------- -------------
Total assets (in millions) $ 326 $ 380 $ 610 $ 589
Tangible equity/total assets 9.03% 15.45% 9.43% 8.47%
Intangible assets/total equity 0.00% 0.12% 0.00% 0.00%
Net loans/total assets 79.82% 63.30% 71.73% 79.35%
Gross loans/total deposits 125.56% 96.64% 98.56% 117.39%
Total borrowings/total assets 25.03% 17.30% 14.22% 24.74%
Non-performing assets/total assets 0.67% 0.12% 0.30% 0.28%
Loan loss reserve/gross loans 1.21% 0.95% 1.27% 0.91%
Net interest margin 3.89% 4.32% 4.36% 4.00%
Non-interest income/average assets 1.31% 0.85% 0.77% 0.55%
Non-interest expense/average assets 3.50% 2.81% 3.24% 2.38%
Efficiency ratio 70.37% 57.67% 58.42% 51.45%
Return on average assets 0.82% 1.32% 1.33% 1.26%
Return on average equity 8.93% 9.48% 11.50% 16.20%
Price/tangible book value per share 104.86% 104.73% 132.46% 169.95%
Price/LTM earnings per share 11.64x 11.88x 12.97x 10.91x
Dividend payout ratio 26.56% 23.98% 21.67% 25.53%
Dividend yield 2.28% 2.02% 1.58% 2.65%
- ---------------------------------------------------------------------------------------------------
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed
merger transactions announced from January 1, 2002 through February 19, 2003
involving publicly traded savings institutions as acquired institutions with
transaction values greater than $15 million. Sandler O'Neill reviewed 26
transactions announced nationwide and three transactions in the Western States
region. Sandler O'Neill reviewed the multiples of transaction price at
announcement to last twelve months' earnings per share, deal value to book value
per share, deal value to tangible book value per share, tangible book premium to
core deposits and premium to market price and computed high, low, mean and
median multiples and premiums for both groups of transactions. These multiples
were applied to Oregon Trail's financial information as of and for the twelve
months ended December 31, 2002. As illustrated in the following table, Sandler
O'Neill derived an imputed range of values per share of Oregon Trail's common
stock of $26.99 to $38.88 based upon the median multiples for nationwide
transactions and $20.60 to $26.66 based upon the median multiples for
transactions in the Western states. The implied transaction value of the merger
as calculated by Sandler O'Neill was $22.45 per share.
- ---------------------------------------------------------------------------------------------------
Nationwide & Western States Transaction Multiples
- ---------------------------------------------------------------------------------------------------
Nationwide Western States
Median Implied Median Implied
Multiple Value Multiple Value
-------------- ------------ ------------- --------------
Deal Value/LTM EPS $ 19.34x $ 33.02 12.07x $ 20.60
Deal Value/Book value 170.94% $ 34.27 132.98% $ 26.66
Deal Value/Tangible book value 194.19% $ 38.88 132.98% $ 26.63
Tangible book premium/Core deposits(1) 14.16% $ 26.99 3.97% $ 21.98
Premium to market (2) 37.53% $ 27.95 29.87% $ 26.39
- ---------------------------------------------------------------------------------------------------
<FN>
(1) Assumes Oregon Trail's core deposits total $144.3 million.
(2) Based on Oregon Trail's February 19, 2003 closing price of $20.32.
</FN>
50
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill
performed an analysis that estimated the future stream of after-tax dividend
flows of Oregon Trail through March 31, 2008 under various circumstances,
assuming Oregon Trail's projected dividend stream and that Oregon Trail
performed in accordance with the earnings projections for the fiscal year ended
March 31, 2003 reviewed with management. To approximate the terminal value of
Oregon Trail common stock at March 31, 2008, Sandler O'Neill applied
price/earnings multiples ranging from 8x to 24x and multiples of tangible book
value ranging from 75% to 175%. The dividend income streams and terminal values
were then discounted to present values using different discount rates ranging
from 8% to 14% chosen to reflect different assumptions regarding required rates
of return of holders or prospective buyers of Oregon Trail common stock. As
illustrated in the following tables, this analysis indicated an imputed range of
values per share of Oregon Trail common stock of $10.03 to $35.44 when applying
the price/earnings multiples and $12.05 to $33.55 when applying multiples of
tangible book value. The implied transaction value of the merger as calculated
by Sandler O'Neill was $22.45 per share.
- ------------------------------------------------------------------------------
Earnings Per Share Multiples
- ------------------------------------------------------------------------------
Discount Rate 8x 12x 16x 20x 24x
- ------------------ ----------- ----------- ----------- ----------- -----------
8.0% $ 13.07 $ 18.66 $ 24.25 $ 29.85 $ 35.44
10.0% 11.94 17.02 22.10 27.18 32.25
12.0% 10.93 15.55 20.17 24.79 29.41
14.0% 10.03 14.24 18.45 22.65 26.86
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Tangible Book Value Per Share Multiples
- ------------------------------------------------------------------------------
Discount Rate 75% 100% 125% 150% 175%
- ------------------ ----------- ----------- ----------- ----------- -----------
8.0% $ 15.74 $ 20.19 $ 24.65 $ 29.10 $ 33.55
10.0% 14.37 18.42 22.46 26.50 30.54
12.0% 13.15 16.83 20.50 24.18 27.86
14.0% 12.05 15.40 18.75 22.10 25.45
- ------------------------------------------------------------------------------
Sandler O'Neill performed a similar analysis that estimated the future
stream of after-tax dividend flows of FirstBank through March 31, 2008 under
various circumstances, assuming FirstBank's projected dividend stream and that
FirstBank performed in accordance with earnings projections reviewed with
management. To approximate the terminal value of FirstBank common stock at March
31, 2008, Sandler O'Neill applied price/earnings multiples ranging from 6x to
22x and multiples of tangible book value ranging from 50% to 250%. The dividend
income streams and terminal values were then discounted to present values using
different discount rates ranging from 8% to 14% chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of FirstBank common stock. As illustrated in the following table, this analysis
indicated an imputed range of values per share of FirstBank common stock of
$13.38 to $54.71 when applying the price/earnings multiples and $11.26 to $56.51
when applying multiples of tangible book value.
- ------------------------------------------------------------------------------
Earnings Per Share Multiples
- ------------------------------------------------------------------------------
Discount Rate 6x 10x 14x 18x 22x
- ------------------ ----------- ----------- ----------- ----------- -----------
8.0% $ 17.36 $ 26.70 $ 36.03 $ 45.37 $ 54.71
10.0% 15.88 24.36 32.84 41.32 49.80
12.0% 14.56 22.28 29.99 37.70 45.42
14.0% 13.38 20.40 27.43 34.46 41.49
- ------------------------------------------------------------------------------
51
- ------------------------------------------------------------------------------
Tangible Book Value Per Share Multiples
- ------------------------------------------------------------------------------
Discount Rate 50% 100% 150% 200% 250%
- ------------------ ----------- ----------- ----------- ----------- -----------
8.0% $ 14.55 $ 25.04 $ 35.53 $ 46.02 $ 56.51
10.0% 13.33 22.85 32.38 41.91 51.43
12.0% 12.24 20.90 29.57 38.24 46.90
14.0% 11.26 19.15 27.05 34.95 42.85
- ------------------------------------------------------------------------------
In connection with its analyses, Sandler O'Neill considered and
discussed with the FirstBank Board how the present value analyses would be
affected by changes in the underlying assumptions, including variations with
respect to the growth rate of assets, net income and dividend payout ratio.
Sandler O'Neill noted that the discounted dividend stream and terminal value
analysis is a widely used valuation methodology, but the results of such
methodology are highly dependent upon the numerous assumptions that must be
made, and the results thereof are not necessarily indicative of actual values or
future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential
pro forma effects of the merger, assuming the following: (1) the merger closes
in September 2003, (2) 1,659,091 of the Oregon Trail shares are exchanged for
cash at a value of $22.00 per share, (3) the remaining Oregon Trail shares are
exchanged for 1,480,064 shares of FirstBank common stock, (4) earnings per share
projections for FirstBank and Oregon Trail consistent with management
projections, and (5) purchase accounting adjustments, charges and transaction
costs associated with the merger and cost savings determined by the senior
managements of FirstBank and Oregon Trail. The analysis indicated that for the
first full fiscal year following completion of the merger, the merger would be
accretive to FirstBank's projected earnings per share and dilutive to tangible
book value per share. The actual results achieved by the combined company may
vary from projected results and the variations may be material.
- ------------------------------------------------------------------------------
Pro Forma Merger Analysis
- ------------------------------------------------------------------------------
Stand-alone Pro Forma
Projected twelve months ending 3/31/05 EPS $2.55 $2.88
Projected Tangible Book Value $24.95 $19.30
(at March 31, 2004)
- ------------------------------------------------------------------------------
FirstBank has agreed to pay Sandler O'Neill a transaction fee in
connection with the merger equal to 0.75% of the aggregate purchase price, or
approximately $650,000 (based upon the closing price of FirstBank common stock
on July 21, 2003), $50,000 of which was paid upon execution of the merger
agreement with the balance contingent and payable upon closing of the merger.
FirstBank has also paid Sandler O'Neill $150,000 for rendering its opinion,
which will be credited against the transaction fee due upon closing of the
merger. FirstBank has also agreed to reimburse certain of Sandler O'Neill's
reasonable out-of-pocket expenses incurred in connection with its engagement up
to a maximum of $15,000 and to indemnify Sandler O'Neill and its affiliates and
their respective partners, directors, officers, employees, agents, and
controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
In the ordinary course of its business as a broker-dealer, Sandler
O'Neill may purchase securities from and sell securities to FirstBank and Oregon
Trail and their respective affiliates and may actively trade the equity
securities of FirstBank and Oregon Trail and their respective affiliates for its
own account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities.
52
Opinion of Oregon Trail's Financial Advisor
On February 12, 2002, Keefe, Bruyette & Woods was retained by Oregon
Trail to evaluate Oregon Trail's strategic alternatives as part of a shareholder
enhancement program and to evaluate any specific proposals that might be
received regarding an acquisition of Oregon Trail. Keefe, Bruyette & Woods, as
part of its investment banking business, is regularly engaged in the evaluation
of businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, and distributions of listed and unlisted securities.
Keefe, Bruyette & Woods is familiar with the market for common stocks of
publicly traded banks, thrifts and bank and thrift holding companies. The Oregon
Trail Board selected Keefe, Bruyette & Woods on the basis of the firm's
reputation and its experience and expertise in transactions similar to the
merger and its prior consultative working relationship with Oregon Trail.
Pursuant to its engagement, Keefe, Bruyette & Woods was asked to render
an opinion as to the fairness, from a financial point of view, of the merger
consideration to shareholders of Oregon Trail. Keefe, Bruyette & Woods delivered
its opinion to the Oregon Trail Board that, as of February 24, 2003 the merger
consideration is fair, from a financial point of view, to the shareholders of
Oregon Trail. No limitations were imposed by the Oregon Trail Board upon Keefe,
Bruyette & Woods with respect to the investigations made or procedures followed
by it in rendering its opinion. Keefe, Bruyette & Woods has consented to the
inclusion herein of the summary of its opinion to the Oregon Trail Board and to
the reference to the entire opinion attached hereto as Appendix B.
The full text of the opinion of Keefe, Bruyette & Woods, which is
attached as Appendix B to this Proxy Statement, sets forth certain assumptions
made, matters considered and limitations on the review undertaken by Keefe,
Bruyette & Woods, and should be read in its entirety. The summary of the opinion
of Keefe, Bruyette & Woods set forth in this Proxy Statement is qualified in its
entirety by reference to the opinion.
In rendering its opinion, Keefe, Bruyette & Woods (i) reviewed the
merger agreement, (ii) reviewed Oregon Trail's and FirstBank's annual reports,
proxy statements and form 10-K's for the prior three fiscal years of 2002, 2001
and 2000 and 10-Q's for the quarters ended June 30, 2002 September 30, 2002 and
December 31, 2002 and certain other internal financial analysis considered
relevant, (iii) discussed with senior management and the board of directors of
Oregon Trail the current position and prospective outlook for Oregon Trail, (iv)
discussed with senior management of FirstBank their operations, financial
performance and future plans and prospects, (v) considered historical
quotations, levels of activity and prices of recorded transactions in Oregon
Trail's and FirstBank's common stock, (vi) reviewed financial and stock market
data of other thrifts in a comparable asset range to Oregon Trail, (vii)
reviewed financial and stock market data of other thrifts in a comparable asset
range to FirstBank, (viii) reviewed certain recent business combinations with
thrifts as the acquired company, which Keefe, Bruyette & Woods deemed comparable
in whole or in part, (ix) performed other analyses which Keefe, Bruyette & Woods
considered appropriate.
Summary of Marketing Efforts. In rendering its opinion, Keefe, Bruyette
& Woods considered the results of the strategic marketing efforts of Oregon
Trail by Keefe, Bruyette & Woods and the process undertaken by Oregon Trail to
find a strategic partner. During the marketing of the institution, the following
steps were taken by Keefe, Bruyette & Woods to find a strategic partner for
Oregon Trail:
o 16 financial institutions were contacted regarding a potential
strategic partnership with Oregon Trail
o 9 financial institutions executed confidentiality agreements
and received a confidential investor memorandum
o 3 financial institutions submitted a non-binding indication of
interest for Oregon Trail
The following are the reasons why the potential strategic partners
identified by Keefe, Bruyette & Woods did not affect a strategic partnership
with Oregon Trail:
o 4 institutions declined the strategic opportunity without
citing specific reasons
o 4 institutions declined the strategic opportunity because of
the Oregon Trail market area
o 3 institutions declined the opportunity because they were in
the process of pursuing other strategic opportunities
o 2 institutions submitted non-binding indications of interest
that did not ultimately translate to the
53
execution of a definitive agreement for reasons described in
the "Background and Reasons for the Merger" section of the
Proxy Statement
o 1 institution declined the strategic opportunity because
Oregon Trail did not meet its size criteria
o 1 institution declined the strategic opportunity because it
did not want to enter a competitive bidding process for Oregon
Trail
The marketing effort of Oregon Trail demonstrated that an extensive
fiduciary process in finding a potential strategic partner was undertaken and
that the marketing process had, in the opinion of Keefe, Bruyette & Woods,
served as an appropriate market test to determine the change of control
valuation for Oregon Trail. While no assurance can be given that all potential
strategic partners were identified and contacted during the marketing process,
the results of the extensive marketing effort indicated that, as of the date of
the opinion, the consideration received by Oregon Trail in the merger was fair
from a financial point of view.
Analysis of Recent Comparable Acquisition Transactions. Also in
rendering its opinion, Keefe, Bruyette & Woods analyzed certain comparable
merger and acquisition transactions of both pending and completed thrift deals,
comparing the acquisition price relative to book value, tangible book value,
last twelve months earnings, and premium to core deposits. The analysis included
a comparison of the median and average of the above ratios for representative
pending and completed acquisitions since January 1, 2000, where the seller was a
thrift institution. To compare the Oregon Trail transaction to selling thrift
institutions with a similar asset size and transaction value, Keefe, Bruyette &
Woods focused on representative pending and completed thrift transactions since
January 1, 2000 where the selling institution had an asset size between $150
million and $1 billion and the transaction value was below $125 million. In its
analysis of comparable transactions, Keefe, Bruyette & Woods also focused on
representative selling thrift institutions that had capital or profitability
profile similar to Oregon Trial, or were thrift institutions located in the
Western Region of the United States. As a result of these transaction criteria,
the following selling thrift institutions were used in analyzing comparable
transactions:
Selling Institution:
--------------------
Fidelity Bancorp, Inc.
Acadiana Bancshares, Inc.
Empire Federal Bancorp, Inc.
Potters Financial Corp.
Bank West Financial Corp.
Industrial Bancorp Inc.
First Deposit Bancshares, Inc.
FSL Holdings Inc.
WesterFed Financial Corp.
Cameron Financial Corp.
Texarkana First Financial Corp.
First Savings Bancorp Inc.
Harbor Federal Bancorp Inc.
Milton Federal Financial Corp.
Westwood Homestead Financial Corp.
The comparative transaction analysis resulted in a range of values for
Oregon Trail based upon comparable thrift merger and acquisition transactions.
Keefe, Bruyette & Woods derived the average and median pricing metrics of the
aforementioned comparable group and summarized the results of comparative thrift
merger and acquisition trans-
54
actions and compared the range of values to the consideration received by Oregon
Trail shareholders. The comparable thrift merger and acquisition statistics are
as follows:
Price to Price to last Core
Price to Tangible 12 months Deposit
Book Ratio (%) Book Ratio (%) earnings (x) Premium (%)
------------------ ------------------ ---------------- -----------------
Low Value 98.3 98.3 11.0x 0.39
Average Value 129.5 131.2 15.9x 6.63
Median Value 122.8 128.2 15.4x 6.30
High Value 170.6 170.6 21.1x 14.40
Price to Price to last Core
Price to Tangible 12 months Deposit
Book Ratio (%) Book Ratio (%) earnings (x) Premium (%)
------------------ ------------------ ---------------- -----------------
Implied Value of FirstBank offer* 124.2 124.2 14.0x 8.2
<FN>
- ---------------
* Based on February 24, 2003 closing price for FirstBank.
</FN>
Keefe, Bruyette & Woods viewed the aforementioned comparable group as
the most appropriate in deriving a comparable transaction value based on Oregon
Trail's size, capital base and earnings. Keefe, Bruyette & Woods viewed the fact
that, with the query based on the above criteria producing fifteen transactions
with reported pricing metrics in the comparable group, as being statistically
significant for the purposes of comparison. Keefe, Bruyette & Woods viewed the
four resulting metrics (price to book value, price to tangible book value, price
to last twelve months earnings and core deposit premium) from the three
comparable groups on an average and median basis, as the key metrics used to
evaluate the fairness, from a financial point of view, of the transaction.
Given that the value of the consideration on an aggregate basis to be
paid in the merger, as of the date of the opinion, is within the range of
comparable thrift transactions in all cases and is at or above median values
both on a price to book value and core deposit premium basis, Keefe, Bruyette &
Woods believes that this analysis supports the fairness, from a financial point
of view, to Oregon Trail and its shareholders of the consideration to be paid in
the merger.
Pro Forma Analysis. Keefe, Bruyette & Woods also performed an analysis
of the combined company to determine the pro forma impact to the combined
balance sheet, income statement, estimated GAAP and cash (which exclude the
impact of the amortization of intangible assets) earnings per share, estimated
tangible book value per share, return on average equity, and tangible equity to
assets. In performing its analysis, Keefe, Bruyette & Woods relied on the
following assumptions:
Assumptions by Keefe, Bruyette & Woods for Oregon Trail.
--------------------------------------------------------
1. December 31, 2002 balance sheet and income statement
data
2. To arrive at an estimate of annual net income, Keefe,
Bruyette & Woods annualized the year to date earnings
for Oregon Trail for the nine month period ended
December 31, 2002
Assumptions by Keefe, Bruyette & Woods for FirstBank.
-----------------------------------------------------
1. December 31, 2002 balance sheet and income statement
data for FirstBank
2. To arrive at an estimate of annual net income, Keefe,
Bruyette & Woods annualized the year to date earnings
for FirstBank for the nine month period ended
December 31, 2002
55
Transaction Assumptions by Keefe, Bruyette & Woods:
---------------------------------------------------
1. Oregon Trail shareholders would receive $22.00 per
share for 1,695,091 issued and outstanding shares of
Oregon Trail Common Stock. 1,480,064 FirstBank shares
are exchanged for the remaining number of Oregon
Trail issued and outstanding shares of common stock,
less the 1,695,091 shares receiving $22.00 per share
in cash
2. Oregon Trail stock option holders would be exchanged
for FirstBank stock options
3. Estimated pre-tax transaction expenses and one-time
merger charges of $5.6 million.
4. To pay the cash portion of the consideration,
FirstBank would liquidate existing investment
securities earning a pre-tax yield of 5.75%.
5. Total intangible assets (goodwill and core deposit
intangibles) created in the transaction are estimated
to be approximately $19.7million.
6. Estimated reduction in Oregon Trail non-interest
expenses of 18% based on conversations with FirstBank
management.
7. Keefe, Bruyette & Woods did not factor in any
potential revenue enhancements.
Under the aforementioned assumptions, Keefe, Bruyette & Woods estimated
that the combined company would have significantly higher assets, loans, and
deposits, while at the same time remaining well capitalized for regulatory
capital purposes. In addition, Keefe, Bruyette & Woods estimated that after the
elimination of duplicative back office functions and full realization of
anticipated cost savings, the combined company would have higher levels of net
income and Oregon Trail shareholders that elected 100% stock consideration would
realize higher levels of diluted earnings per share. As a result of its pro
forma analysis, Keefe, Bruyette & Woods concluded that the strategic affiliation
with FirstBank would create a larger, more competitive financial institution
with a broader geographic footprint that would create the size and scale to
remain competitive in a rapidly changing financial services competitive
landscape. The stronger financial institution as a result of the strategic
affiliation, combined with the estimated diluted earnings per share accretion to
the Oregon Trail shareholders that elected 100% stock consideration further
supported the fairness of the merger consideration to the Oregon Trail
shareholders from a financial point of view.
Based on the above analyses, Keefe, Bruyette & Woods concluded that the
consideration was fair, from a financial point of view, to shareholders. This
summary does not purport to be a complete description of the analysis performed
by Keefe, Bruyette & Woods and should not be construed independent of the other
information considered by Keefe, Bruyette & Woods in rendering its opinion.
Selecting portions of Keefe, Bruyette & Woods's analysis or isolating certain
aspects of the comparable transactions without considering all analysis and
factors, could create an incomplete or potentially misleading view of the
evaluation process.
In rendering its opinion, Keefe, Bruyette & Woods assumed and relied
upon the accuracy and completeness of the financial information provided to it
by Oregon Trail and FirstBank. In its review, with the consent of the Oregon
Trail Board, Keefe, Bruyette & Woods did not undertake any independent
verification of the information provided to it, nor did it make any independent
appraisal or evaluation of the assets or liabilities and potential or contingent
liabilities of Oregon Trail or FirstBank.
The fairness opinion of Keefe, Bruyette & Woods is limited to the
fairness as of its date, from a financial point of view, of the consideration to
be paid in the merger and does not address the underlying business decision to
effect the merger (or alternatives thereto) nor does it constitute a
recommendation to any shareholder of Oregon Trail as to how such shareholder
should vote with respect to the merger proposal.
Furthermore, Keefe, Bruyette & Woods expresses no opinion as to the
price or trading range at which shares of the pro forma entity will trade
following the consummation of the merger.
Keefe, Bruyette & Woods is a nationally recognized investment banking
firm and is continually engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, leveraged buyouts,
negotiated underwritings, secondary distributions of listed and unlisted
securities and private placements.
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In preparing its analysis, Keefe, Bruyette & Woods made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters, many of which are beyond the control of Keefe,
Bruyette & Woods and Oregon Trail. The analyses performed by Keefe, Bruyette &
Woods are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses and
do not purport to be appraisals or reflect the prices at which a business may be
sold.
Keefe, Bruyette & Woods will receive a fee equal to 1.0% of the deal
value at closing, plus $15,000, for services rendered in connection with
advising and issuing a fairness opinion regarding the merger. Had the
transaction closed on June 9, 2003, the amount that would have been paid to
Keefe, Bruyette & Woods would have been $809,000. As of the date of the proxy
statement-prospectus, Keefe, Bruyette & Woods has received $165,000 of its
fee, the remainder of which is due upon approval by shareholders of the merger.
Material Federal Income Tax Consequences
The following discussion summarizes the material United States federal
income tax consequences of the merger to United States persons who hold shares
of Oregon Trail common stock as capital assets within the meaning of the
Internal Revenue Code, and participate in the merger. It does not purport to be
a complete analysis or description of all potential federal income tax
consequences of the merger. The discussion does not address tax consequences
that may vary with, or are contingent on, individual circumstances. In addition,
it does not discuss the tax consequences that might be relevant to Oregon Trail
shareholders subject to special treatment under United States federal income tax
law such as:
o dealers or brokers in securities;
o tax-exempt entities;
o financial institutions;
o insurance companies;
o foreign persons;
o persons that hold Oregon Trail common stock as part of a
straddle, a hedge against currency risk, a constructive sale
or conversion transaction; and
o holders who acquired shares of Oregon Trail common stock
through the exercise or cancellation of employee stock options
or as compensation through other means.
Further, this discussion does not address any non-income tax
considerations or describe any tax consequences arising out of the tax laws of
any state, local or foreign jurisdiction. This discussion is based on the
Internal Revenue Code and regulations promulgated thereunder, applicable
administrative rulings and judicial precedent currently in effect, and on
certain factual assumptions. There can be no assurance that there will not be
changes in the legal authorities on which this discussion is based (which
changes could be retroactive), or that there will not be a change in the facts
or the validity of the factual assumptions underlying this discussion, that
could alter or modify the statements and conclusions below and could affect the
tax consequences of the merger.
Neither FirstBank nor Oregon Trail plans to obtain any rulings from the
Internal Revenue Service concerning tax issues with respect to the merger.
However, consummation of the merger is conditioned upon, among other things,
each of Oregon Trail and FirstBank receiving an opinion of Silver, Freedman &
Taff, L.L.P., acting as special tax counsel to FirstBank. Neither party
currently intends to waive receipt of an opinion from special tax counsel as a
condition to consummation of the merger. However, if either party should make a
determination to waive this condition and will not receive an opinion from
special tax counsel on the date of the completion of the merger, each party will
circulate a revised proxy statement and resolicit proxies to approve the merger.
The opinion of special tax counsel will be dated as of the date of the merger is
completed and will be based on the U.S. federal income tax laws in effect as of
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that date. The opinion of special tax counsel will state, on the basis of the
facts, certain representations to be made by the parties and assumptions set
forth in the opinion, that:
o the merger will be treated for United States federal income
tax purposes as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code; and
o FirstBank and Oregon Trail will each be a party to the
reorganization within the meaning of Section 368(b) of the
Internal Revenue Code.
An opinion of tax counsel represents counsel's legal judgment, but has
no binding effect or official status of any kind. The Internal Revenue Service
may assert contrary positions. Moreover, contrary positions may be adopted by a
court, if the positions are litigated.
In order for Oregon Trail and FirstBank to receive the opinion of
special tax counsel, the cash portion of the merger consideration on the date of
the merger agreement must not exceed 55% of the total value of the merger
consideration on such date based upon the closing trading price of FirstBank
common stock immediately prior to announcement of the transaction, and that the
cash portion of the merger consideration on the date of completion of the merger
must not exceed 60% of the total value of the merger consideration based upon
the closing trading price of FirstBank common stock on the day the merger is
completed (or if such day is not a trading day, then based upon the closing
trading price on the most recent rading day prior thereto). Special tax counsel
will require Oregon Trail and FirstBank to provide representations to it on the
date of completion of the merger to the effect that the facts described in the
preceding sentence are true and correct, and special tax counsel will rely on
such representations, as well as other customary representation from Oregon
Trail and FirstBank, in rendering its opinion.
Assuming the opinion of special tax counsel is rendered to Oregon Trail
and FirstBank, the material U.S. federal income tax consequences of the merger
to the Oregon Trail shareholders are expected to be as follows:
o Oregon Trail Shareholders Receiving Only FirstBank Common
Stock. If you receive only FirstBank common stock in the
merger, you will not recognize gain or loss on the conversion
of your shares of Oregon Trail common stock into shares of
FirstBank common stock, except to the extent that you receive
cash in lieu of fractional shares. If you receive cash in lieu
of a fractional share of FirstBank common stock, you will
recognize gain or loss equal to the difference between the
cash you receive and the part of basis of the Oregon Trail
common stock allocated to the fractional share interest. Any
such gain or loss will generally be a capital gain or loss.
Your tax basis in the FirstBank common stock you receive will
be the same as the tax basis of the shares of Oregon Trail
common stock you surrender in the merger, less any
proportionate part of your basis allocable to any fractional
share interest in FirstBank common stock for which you receive
cash. Your holding period for the FirstBank common stock you
receive will include the holding period of the Oregon Trail
common stock you surrender in the merger.
o Oregon Trail Shareholders Receiving Both FirstBank Common
Stock and Cash. You may receive both FirstBank common stock
and cash in exchange for your Oregon Trail common stock. If
you fall into this category:
o You will recognize gain, if any, in an amount equal to the
lesser of
- the excess of the consideration you receive, including
both the fair market value of the FirstBank common stock
and cash, over the basis of the Oregon Trail common stock
you surrender in the merger, or
- the amount of cash you receive.
o You will not recognize any loss.
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o Your basis in the FirstBank common stock you receive will be
equal to the basis of the Oregon Trail common stock you
surrender in the merger, decreased by the amount of cash you
receive, and increased by the amount of gain, if any, you
recognize, including any amount of gain treated as a dividend
as described below.
o Your holding period for the FirstBank common stock you receive
will include the holding period of the Oregon Trail common
stock you surrender in the merger.
If you own both Oregon Trail common stock and FirstBank common stock or
own blocks of Oregon Trail common stock with different tax bases, you
are urged to consult your own tax advisors with respect to the
application of the foregoing rules to your particular situation.
If you recognize any gain by virtue of the rules described above, you
will need to know whether the character of that gain is capital or
ordinary. Any gain you recognize will be treated as capital gain unless
the receipt of cash has the effect of the distribution of a dividend to
you under Section 302 of the Internal Revenue Code, as described below.
Capital gain may be subject to preferential tax rates in the case of
individuals. Your capital gain will constitute long-term capital gain
if you held the Oregon Trail common stock for more than one year prior
to the completion of the merger.
Any gain that you recognize should avoid being treated as a dividend
under Section 302 of the Internal Revenue Code provided:
o the percentage of the outstanding FirstBank stock you owned
both actually and under the constructive ownership rules of
Section 318 of the Internal Revenue Code, measured after
giving effect to the merger, is less than 80% of the
percentage of the outstanding FirstBank stock that would have
been owned actually and constructively by you after the merger
if FirstBank had issued solely common stock in the corporate
merger and none of the merger consideration had been paid in
cash, or
o your relative stock interest in FirstBank is minimal, you
exercise no control over the affairs of FirstBank and the
percentage of the outstanding FirstBank stock you owned both
actually and under the constructive ownership rules of Section
318 of the Internal Revenue Code, measured after giving effect
to the merger, is less (by even a small margin) than the
percentage of the outstanding FirstBank stock that would have
been owned actually and constructively by you after the merger
if FirstBank had issued solely common stock in the merger and
none of the merger consideration had been paid in cash.
The constructive ownership rules of Section 318 of the Internal Revenue
Code, mentioned above, treat you as owning (i) stock owned by certain
family members, (ii) stock owned by certain entities in which you have
an interest, and (iii) stock that could be acquired by you by the
exercise of an option or conversion right. Similarly, an entity may be
deemed to own stock that is actually owned by persons who have an
interest in the entity, such as shareholders, partners or
beneficiaries.
If your receipt of cash has the effect of the distribution of a
dividend under the foregoing rules, recognized gain will be treated as
a dividend taxable at ordinary income rates only to the extent of your
ratable share of undistributed earnings and profits immediately prior
to the merger.
o Oregon Trail Shareholders Receiving Only Cash. If you receive
solely cash in exchange for your Oregon Trail common stock,
you will be treated as receiving a distribution in redemption
of your stock. If you fall into this category, the cash you
receive will generally be treated as a distribution in full
payment in exchange for your Oregon Trail common stock, and
you will recognize gain or loss equal to the difference
between the amount of cash you receive and the basis in the
Oregon Trail common stock you surrender. Such gain or loss
will be capital gain or loss and will be long-term capital
gain or loss if such stock was held for more than one year
prior to the date of the merger. However, if you are not
treated as completely terminating your interest because of the
application of the constructive ownership rules of Section 318
of Internal Revenue Code (described above), under
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certain circumstances the full amount of cash you receive may
be treated as a dividend taxable at ordinary income rates to
the extent of undistributed earnings and profits immediately
prior to the merger, under Section 302 of the Internal Revenue
Code (see discussion above).
Reporting Requirements and Backup Withholding. Each Oregon Trail
shareholder receiving FirstBank common stock as a result of the merger will be
required to retain records and file with the shareholder's federal income tax
return a statement containing facts relating to the merger.
Backup withholding at a 27% rate may apply with respect to payments
received in the merger unless the recipient (i) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A shareholder who does not provide
his or her correct taxpayer identification number may have to pay penalties
imposed by the Internal Revenue Service. Any amounts withheld under the backup
withholding rules may be allowed as a refund or a credit against the
shareholder's United States federal income tax liability provided that any
required information is furnished to the Internal Revenue Service.
Because the foregoing discussion does not address foreign, state, or
local taxation and does not deal with all aspects of United States federal
taxation, and the tax consequences will not be the same for all Oregon Trail
shareholders, you should consult your own tax advisor as to the specific tax
consequences to you of the merger, including tax return reporting requirements,
the applicability and effect of foreign, state, local and other tax laws and the
possible effect of any proposed changes in the United States federal income tax
laws.
Accounting Treatment of the Merger
FirstBank will account for the merger as a purchase, as that term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes. Under the purchase method of accounting, the
assets and liabilities of Oregon Trail will be recorded on FirstBank's
consolidated balance sheet at their estimated fair value at the effective date
of the merger. The amount by which the purchase price paid by FirstBank exceeds
the fair value of the net tangible and identifiable intangible assets acquired
by FirstBank through the merger will be recorded as goodwill. Financial
statements of FirstBank issued after the effective date of the merger will
reflect these values and will not be restated retroactively to reflect the
historical position or results of operations of Oregon Trail.
Cash or Stock Election
Under the terms of the merger agreement, Oregon Trail shareholders may
elect to convert their shares into either cash or FirstBank common stock. All
elections of Oregon Trail shareholders are further subject to the allocation and
proration procedures described in the merger agreement. These procedures provide
that the number of shares of Oregon Trail common stock to be converted into
FirstBank common stock in the merger must be 46% of the total number of shares
of Oregon Trail common stock issued and outstanding on the date of the merger.
We are not making any recommendation as to whether Oregon Trail shareholders
should elect to receive cash or FirstBank common stock in the merger. Each
holder of Oregon Trail common stock must make his or her own decision with
respect to such election.
It is unlikely that elections will be made in the exact proportions
provided for in the merger agreement. As a result, the merger agreement
describes procedures to be followed if Oregon Trail shareholders in the
aggregate elect to receive more or less of the FirstBank common stock than
FirstBank has agreed to issue. These procedures are summarized below.
o If Stock Is Oversubscribed: If Oregon Trail shareholders elect
to receive more FirstBank common stock than FirstBank has
agreed to issue in the merger, then all Oregon Trail
shareholders who have elected to receive cash or who have made
no election will receive cash for their Oregon Trail shares
and all shareholders who elected to receive FirstBank common
stock will receive a pro rata portion of the available
FirstBank shares plus cash for those shares not converted into
FirstBank common stock.
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o If Stock Is Undersubscribed: If Oregon Trail shareholders
elect to receive fewer shares of FirstBank common stock than
FirstBank has agreed to issue in the merger, then all Oregon
Trail shareholders who have elected to receive FirstBank
common stock will receive FirstBank common stock and those
shareholders who elected to receive cash or who have made no
election will be treated in the following manner:
o If the number of shares held by Oregon Trail
shareholders who have made no election is sufficient
to make up the shortfall in the number of FirstBank
shares that FirstBank is required to issue, then all
Oregon Trail shareholders who elected cash will
receive cash, and those shareholders who made no
election will receive both cash and FirstBank common
stock in whatever proportion is necessary to make up
the shortfall.
o If the number of shares held by Oregon Trail
shareholders who have made no election is
insufficient to make up the shortfall, then all
Oregon Trail shareholders who made no election will
receive FirstBank common stock and those Oregon Trail
shareholders who elected to receive cash will receive
cash and FirstBank common stock in whatever
proportion is necessary to make up the shortfall.
No guarantee can be made that you will receive the amounts of cash or
stock you elect. As a result of the allocation procedures and other limitations
outlined in this document and in the merger agreement, you may receive FirstBank
common stock or cash in amounts that vary from the amounts you elect to receive.
Election Procedures; Surrender of Stock Certificates
An election form is being mailed separately from this proxy
statement-prospectus to holders of shares of Oregon Trail common stock at a date
after this proxy statement-prospectus is being mailed. Each election form
entitles the holder of the Oregon Trail common stock to elect to receive either
cash or FirstBank common stock or make no election with respect to the merger
consideration you wish to receive.
To make an effective election, you must submit a properly completed
election form, along with your Oregon Trail stock certificates representing all
shares of Oregon Trail common stock covered by the election form (or an
appropriate guarantee of delivery) to Registrar and Transfer Company on or
before the date set forth in the election form. Registrar and Transfer Company
will act as the exchange agent in the merger and in that role will process the
exchange of Oregon Trail stock certificates for cash or FirstBank common stock.
Shortly after the merger, the exchange agent will allocate cash and stock among
Oregon Trail shareholders, consistent with their elections and the allocation
and proration procedures. If you do not submit an election form, you will
receive instructions from the exchange agent on where to surrender your Oregon
Trail stock certificates after the merger is completed. In any event, do not
forward your Oregon Trail stock certificates with your proxy card.
You may change your election at any time prior to the election deadline
by written notice accompanied by a properly completed and signed later dated
election form received by the exchange agent prior to the election deadline or
by withdrawal of your stock certificates by written notice prior to the election
deadline. All elections will be revoked automatically if the merger agreement is
terminated. If you have a preference for receiving either FirstBank common stock
or cash for your Oregon Trail common stock, you should complete and return the
election form. If you do not make an election, you will be allocated FirstBank
common stock or cash depending on the elections made by other shareholders.
We make no recommendation as to whether you should elect to receive
cash or stock in the merger. You must make your own decision with respect to
your election.
If certificates for Oregon Trail common stock are not immediately
available or you are unable to send the election form and other required
documents to the exchange agent prior to the election deadline, Oregon Trail
shares may be properly exchanged, and an election will be effective, if:
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o such exchanges are made by or through a member firm of a
registered national securities exchange or of the National
Association of Securities Dealers, Inc., or by a commercial
bank or trust company having an office, branch or agency in
the United States;
o the exchange agent receives, prior to the election deadline, a
properly completed and duly executed notice of guaranteed
delivery substantially in the form provided with the election
form (delivered by hand, mail, telegram, telex or facsimile
transmission); and
o the exchange agent receives, within three business days after
the election deadline, the certificates for all exchanged
Oregon Trail shares, or confirmation of the delivery of all
such certificates into the exchange agent's account with The
Depository Trust Company in accordance with the proper
procedures for such transfer, together with a properly
completed and duly executed election form and any other
documents required by the election form.
Oregon Trail shareholders who do not submit a properly completed
election form or revoke their election form prior to the election deadline will
have their shares of Oregon Trail common stock designated as non-election
shares. Oregon Trail stock certificates represented by elections that have been
revoked will be promptly returned without charge to the Oregon Trail shareholder
revoking the election upon written request.
After the completion of the merger, the exchange agent will mail to
Oregon Trail shareholders who do not submit election forms or who have revoked
such forms a letter of transmittal, together with instructions for the exchange
of their Oregon Trail common stock certificates for the merger consideration.
Until you surrender your Oregon Trail stock certificates for exchange after
completion of the merger, you will not be paid dividends or other distributions
declared after the merger with respect to any FirstBank common stock into which
your Oregon Trail shares have been converted. When you surrender your Oregon
Trail stock certificates, FirstBank will pay any unpaid dividends or other
distributions, without interest. After the completion of the merger, there will
be no further transfers of Oregon Trail common stock. Oregon Trail stock
certificates presented for transfer after the completion of the merger will be
canceled and exchanged for the merger consideration.
If your Oregon Trail stock certificates have been either lost, stolen
or destroyed, you will have to prove your ownership of these certificates and
that they were lost, stolen or destroyed before you receive any consideration
for your shares. Upon request, our transfer agent, Registrar and Transfer
Company, will send you instructions on how to provide evidence of ownership.
Conditions to Completing the Merger
FirstBank's and Oregon Trail's obligations to consummate the merger are
conditioned on the following:
o approval of the merger agreement by Oregon Trail's
shareholders;
o approval of the merger contemplated by the merger agreement
and the issuance of FirstBank common stock in the merger by
FirstBank's shareholders;
o receipt of all required regulatory approvals without any
conditions that would materially and adversely impact the
benefits of the merger to FirstBank and the expiration of all
statutory waiting periods;
o no party to the merger being subject to any legal order that
prohibits consummating any part of the transaction, no
governmental entity having instituted any proceeding for the
purpose of blocking the transaction, and the absence of any
statute, rule or regulation that prohibits completion of any
part of the transaction;
o the registration statement, of which this proxy
statement-prospectus is a part of, being declared effective by
the Securities and Exchange Commission, the absence of any
pending or threatened
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proceeding by the Securities and Exchange Commission to
suspend the effectiveness of the registration statement and
the receipt of all required state "blue sky" approvals;
o receipt by each of us of all consents and approvals from third
parties (other than those required from government agencies)
required to complete the merger, unless failure to obtain
those consents or approvals would not have a material adverse
effect on FirstBank after completion of the merger;
o the shares of FirstBank to be issued in the merger have been
qualified for listing on Nasdaq;
o receipt by each of us of an opinion from Silver, Freedman &
Taff, L.L.P. to the effect that the merger will be treated for
federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
o receipt by each of us of legal opinions from counsel to the
other party;
o the other party having performed in all material respects its
obligations under the merger agreement, the other party's
representations and warranties being true and correct as of
the date of the merger agreement and as of the closing date
and there not having been any material adverse change in the
business or financial position of the other party, and
o receipt of a certificate signed by the other party's chief
executive officer and chief financial officer to that effect.
The obligation of Oregon Trail to complete the merger is also
conditioned on FirstBank having deposited the cash portion of the merger
consideration with the exchange agent.
The obligation of FirstBank to complete the merger is also conditioned
upon:
o Oregon Trail not entering into an agreement to pursue a
transaction with another entity other than FirstBank; and
o Oregon Trail not having any additional benefits payable to
insiders other than as disclosed to FirstBank at the time of
the signing of the merger agreement.
We cannot guarantee whether all of the conditions to the merger will be
satisfied or waived by the party permitted to do so.
Conduct of Business Before the Merger
Oregon Trail has agreed that, until completion of the merger and unless
permitted by FirstBank, neither it nor its subsidiaries will:
General Business
o conduct its business only in the regular, ordinary and usual
course consistent with past practice;
o preserve intact its business organization, customer base,
employees and assets to maintain its rights and franchises;
o not take any action that would adversely affect or delay its
ability to perform its obligations under the merger agreement
or to consummate the transactions contemplated by the merger
agreement;
o not enter into any new lines of business or any transactions
other than in the ordinary course of business; and
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o keep important contracts and adequate insurance in place.
Indebtedness
o not incur any additional indebtedness except in the ordinary
course of business consistent with past practices.
Capital Stock
o not issue any additional shares of capital stock, except
pursuant to the exercise of stock options;
o not repurchase or redeem any of its capital stock;
o not affect any splits, stock or cash dividends or make any
other distribution on its capital stock.
Dispositions
o not dispose of any of its assets or earning power, or sell any
asset, other than in the ordinary course of business for
reasonable consideration;
Investments
o not enter into or renew any investment securities or deposits
other than in the ordinary course of business consistent with
past practices;
o not buy a substantial part of the assets or earning power of
another entity;
o not make any investment in new service contracts, purchase or
sale agreements or lease agreements that are material;
o not acquire control over any corporation, firm, organization,
or other entity;
o not enter into, renew or purchase any investments in equity
contracts or engage in hedging activity.
Contracts
o except as contemplated by the merger agreement, not enter
into, renew, amend or terminate any material contract or
agreement, or make any change in or renew any of its material
leases or contracts.
Loans
o except in the ordinary course of business, consistent with
past practices, not renegotiate, renew, increase, extend or
purchase any loans, lease, advances, credit enhancements or
other extension of credit or any commitment concerning the
foregoing;
o not make any loan or extension of credit in individual loan
amounts of over $500,000 individually or $1.0 million in the
aggregate;
o not make or amend any loan or extension of credit or commit to
make or increase any such loan or extension of credit to any
director or officer of Pioneer Bank or loans to holders of
more than 5% of Oregon Trail stock, except for loans or
extensions of credit that do not exceed more the 2% of Pioneer
Bank capital.
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Employees
o not grant any increase in the compensation or benefits of any
of its employees or officers, except for certain routine
annual salary increases;
o not enter into any severance agreements with its officers or
employees;
o not make any change in retirement benefits unless required by
law;
o not hire any new employee with an annual compensation of over
$35,000;
o not amend any existing employment agreement, indemnification
agreement or enter into any new employment agreement;
o not adopt or terminate any employee benefit plan except as
required by the merger agreement or by law.
Settling Claims
o not settle any claim against it for more than $25,000 or
impose or agree to material restrictions on its operations.
Governing Documents
o not amend its articles of incorporation or bylaws.
Sale of Assets
o other than in the ordinary course of business consistent with
past practice, not sell or dispose of any of its properties,
leases or assets or release any indebtedness except in
connection with contracts in force on the date of the merger
agreement.
Capital Expenditures
o not make any capital expenditures, except for expenditures
necessary to maintain existing assets in good repair in
amounts less than $30,000.
Branches
o not sell, relocate or open or close any branch or other office
or file an application pertaining to such action.
Accounting
o not change its method of accounting, except as required by
changes in generally accepted accounting principles or
regulatory requirements.
Merger Agreement
o not agree to any action or take any action or omit to take any
action which would result in any of its representations and
warranties under the merger agreement being or becoming
untrue.
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Taxes
o not settle or compromise any material tax liability or matters
related thereto except in the ordinary course of business
consistent with past practice.
Other Agreements
o agree not to take, commit to take any or adopt any resolutions
in support of any of the foregoing actions.
FirstBank has agreed that, until the completion of the merger, it will
not:
o take any action that would materially adversely affect the
ability of FirstBank to obtain any necessary approvals of the
regulatory authorities to complete the merger to adversely
affect is ability to perform its covenants and agreements
under the merger agreement.
Covenants of Oregon Trail and FirstBank in the Merger Agreement
Agreement Not to Solicit Other Proposals. Oregon Trail has agreed not
to initiate, solicit, encourage, facilitate, obtain or endorse any acquisition
proposal with a third party. An acquisition proposal means any offer, agreement,
or understanding in which a person or entity, other than FirstBank, would:
o initiate a merger, consolidation, share exchange,
consolidation or business combination, or other similar
transaction involving Oregon Trail;
o acquire the right to vote ten percent or more of the
outstanding Oregon Trail common stock; and
o acquire a significant portion of the assets or earning power
of Pioneer Bank.
Despite the agreement of Oregon Trail not to solicit other acquisition
proposals, the board of directors of Oregon Trail may generally negotiate or
have discussions with, or provide information to, a third party who makes an
unsolicited, written, bona fide acquisition proposal, provided that the Oregon
Trail board of directors, after consultation with and receipt of advice from
outside legal counsel, deems such action to be required in order for the board
of directors to comply with its fiduciary duties to Oregon Trail shareholders
under applicable law.
If Oregon Trail receives a proposal or information request from a third
party or enters into negotiations with a third party, Oregon Trail must notify
FirstBank and provide FirstBank with information about the third party and its
proposal.
Employee Matters. Subject to determination of FirstBank's staffing
needs, each person who is an employee of Pioneer Bank as of the closing of the
merger (whose employment is not specifically terminated upon the closing) will
become an employee of FirstBank Northwest. FirstBank will make available
employer provided health and other employee welfare benefit plans to each
continuing employee on the same basis that it provides such coverage to
FirstBank employees. Former employees of Pioneer Bank will be eligible to
participate in FirstBank's benefit plans with full credit for prior service with
Oregon Trail for purposes of eligibility and vesting (but not for accrual of
benefits) purposes.
Indemnification of Oregon Trail Officers and Directors. FirstBank has
agreed that it will indemnify and hold harmless each present and former director
and officer of Oregon Trail from liability and expenses arising out of matters
existing or occurring at or before the consummation of the merger to the fullest
extent allowed under Oregon law as in effect at the time of closing. This
indemnification extends to liability arising out of the transactions
contemplated by the merger agreement. FirstBank has also agreed to maintain a
policy of directors' and officers' liability insurance coverage, or provide a
policy providing comparable coverage and amounts on terms no less favorable than
Oregon Trail's
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current policy, for the benefit of Oregon Trail's directors and officers who are
currently covered by insurance for three years following consummation of the
merger, subject to a cap on the amount of the cost of the insurance.
Certain Other Covenants. The merger agreement also contains other
agreements relating to our conduct before consummation of the merger, including
the following:
o After all requisite approvals necessary to consummate the
merger are obtained, Oregon Trail and Pioneer Bank will modify
and change its accruals and reserves so as to be consistent
with those of FirstBank and FirstBank Northwest.
o Oregon Trail will give FirstBank, and FirstBank will give
Oregon Trail, access during normal business hours to each's
property, books, records and personnel and furnish all
information either party may reasonably request. FirstBank and
Oregon Trail agree that they will keep confidential all such
information and documents unless the information was already
known, becomes publicly available, is disclosed with prior
written consent from the other party or becomes readily
ascertainable from published information.
o Oregon Trail will promptly provide FirstBank with a copy of
each report filed with its banking regulators.
o FirstBank and Oregon Trail will use their reasonable best
efforts to submit all necessary applications, notices, and
other filings with any governmental entity, the approval of
which is required to complete the merger and related
transactions.
o Oregon Trail will use its reasonable best efforts to obtain
all third party consents necessary to consummate the merger.
o Oregon Trail will take any necessary action to exempt this
transaction from any anti-takeover provisions contained in
Oregon Trail's articles of incorporation or bylaws or federal
or state law.
o FirstBank and Oregon Trail will use all reasonable efforts to
take all actions necessary to consummate the merger and the
transactions contemplated by the merger agreement.
o Oregon Trail and FirstBank will consult with each other
regarding any public statements about the merger and any
filings with any governmental entity or with any national
securities exchange or market.
o FirstBank will file a registration statement, of which this
proxy statement-prospectus is a part of, with the Securities
and Exchange Commission registering the shares of FirstBank
common stock to be issued in the merger to Oregon Trail
shareholders.
o Oregon Trail will take all actions necessary to convene a
meeting of its shareholders to vote on the merger agreement.
The Oregon Trail board of directors will recommend at the
shareholder meeting that the shareholders vote to approve the
merger and will use its reasonable best efforts to solicit
shareholder approval, unless it determines that such actions
would not comply with its fiduciary obligations to Oregon
Trail shareholders.
o Prior to completion of the merger, FirstBank will notify The
Nasdaq Stock Market of the additional shares of FirstBank
common stock that FirstBank will issue in exchange for shares
of Oregon Trail common stock.
o Oregon Trail will use its reasonable best efforts to cause
each person who is an affiliate of it under Rule 145 of the
Securities Act to deliver to FirstBank a letter to the effect
that such person will comply with Rule 145.
67
o Oregon Trail will notify FirstBank of any event necessary to
amend or supplement the representations and warranties so that
the representations and warranties and schedules remain true
and correct.
Representations and Warranties Made by FirstBank and Oregon Trail in the Merger
Agreement
FirstBank and Oregon Trail have made certain customary representations
and warranties to each other in the merger agreement relating to our businesses.
For information on these representations and warranties, please refer to the
merger agreement attached as Appendix A. The representations and warranties must
be true in all material respects through the completion of the merger unless the
change does not have a material negative impact on our business, financial
condition or results of operations. See "-- Conditions to Completing the
Merger."
Termination and Amendment of the Merger Agreement
The merger agreement may be terminated at any time prior to the
completion of the merger, either before or after approval of the merger
agreement by Oregon Trail shareholders, as follows:
o with the mutual written consent of FirstBank and Oregon Trail;
o by FirstBank if Oregon Trail fails to conduct its business
pursuant to the covenants made in the merger agreement;
o by either party if the merger is not consummated by October
31, 2003, unless the delay is caused by a governmental
regulatory agency's review of a required application and
Oregon Trail agrees to an extension required by FirstBank;
o by either party upon denial of any required regulatory
approval;
o by FirstBank if its conditions to consummate the merger are
not satisfied as of the closing date or by Oregon Trail if its
conditions to consummate the Merger are not satisfied as of
the closing date;
o by either party if there has been a material adverse change in
the business or financial position of the other party;
o by either party if the other party has committed a material
breach of any obligation of the other party that has not been
cured within 30 days after the giving of written notice of
such breach;
o by FirstBank if Oregon Trail enters any agreement with a view
toward being acquired or effecting a business combination with
any other person; or
o by FirstBank if Oregon Trail or Pioneer Bank enters into any
supervisory agreement, cease and desist order, memorandum of
understanding or similar arrangement with any bank regulatory
agency or has any claim or action concerning federal or state
securities law against it or its officers and directors for
their services as officers and directors.
Termination Fee. The merger agreement requires Oregon Trail to pay
FirstBank a termination fee of $3.5 million under certain circumstances. The fee
may be demanded by FirstBank in the event any of the following occurs:
o Oregon Trail, without the written consent of FirstBank, enters
into or recommends to Oregon Trail shareholders an agreement
with a third party providing for certain acquisition
transactions including a merger or similar transaction
involving Oregon Trail, the purchase, acquisition or lease of
substantially all of the assets of Oregon Trail or the
acquisition of 25% or more of Oregon Trail stock; or
68
o a valid proposal to engage in an acquisition transaction, as
described above, is made to Oregon Trail or Pioneer Bank, and
after the proposal is made:
o Oregon Trail or Pioneer Bank breaches the merger
agreement and the breach entitles FirstBank to
terminate the merger agreement,
o Oregon Trail shareholders fail to approve the merger
agreement at the annual meeting of Oregon Trail
shareholders,
o the annual meeting is canceled without the fault of
FirstBank, or the Oregon Trail board of directors
withdraws or modifies in a manner adverse to
FirstBank its recommendation to shareholders to
approve the merger agreement.
o the board of directors of Oregon Trail shall fail to favorably
recommend, or have withdrawn their favorable recommendation of
the merger.
Oregon Trail's obligation to make this payment terminates on the
earliest of
o the consummation of the merger;
o the date on which the merger agreement is validly terminated
in accordance with its terms, other than a termination by
FirstBank as a result of certain breaches of the merger
agreement by Oregon Trail, provided that the termination
occurs before a payment event; or
o the date that is 12 months after the termination or expiration
of the merger agreement by FirstBank unless one of the payment
events listed above has already occurred.
The termination fee is intended to increase the likelihood that the
merger will be consummated according to the terms set forth in the merger
agreement and may be expected to discourage competing offers to acquire Oregon
Trail from other parties because the termination fee could increase the cost of
such acquisition. To the best of Oregon Trail's knowledge, no event that would
permit FirstBank to demand payment of the termination fee has occurred as of the
date of this proxy statement-prospectus.
Amendment of the Merger Agreement. Before the completion of the merger,
FirstBank and Oregon Trail may agree to waive, amend or modify any provision of
the merger agreement. However, after the vote by Oregon Trail shareholders,
FirstBank and Oregon Trail can make no amendment or modification that would
reduce the amount or alter the kind of consideration to be received by Oregon
Trail's shareholders under the terms of the merger.
Directors and Officers of FirstBank Following the Merger
After completion of the merger, the officers and directors of FirstBank
will be those persons serving as the officers and directors of FirstBank
immediately prior to the merger and John Gentry, a current director of Oregon
Trail, who was designated by FirstBank after consultation with Oregon Trail.
Interests of Our Directors and Officers in the Merger that Differ From Your
Interests
Some members of Oregon Trail's management and board of directors may
have interests in the merger that are in addition to or different from the
interests of Oregon Trail shareholders. Oregon Trail's board of directors was
aware of these interests and considered them in approving the merger agreement.
Employment Agreements. There will be payments and waiver agreements
among FirstBank and Oregon Trail and each of Mr. Maughan, Mr. Lockwood and Mr.
McCreary, which provide among things, for the termination of Mr. Maughan's, Mr.
Lockwood's and Mr. McCreary's rights to receive benefits under their employment
agreements upon
69
consummation of the merger in exchange for a cash payment at the time in the
amounts of $616,354, $382,567 and $379,986, respectively.
Employee Severance Compensation Plan. Pioneer Bank maintains the
Pioneer Bank Employee Severance Compensation Plan to provide benefits to
eligible employees in the event of a change in control of Oregon Trail or
Pioneer Bank. Under the plan, in the event of a change in control of Oregon
Trail or Pioneer Bank, eligible employees, other than officers of Pioneer Bank,
who are terminated or who terminate employment (but only upon the occurrence of
events specified in the plan) within 12 months of the effective date of a change
in control will be entitled to a payment based on their years of service with
Pioneer Bank. A minimum payment is equal to three months of compensation and a
maximum payment is equal to six months of compensation. However, the maximum
payment for any eligible employee would be equal to six months of their then
current compensation. In addition, senior vice presidents of Pioneer Bank, vice
presidents of Pioneer Bank and assistant vice presidents/managers of Pioneer
Bank would be eligible to receive a severance payment equal to 18, 12 and nine
months, respectively, of their current compensation. As of the date of this
proxy statement-prospectus, only one employee, other than an executive officer,
has been notified that he will be terminated at or near the closing of the
merger. His change in control payment will be approximately $74,000 under the
plan.
Directors Retirement Plan. Pioneer Bank maintains the Pioneer Bank
Director's Plan which provides that, in the event of a change in control of
Oregon Trail, each director of Pioneer Bank within 30 days of such date, would
receive a payment equal to the present value of seven times the annual fees
payable to the director at the effective time of the change in control. The
present value calculation is based on the applicable federal rate as published
by the Internal Revenue Service. The aggregate amount payable under the
Director's Plan to all current directors and directors emeriti would be
approximately $710,586.
Vesting of Oregon Trail Restricted Stock. Directors, officers and
employees of Oregon Trail received grants of restricted stock under Oregon
Trail's 1998 Management Recognition and Development Plan, with vesting of the
shares to occur over a period of five years. Under the terms of the plan, all
unvested restricted shares of Oregon Trail common stock will become vested upon
a change in control of Oregon Trail. The merger will constitute a change in
control of Oregon Trail. As of March 31, 2003, a total of 6,422 shares of
unvested restricted stock, which will be converted into the right to receive the
same merger consideration as all other shares of Oregon Trail common stock were
held by two executive officers of Oregon Trail. In addition, 58,362 shares of
unvested restricted stock were held by the directors of Oregon Trail as of March
31, 2003.
Oregon Trail Stock Options. Under the terms of the Oregon Trail
stock-based incentive plan, all outstanding options to purchase Oregon Trail
common stock under Oregon Trail's stock option plan will become vested upon
completion of the merger. As of March 31, 2003, the directors and executive
officers of Oregon Trail held options to purchase a total of 355,207 shares of
Oregon Trail common stock with a weighted average exercise price of $12.56.
Appointment of Oregon Trail Director to the FirstBank and FirstBank
Northwest Board of Directors. Upon completion of the merger, FirstBank will
appoint John Gentry to the boards of directors of FirstBank and FirstBank
Northwest. Mr. Gentry will be paid the same fees payable to FirstBank's and
FirstBank Northwest's directors.
Termination of the Oregon Trail Employee Stock Ownership Plan. Oregon
Trail will terminate its employee stock ownership plan upon completion of the
merger. The plan will repay its existing loan and will allocate the surplus cash
and FirstBank common stock to the accounts of the plan participants in
proportion to their account balances, to the extent allowed under applicable law
and the governing documents of the plan.
Protection of Oregon Trail Directors and Officers Against Claims.
FirstBank has agreed to indemnify and hold harmless each present and former
director and officer of Oregon Trail from liability and expenses arising out of
matters existing or occurring at or before the consummation of the merger to the
fullest extent allowed under Washington law as in effect at the time of closing.
This indemnification extends to liability arising out of the transactions
contemplated by the merger agreement. FirstBank has also agreed to advance any
related costs to each of these persons as they are incurred. FirstBank has also
agreed that it will maintain a policy of directors' and officers' liability
insurance
70
coverage for the benefit of Oregon Trail's directors and officers for three
years following consummation of the merger, subject to certain limitations on
the amount of premiums to be paid.
Regulatory Approvals Needed to Complete the Merger
The merger of Oregon Trail with FirstBank is subject to the prior
approval of the Office of Thrift Supervision under the Savings and Loan Holding
Company Act. FirstBank filed an application with the OTS on June 2, 2003.
Completion of the merger of Pioneer Bank with FirstBank Northwest is
subject to prior approval of the Office of Thrift Supervision. In reviewing
applications for transactions of this type, the OTS must consider, among other
factors, the financial and managerial resources and future prospects of the
existing and resulting institutions, and the convenience and needs of the
communities to be served. In addition, the OTS may not approve a transaction if
it will result in a monopoly or otherwise be anticompetitive. FirstBank filed an
application with the OTS on June 2, 2003.
Under the Community Reinvestment Act of 1977, the OTS must take into
account the record of performance of FirstBank Northwest and Pioneer Bank in
meeting the credit needs of the entire community, including low- and
moderate-income neighborhoods, served by each institution. As part of the review
process, bank regulatory agencies frequently receive comments and protests from
community groups and others. FirstBank Northwest and Pioneer Bank each received
a "Satisfactory" rating during their last federal Community Reinvestment Act
examinations.
In addition, a period of 15 to 30 days must expire following approval
by the OTS before completion of the merger is allowed, within which period the
United States Department of Justice may file objections to the merger under the
federal antitrust laws. While we believe that the likelihood of objection by the
Department of Justice is remote in this case, there can be no assurance that the
Department of Justice will not initiate proceedings to block the merger, or that
the Attorney General of the State of Washington will not challenge the merger,
or if any proceeding is instituted or challenge is made, as to the result of the
challenge.
The merger cannot proceed in the absence of the requisite regulatory
approvals. See "-- Conditions to Completing the Merger" and "-- Termination and
Amendment of the Merger Agreement." There can be no assurance that the requisite
regulatory approvals will be obtained, and if obtained, there can be no
assurance as to the date of any approval. There can also be no assurance that
any regulatory approvals will not contain a condition or requirement that causes
the approvals to fail to satisfy the condition set forth in the merger agreement
and described under "-- Conditions to Completing the Merger."
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the cash consideration or the exchange
ratio for converting Oregon Trail common stock to FirstBank common stock.
Furthermore, regulatory approvals do not constitute an endorsement or
recommendation of the merger.
Resale of FirstBank Common Stock
The shares of FirstBank common stock to be issued to shareholders of
Oregon Trail in the merger have been registered under the Securities Act of
1933. Shares of FirstBank common stock issued in the merger may be traded freely
and without restriction by those shareholders not deemed to be "affiliates" of
Oregon Trail, as that term is defined in the rules under the Securities Act.
FirstBank common stock received by those shareholders of Oregon Trail who are
deemed to be "affiliates" of Oregon Trail at the time the merger is submitted
for vote of the shareholders of Oregon Trail may be resold without registration
under the Securities Act only to the extent provided for by Rule 145 promulgated
under the Securities Act, which permits limited sales under certain
circumstances, or pursuant to another exemption from registration. An affiliate
of Oregon Trail is an individual or entity that controls, is controlled by or is
under common control with Oregon Trail, and may include the executive officers
and directors of Oregon Trail, as well as certain principal shareholders of
Oregon Trail. The same restrictions apply to certain relatives or the spouse of
those persons and any trusts, estates, corporations or other entities in which
those persons have a 10% or greater beneficial interest.
71
Oregon Trail has agreed in the merger agreement to use its best efforts
to cause each person who is an affiliate of Oregon Trail for purposes of Rule
145 under the Securities Act to deliver to FirstBank a written agreement
intended to ensure compliance with the Securities Act.
When Will the Merger be Completed
The closing of the merger will take place on a date designated by
FirstBank that is no later than 30 days following the date on which all of the
conditions to the merger contained in the merger agreement are satisfied or
waived, unless we agree to a later date. See "-- Conditions to Completing the
Merger." On the closing date, FirstBank will file articles of merger with the
Washington Secretary of State merging Oregon Trail into FirstBank. The merger
will become effective at the time stated in the articles of merger.
FirstBank and Oregon Trail expect to complete the merger in the fourth
calendar quarter of 2003. However, we cannot guarantee when or if the required
regulatory approvals will be obtained. See "-- Regulatory Approvals Needed to
Complete the Merger." Furthermore, either company may terminate the merger
agreement if, among other reasons, the merger has not been completed on or
before December 31, 2003, unless failure to complete the merger by that time is
due to a misrepresentation, breach of warranty or failure to fulfill a covenant
by the party seeking to terminate the agreement. See "--Termination and
Amendment of the Merger Agreement."
Expenses
Each of FirstBank and Oregon Trail will pay its own costs and expenses
incurred in connection with the merger.
Dissenters' Rights
Under Oregon law, shareholders do not have the right to exercise
appraisal rights. If the merger is approved, Oregon Trail shareholders who voted
against the merger agreement will be treated the same as other Oregon Trail
shareholders.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed combined consolidated
balance sheet as of March 31, 2003 and the unaudited pro forma condensed
combined consolidated statements of income for year ended March 31, 2003 give
effect to the pending merger, accounted for as a purchase.
The unaudited pro forma condensed combined consolidated financial
information is based on the historical consolidated financial statements of
FirstBank and Oregon Trail under the assumptions and adjustments set forth in
the accompanying notes. The unaudited pro forma condensed combined consolidated
balance sheet gives effect to the merger as if the merger had been consummated
at the end of the period presented. The unaudited pro forma condensed combined
consolidated statements of income give effect to the merger as if the merger had
been consummated on April 1 of the earliest period presented. The unaudited pro
forma condensed combined consolidated financial statements do not give effect to
the anticipated cost savings in connection with the merger.
You should read the unaudited pro forma condensed combined consolidated
financial statements in conjunction with the consolidated historical financial
statements of FirstBank and Oregon Trail, including the respective notes to
those statements. The pro forma information is not necessarily indicative of the
combined financial position or the results of operations in the future or of the
combined financial position or the results of operations which would have been
realized had the merger been consummated during the periods or as of the dates
for which the pro forma information is presented. We anticipate that the merger
will provide the combined company with financial benefits that include reduced
operating expenses and opportunity to earn more revenue. In addition, FirstBank
will incur costs in acquiring Oregon Trail. The pro forma information, while
helpful in illustrating the financial characteristics of the new company under
one set of assumptions, does not reflect these benefits and costs and,
accordingly, does not attempt to predict or suggest future results.
Pro forma per share amounts for the combined company are based on a
1.028 exchange ratio.
72
FIRSTBANK NW CORP. AND OREGON TRAIL FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 2003
Historical
----------------------------
Oregon Trail Pro Forma
FirstBank Financial Adjustments Pro forma
NW Corp. Corp. debit (credit) combined (1)
----------- ------------ -------------- ------------
(In thousands)
ASSETS
Noninterest-bearing cash deposits $ 9,379 $ 1,860 $ 32 $ 11,871
Interest-bearing cash deposits 15,362 7,254 -- 22,616
Securities available-for-sale 24,462 107,935 -- 132,397
Securities held-to-maturity 1,969 -- -- 1,969
Equity securities, at cost 5,731 6,727 -- 12,458
Loans held for sale 5,214 -- -- 5,214
Loans receivable, net of allowance for loan
losses 251,805 228,227 5,600 485,632
Accrued interest receivable 1,882 1,906 -- 3,788
Premises and equipment, net 7,210 8,719 752 16,681
Goodwill -- -- 15,695 15,695
Intangible assets -- -- 5,921 5,921
Other assets 9,384 14,857 588 24,829
--------- --------- --------- ---------
Total assets $ 332,398 $ 377,485 $ 28,588 $ 738,471
========= ========= ========= =========
LIABILITIES
Deposits $ 214,340 $ 249,126 $ 2,300 $ 465,766
Advances from borrowers for taxes and
insurance 1,192 38 -- 1,230
Advances from Federal Home Loan Bank 81,816 64,500 5,600 151,916
Bridge loan -- -- 41,900 41,900
Deferred income taxes 453 1,231 -- 1,722
Accrued expense and other liabilities 4,533 2,445 462 7,440
--------- --------- --------- ---------
Total Liabilities 302,334 317,378 50,262 669,974
SHAREHOLDERS' EQUITY
Preferred stock -- -- -- --
Common stock 14 29 (10) 33
Additional paid-in capital 9,842 23,815 14,599 48,256
Unearned ESOP shares (884) (805) 805 (884)
Deferred compensation (157) (881) 881 (157)
Retained earnings, substantially restricted 20,214 36,098 (36,098) 20,214
Accumulated other comprehensive income 1,035 1,851 (1,851) 1,035
--------- --------- --------- ---------
Total shareholders' equity 30,064 60,107 (21,674) 68,497
Total Liabilities and Shareholders' Equity $ 332,398 $ 377,485 $ 28,588 $ 738,471
========= ========= ========= =========
<FN>
(1) Following repayment of $41.9 million bridge loan within one month
following the close of the merger, funded through the sale of
securities, pro forma assets would be reduced to approximately $696.6
million.
</FN>
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements.
73
FIRSTBANK NW CORP. AND OREGON TRAIL FINANCIAL CORP.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED MARCH 31, 2003
Historical
------------------------------
Oregon Trail Pro Forma
FirstBank Financial Adjustments Pro forma
NW Corp. Corp. debit (credit) combined
----------- ------------ -------------- -----------
(In thousands, except per share data)
Interest Income:
Loans receivable $ 18,233 $ 18,964 $ (1,793) $ 35,404
Mortgage-backed securities 729 4,414 -- 5,143
Investment securities 629 1,042 -- 1,734
Other 921 412 -- 1,333
----------- ----------- ----------- -----------
Total interest income 20,575 24,832 (1,793) 43,614
----------- ----------- ----------- -----------
Interest expense:
Deposits 4,643 5,302 (1,040) 8,905
Advances from Federal Home Loan Bank
and other borrowings 4,067 3,872 (1,054) 6,885
----------- ----------- ----------- -----------
Total interest expense 8,710 9,174 (2,094) 15,790
----------- ----------- ----------- -----------
Net interest income 11,865 15,658 (301) 27,824
Provisions for loans losses (1,033) (321) -- (1,354)
----------- ----------- ----------- -----------
Net interest income after provisions for
loan losses 10,832 15,337 (301) 26,470
----------- ----------- ----------- -----------
Noninterest income:
Gain on sale of loans 2,128 352 -- 2,480
Service fees and charges 2,097 2,340 -- 4,437
Commissions and other 161 759 -- 920
----------- ----------- ----------- -----------
4,386 3,451 -- 7,837
Noninterest expenses:
Compensation and related benefits 7,057 6,722 -- 13,779
Occupancy 1,260 733 -- 1,993
Other 3,076 3,808 624 7,508
----------- ----------- ----------- -----------
11,393 11,263 624 23,280
----------- ----------- ----------- -----------
Income before income tax expense 3,825 7,525 (323) 11,027
Income tax expense 1,053 2,371 (123) 3,301
----------- ----------- ----------- -----------
NET INCOME $ 2,772 $ 5,154 $ (200) $ 7,726
=========== =========== =========== ===========
Basic earnings per share $ 2.15 $ 1.78 $ (0.14) $ 2.79
=========== =========== =========== ===========
Diluted earnings per share $ 2.07 $ 1.67 $ (0.12) $ 2.56
=========== =========== =========== ===========
Weighted average common shares
outstanding - basic 1,287,967 2,902,501 1,480,064 2,768,031
=========== =========== =========== ===========
Weighted average common shares
outstanding - diluted 1,341,111 3,081,535 1,679,510 3,020,621
=========== =========== =========== ===========
See Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
74
NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS
The unaudited pro forma combined balance sheet as of March 31, 2003,
and the unaudited pro forma combined statement of income for the year ended
March 31, 2003, combine the historical financial statements of FirstBank and
Oregon Trail after giving effect to the merger using the purchase method of
accounting. Pro forma adjustments to the balance sheet are computed as if the
transaction occurred at April 1, 2003. Pro forma adjustments to the statement of
income are computed as if the transaction occurred at March 31, 2003. In
addition, the following financial statements do not reflect any anticipated cost
savings, which may be realized by FirstBank after completion of the merger.
The unaudited pro forma information is not intended to represent what
FirstBank and Oregon Trail's combined results of operations actually would have
been if the merger had occurred on March 31, 2003. The information has been
prepared assuming that the merger will be accounted for under the purchase
method of accounting such that the assets acquired and liabilities assumed will
be recorded at their estimated fair values, with the excess of the purchase
price over the net fair values recorded as intangible assets. These pro forma
financial statements should be read in conjunction with the consolidated
financial statements of FirstBank and Oregon Trail incorporated by reference in
this registration statement and the consolidated financial statements of Oregon
Trail included herein. The unaudited pro forma combined balance sheet and
statement of income are not necessarily indicative of the combined financial
position at consummation of the merger or the results of operations following
consummation of the merger.
Note 1. Basis of Presentation
On February 24, 2003, FirstBank, the savings and loan holding company
for FirstBank Northwest, and Oregon Trail, the savings and loan holding company
for Pioneer Bank, entered into a merger agreement whereby each of the issued and
outstanding common shares of Oregon Trail will be exchanged for shares of
FirstBank or $22.00 in cash per share. Elections to receive stock, cash or a
combination of stock and cash by the shareholders of Oregon Trail will be
limited by a requirement that 46% of the total number of outstanding shares of
Oregon Trail common stock be exchanged for FirstBank common stock. It is
anticipated that the merger will be consummated in the fourth quarter of
calendar year 2003.
Under accounting principles generally accepted in the United States of
America, the merger will be accounted for using the purchase method of
accounting and, as such, the assets and liabilities acquired will be recorded at
fair value. In accordance with Statement of Financial Accounting Standards No.
142, Goodwill and Other Tangible Assets, goodwill acquired in a business
combination for which the acquisition date is after June 30, 2001, shall not be
amortized. Goodwill must be tested for impairment in future periods following
the business combination. Impairment is the condition that exists when the
carrying amount of goodwill exceeds its implied fair value. Also, in accordance
with this statement, intangible assets other than goodwill acquired in a
business combination for which the acquisition date is after June 30, 2001,
shall be amortized based on the estimated useful life of the intangible asset
unless that life is determined to be indefinite.
Note 2. Accounting Policies and Financial Statement Classifications
The accounting policies of both companies are in the process of being
reviewed for consistency. As a result of this review, certain conforming
accounting adjustments may be necessary. The nature and extent of these
adjustments have not been determined but are not expected to be significant.
Note 3. Merger- and Restructuring-Related Charges
Merger and restructuring related charges such as additional office
supplies, expenses related to conversion of data processing systems, capital
expenditures for data processing equipment and signage have not been included in
the unaudited pro forma combined balance sheet and statement of income as the
proposed charges are nonrecurring.
75
Note 4. Pro Forma Earnings Per Share
The pro forma combined earnings per share information for the year
ended March 31, 2003, has been computed based on the pro forma combined weighted
average common shares outstanding for the period as if the merger had occurred
at the beginning of the earliest period presented. The basic and fully diluted
weighted average common shares outstanding for FirstBank were adjusted to
include the converted Oregon Trail weighted average common shares outstanding.
In accordance with the merger agreement, 46% of the outstanding common shares of
Oregon Trail will be converted into common shares of FirstBank at an exchange
ratio of 1.028.
Basic Shares 1,287,967
Average basic shares
Common stock issued to Oregon Trail
shareholders (a) 1,480,064
---------
Average shares - basic 2,768,031
=========
Diluted Shares
Average diluted shares 1,341,111
Common Stock issued to Oregon Trail
shareholders (a) 1,480,064
Dilutive effect of stock option rollover 199,446
---------
Average shares - diluted 3,020,621
=========
(a) For pro forma calculations, shares valued at $22.00 per share are
assumed to be outstanding during the entire period
Note 5. Pro forma Adjustments
The merger transaction with Oregon Trail has been reflected in the pro
forma combined condensed balance sheet as of March 31, 2003, as follows (in
thousands):
Consideration paid:
Cash
Paid to sellers $ 36,500
Estimated direct merger costs 5,368
--------
41,868
Common stock issued (1,480,064 shares value at $22.00 per share) 34,101
Fair value of unexercised stock options of Oregon Trail converted
to FirstBank stock options 4,332
--------
Total cost of merger 80,301
Less: Oregon Trail equity at March 31, 2003 (60,107)
--------
Excess cost $ 20,194
========
Allocation of excess cost:
Fair value adjustment - loans receivable, net $ 5,600
Fair value adjustment - premise and equipment 752
Core deposit premium intangible asset 5,841
Non-compete agreement intangible asset 80
Deferred tax assets 588
Fair value adjustment - time deposits (2,300)
Fair value adjustment - FHLB advances (5,600)
Other liabilities (462)
--------
Subtotal 4,499
Goodwill 15,695
--------
$ 20,194
========
76
The computations reflected above are preliminary. The actual amounts at
which the transaction will be recorded are dependent on the equity of Oregon
Trail at the date of closing and an allocation of the purchase price to the fair
values of the net assets acquired at the date of closing.
FirstBank intends to utilize a $41.9 million bridge loan to provide for
the $36.5 million in cash to purchase shares of Oregon Trail common stock at
$22.00 per share and pay other merger related expense. The bridge loan is
estimated to be outstanding for less than one month, at which time it will be
repaid from the proceeds generated from the sale of available for sale
investment securities. The pro forma combined condensed statement of income for
the year ended March 31, 2003, reflects the interest expense anticipated with
this transaction, estimating a 4.25% interest rate.
The following is a summary of the estimated amortization of intangible
assets acquired in the merger as reflected in the pro forma combined condensed
statement of income for the year ended March 31, 2003 (in thousands):
Loan premium, amortized on effective interest method $ 1,793
Core deposit intangible, amortized based on a 10 year life 584
Non-compete covenant, amortized based on a 2 year life 40
Deposit premium, amortized on effective interest method (1,040)
FHLB advance premium amortized on effective interest method (1,204)
--------
$ 173
========
The pro forma adjustment to income tax expense is based on an assumed
marginal tax rate of 38%. The tax expense or benefit is reflected in the pro
forma statement of income during the period that the related purchase accounting
adjustments are assumed to be accreted or amortized, respectively, as well as
the interest expense associated with the bridge loan.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This proxy statement-prospectus, including information included or
incorporated by reference in this document, contains certain forward-looking
statements with respect to the financial condition, results of operations,
plans, objectives, future performance and business of each of FirstBank and
Oregon Trail, as well as certain information relating to the merger. These
statements are preceded by, followed by or include the words "believes,"
"expects," "anticipates," "estimates" or similar expressions.
These forward-looking statements involve certain risks and
uncertainties. Actual results may differ materially from those contemplated by
the forward-looking statements due to, among others, the following factors:
o expected cost savings from the merger may not be fully
realized or realized within the expected time frame;
o revenues following the merger may be lower than expected;
o competitive pressures among financial services companies may
increase significantly;
o costs or difficulties related to the integration of the
business of FirstBank and Oregon Trail may be greater than
expected;
o changes in the interest rate environment may reduce interest
margins;
o general economic conditions, either nationally or in
Washington, may be less favorable than expected;
o legislative or regulatory changes may adversely affect the
business in which FirstBank or Oregon Trail is engaged; and
o changes may occur in the securities markets.
77
FirstBank does not intend to update or otherwise revise any
forward-looking statements to reflect circumstances existing since their
preparation or to reflect the occurrence of unanticipated events, even in the
event that any or all of the underlying assumptions are shown to be in error.
Furthermore, FirstBank does not intend to update or revise the forward-looking
statements to reflect changes in general economic or industry conditions.
See "Where You Can Find More Information."
DESCRIPTION OF FIRSTBANK COMMON STOCK
General
FirstBank is authorized to issue 5,000,000 shares of common stock
having a par value of $.01 per share and 500,000 shares of preferred stock
having a par value of $.01 per share. Each share of FirstBank's common stock has
the same relative rights as, and is identical in all respects with, each other
share of common stock.
Common Stock
Dividends. FirstBank can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its board of directors. The
payment of dividends by FirstBank is subject to limitations that are imposed by
law and applicable regulation. The holders of common stock of FirstBank are
entitled to receive and share equally in any dividends as may be declared by the
board of directors of FirstBank out of funds legally available for the payment
of dividends. If FirstBank issues preferred stock, the holders of the preferred
stock may have a priority over the holders of the common stock with respect to
dividends.
Voting Rights. The holders of common stock of FirstBank possess
exclusive voting rights in FirstBank. They elect FirstBank's board of directors
and act on any other matters as are required to be presented to them under
applicable law or as are otherwise presented to them by the board of directors.
Each holder of common stock is entitled to one vote per share and does not have
any right to cumulate votes in the election of directors. FirstBank's articles
of incorporation, however, provide that a holder of FirstBank common stock who
owns, together with certain affiliates or persons acting in concert, in excess
of 10% of the then-outstanding shares of common stock cannot vote any shares in
excess of 10% unless permitted by the board of directors of FirstBank. If
FirstBank issues preferred stock, holders of preferred stock may also possess
voting rights. Certain matters require the vote of 80% of the outstanding shares
entitled to vote thereon.
Preemptive Rights. Holders of the common stock of FirstBank are not
entitled to preemptive rights with respect to any shares that may be issued. The
common stock is not subject to redemption.
Preferred Stock
FirstBank may issue preferred stock with such designations, powers,
preferences and rights as FirstBank's board of directors may from time to time
determine. The board of directors can, without shareholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights that
could dilute the voting strength of the holders of the common stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. None of the shares of the authorized preferred stock will be issued in
connection with the merger and there are no plans to issue preferred stock.
COMPARISON OF RIGHTS OF SHAREHOLDERS
The rights of shareholders of FirstBank are currently governed by
FirstBank's articles of incorporation and bylaws, and applicable provisions of
the Washington Business Corporation Act. The rights of shareholders of Oregon
Trail are currently governed by Oregon Trail's articles of incorporation and
bylaws, and applicable provisions of the Oregon Business Corporation Act. If we
complete the merger, Oregon Trail shareholders who elect to receive stock and
who do not exercise dissenters' rights will receive FirstBank common stock and
will become FirstBank shareholders and their rights will likewise be governed by
FirstBank's articles of incorporation and bylaws, and applicable provisions of
the Washington Business Corporation Act.
78
The following is a summary of material differences between the rights
of shareholders of FirstBank and Oregon Trail, based on the respective articles
of incorporation and bylaws, and Washington and Oregon law. This summary is not
a complete discussion of the FirstBank and Oregon Trail articles and bylaws, and
it is qualified in its entirety by reference to those documents. Copies of
FirstBank's and Oregon Trail's articles and bylaws are on file with the
Securities and Exchange Commission.
Authorized Stock
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
The FirstBank articles of The Oregon Trail articles of
incorporation authorize 5,500,000 incorporation authorize 8,250,000
shares of capital stock, consisting shares of capital stock, consisting
of 5,000,000 shares of common stock, of 8,000,000 shares of common stock,
$.01 par value per share, and 500,000 $.01 par value per share, and 250,000
shares of preferred stock, $.01 par shares of serial preferred stock,
value per share. $.01 par value per share.
As of March 31, 2003, there were As of March 31, 2003, there were
1,314,304 shares of FirstBank common 3,102,794 shares of Oregon Trail
stock issued and outstanding, and no common stock issued and outstanding,
shares of preferred stock issued or and no shares of preferred stock
outstanding. issued or outstanding.
Voting Rights
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
The holders of the common stock Same
exclusively possess all voting power,
subject to the authority of the board
of directors to offer voting rights
to the holders of preferred stock.
Each share of common stock is Each share of common stock is
entitled to one vote. Beneficial entitled to one vote.
owners of 10% or more of the
outstanding stock are subject to
voting limitations.
Holders of common stock may not Same
cumulate their votes for the election
of directors.
Required Vote for Authorization of Certain Actions
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
At least 80% of the outstanding Certain "business combinations"
shares of voting stock must approve involving a "related person" must be
certain "business combinations" approved at an annual or special
involving a "related person." In meeting by at least 66% of the
addition, a business combination with outstanding shares of voting stock
a related person must be approved by other than shares beneficially owned
at least a majority of the by the related person.
outstanding shares of voting stock
other than shares beneficially owned
by the related person. See "Selected
Provisions in the Articles of
Incorporation and Bylaws of FirstBank
- - Business Combinations with Related
Persons." However, if a two-thirds
majority of directors not affiliated
with the related person approves the
business combination, a majority vote
of the outstanding shares is
sufficient to approve a business
combination.
79
Dividends
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
Holders of common stock are entitled, Same
when declared by the FirstBank board,
to receive dividends, subject to the
rights of holders of preferred stock.
Shareholders' Meetings
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
FirstBank must deliver notice of the Oregon Trail must deliver notice of
meeting and, in the case of a special the meeting and a description of its
meeting, a description of its purpose not less than ten nor more
purpose, not less than ten nor more than 60 days before the meeting to
than 60 days before the meeting to each shareholder entitled to vote.
each shareholder entitled to vote.
The chairman of the board or the Same
president will chair the meeting.
Special meetings may be called only Same
by the board of directors or by a
committee of the board of directors.
For purposes of determining Same
shareholders entitled to vote at a
meeting, the board of directors may
fix a record date that is not less
than ten nor more than 70 days before
the meeting.
The board of directors or any Same
shareholder of any class of capital
stock entitled to vote for the
election of directors may nominate
directors for election or propose new
business.
To nominate a director or propose new To nominate a director or propose new
business, a shareholder must give business, a shareholder must give
written notice to the Secretary of written notice to the Secretary of
FirstBank not less than 30 nor more Oregon Trail not less than 30 nor
than 60 days prior to the meeting. more than 60 days prior to the
However, if FirstBank gives less than meeting. However, if Oregon Trail
31 days' notice of the meeting to the gives less than 31 days' notice of
shareholders, written notice of the the meeting to the shareholders,
shareholder nomination or proposal written notice of the shareholder
must be delivered to the Secretary nomination or proposal must be
within ten days of the date notice of delivered to the Secretary within ten
the meeting was mailed to days of the date notice of the
shareholders. Each notice given by a meeting was mailed to shareholders.
shareholder with respect to a Each notice given by a shareholder
nomination to the board of directors with respect to a nomination to the
or proposal for new business must board of directors or proposal for
include certain information regarding new business must include certain
the nominee or proposal and the information regarding the nominee or
shareholder making the nomination or proposal and the shareholder making
proposal. the nomination or proposal.
Action by Shareholders Without a Meeting
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
Any action that requires the approval The articles or incorporation and
of the shareholders may be taken bylaws of Oregon Trail do not address
without a meeting by the unanimous action by shareholders without a
written consent of all shareholders meeting. However, Oregon law provides
entitled to vote on the action. that action required or permitted to
be taken at a shareholders' meeting
may be taken without a meeting by the
80
unanimous written consent of all
shareholders entitled to vote on the
action.
Board of Directors
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
The articles of incorporation and The articles of incorporation and
bylaws provide that the number of bylaws provide that the number of
directors shall be not less than five directors shall be not less than five
nor more than 15, and that the board nor more than 25, and that the
of directors shall fix the number of initial number of directors shall be
directors by resolution. seven. Pursuant to the bylaws, the
board of directors may increase the
number of directors.
There are currently seven members of There are currently six members of
the FirstBank board of directors. the Oregon Trail board of directors.
The board of directors is divided Same
into three classes as equal in number
as possible and approximately one-
third of the directors are elected at
each annual meeting.
Vacancies on the board of directors Same
will be filled by two-thirds of the
remaining directors.
Directors may be removed only for Directors may be removed only for
cause by the vote of at least 80% of cause by the vote of at least 80% of
the outstanding shares entitled to the outstanding shares entitled to
vote at a meeting called expressly vote for directors.
for such purpose.
Amendment of the Bylaws
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
The bylaws may be amended or repealed The bylaws may be amended or repealed
by the vote of at least a majority of by the vote of at least two-thirds of
the board of directors or at least the board of directors or at least
80% of the outstanding shares 80% of the outstanding shares
entitled to vote for directors. entitled to vote for directors.
Amendment of the Articles of Incorporation
- --------------------------------------------------------------------------------
FirstBank Oregon Trail
- ------------------------------------- -------------------------------------
The articles of incorporation may be The articles of incorporation may be
amended or repealed as provided by amended or repealed as provided by
the Washington Business Corporation the Oregon Business Corporation Act.
Act. However, amendments to the However, amendments to the articles
articles of incorporation that would of incorporation that would revise
revise the provisions relating to the the provisions relating to meetings
removal of directors, shareholder of shareholders and cumulative
nominations and proposals, voting, shareholder nominations and
shareholder approval of certain proposals, number, vacancies and
business combinations, evaluation of classified board, removal of
business combinations by the board of directors, prohibitions against the
directors, limitation of directors' acquisition of capital stock,
liability, indemnification of shareholder approval of business
directors, officers and employees, combinations, evaluation of business
special meetings of shareholders and combinations by the board of
amendment of the bylaws and articles directors, elimination of directors'
of incorporation require the vote of liability, indemnification of
at least 80% of the outstanding directors, officers and employees and
shares entitled to be cast by each amendment of the bylaws and articles
separate voting group entitled to of incorporation require the vote of
vote thereon. at least 80% of the outstanding
shares entitled to vote for
directors.
81
SELECTED PROVISIONS IN THE ARTICLES OF INCORPORATION
AND BYLAWS OF FIRSTBANK
FirstBank's articles of incorporation and bylaws contain certain
provisions that could make more difficult an acquisition of FirstBank by means
of a tender offer, proxy context or otherwise. Certain provisions will also
render the removal of the incumbent board of directors or management of
FirstBank more difficult. These provisions may have the effect of deterring or
defeating a future takeover attempt that is not approved by FirstBank's board of
directors, but which FirstBank shareholders may deem to be in their best
interests or in which shareholders may receive a substantial premium for their
shares over then current market prices. As a result, shareholders who might
desire to participate in such a transaction may not have the opportunity to do
so. The following description of these provisions is only a summary and does not
provide all of the information contained in FirstBank's articles of
incorporation and bylaws. See "Where You Can Find More Information" as to where
to obtain a copy of these documents.
Business Combinations with Related Persons
The articles of incorporation require the approval of the holders of at
least 80% of FirstBank's outstanding shares of voting stock to approve certain
"business combinations" involving a "related person" except in cases where the
proposed transaction has been approved in advance by a two-thirds vote of those
members of FirstBank's board of directors who are unaffiliated with the related
person and who were directors prior to the time when the related person became a
related person.
The term "related person" includes any individual or entity that owns
beneficially or controls, directly or indirectly, 10% or more of the outstanding
shares of voting stock of FirstBank or an affiliate of the person or entity.
A "business combination" includes:
o any merger or consolidation of FirstBank with or into a
related person;
o any sale, lease, exchange, mortgage, transfer or other
disposition of 25% or more of the assets of FirstBank or a
subsidiary of FirstBank to a related person;
o any merger or consolidation of a related person with or into
FirstBank or a subsidiary of FirstBank;
o any sale, lease, exchange, transfer or other disposition of
25% or more of the assets of a related person to FirstBank or
a subsidiary of FirstBank;
o the issuance of any securities of FirstBank or a subsidiary of
FirstBank to a related person;
o the acquisition by FirstBank or a subsidiary of FirstBank of
any securities of a related person;
o any reclassification of common stock of FirstBank or any
recapitalization involving the common stock of FirstBank; and
o any agreement, contract or other arrangement providing for any
of the foregoing.
Limitation on Voting Rights
FirstBank's articles of incorporation provide that no record owner of
any outstanding FirstBank common stock which is beneficially owned, directly or
indirectly, by a person who beneficially owns in excess of 10% of the then
outstanding shares of FirstBank common stock will be entitled or permitted to
any vote in respect of the shares held in excess of the 10% limit, unless
permitted by a resolution adopted by a majority of the board of directors.
Beneficial ownership is determined pursuant to the federal securities laws and
includes shares beneficially owned by
82
such person or any of his or her affiliates (as defined in the articles of
incorporation), shares which such person or his or her affiliates have the right
to acquire upon the exercise of conversion rights or options and shares as to
which such person and his or her affiliates have or share investment or voting
power, but does not include shares beneficially owned by directors, officers and
employees of FirstBank Northwest or FirstBank or shares that are subject to a
revocable proxy and that are not otherwise beneficially, or deemed by FirstBank
to be beneficially, owned by such person and his or her affiliates.
Board of Directors
Classified Board. The board of directors of FirstBank is divided into
three classes, each of which contains approximately one-third of the total
number of directors. The shareholders elect one class of directors each year for
a term of three years. The classified board makes it more difficult and time
consuming for a shareholder group to fully use its voting power to gain control
of the board of directors without the consent of the incumbent board of
directors of FirstBank.
Filling of Vacancies; Removal. The articles of incorporation provide
that any vacancy occurring in the FirstBank board, including a vacancy created
by an increase in the number of directors, may be filled by a vote of two-thirds
of the directors then in office. The articles of incorporation of FirstBank
provide that a director may be removed from the board of directors prior to the
expiration of his or her term only for cause and only upon the vote of 80% of
the total votes eligible to be case at a meeting called for such purpose. These
provisions make it more difficult for shareholders to remove directors and
replace them with their own nominees.
Special Meetings of Shareholders
The articles of incorporation provide that only the the board of
directors of FirstBank or a committee thereof may call a special meeting of the
shareholders of FirstBank. Shareholders are not able to call a special meeting
or require the board to do so. At a special meeting, the shareholders may
consider only the business specified in the notice of meeting given by
FirstBank. This provision prevents shareholders from forcing shareholder
consideration of a proposal between annual meetings over the opposition of the
FirstBank board by calling a special meeting of the shareholders.
Advance Notice Provisions for Shareholder Nominations and Proposals
FirstBank's articles of incorporation establish an advance notice
procedure for shareholders to nominate directors or bring other business before
an annual meeting of shareholders of FirstBank. A person may not be nominated
for election as a director unless that person is nominated by or at the
direction of FirstBank's board of directors or by a shareholder who has given
appropriate notice to FirstBank before the meeting. Similarly, a shareholder may
not bring business before an annual meeting unless the shareholder has given
FirstBank appropriate notice of its intention to bring that business before the
meeting. FirstBank's Secretary must receive notice of the nomination or proposal
not less than 30 nor more than 60 days prior to the annual meeting. A
shareholder who desires to raise new business must provide certain information
to FirstBank concerning the nature of the new business, the shareholder and the
shareholder's interest in the business matter. Similarly, a shareholder wishing
to nominate any person for election as a director must provide FirstBank with
certain information concerning the nominee and the proposing shareholder.
Advance notice of nominations or proposed business by shareholders
gives FirstBank's board of directors time to consider the qualifications of the
proposed nominees, the merits of the proposals and, to the extent deemed
necessary or desirable by the board of directors, to inform shareholders and
make recommendations about those matters.
Preferred Stock
The articles of incorporation authorize FirstBank's board of directors
to establish one or more series of preferred stock and, for any series of
preferred stock, to determine the terms and rights of the series, including
voting
83
rights, conversion rates and liquidation preferences. Although FirstBank's board
of directors has no intention at the present time of doing so, it could issue a
series of preferred stock that could, depending on its terms, impede a merger,
tender offer or other takeover attempt. FirstBank's board of directors will make
any determination to issue shares with those terms based on its judgment as to
the best interests of FirstBank and its shareholders.
Amendment of Articles of Incorporation
FirstBank's articles of incorporation requires the affirmative vote of
at least 80% of the outstanding voting stock entitled to vote to amend or repeal
certain provisions of the articles of incorporation, including the provision
limiting voting rights, the provisions relating to approval of business
combinations with related persons, calling special meetings, director and
officer indemnification by FirstBank and amendment of FirstBank's bylaws and
articles of incorporation. These supermajority voting requirements make it more
difficult for the shareholders to amend these provisions of the FirstBank
articles of incorporation.
ELECTION OF DIRECTORS OF FIRSTBANK
(FirstBank Proposal 2)
General
FirstBank's board of directors consists of seven members. As required
by FirstBank's articles of incorporation, the board of directors is divided into
three classes with three-year staggered terms, with approximately one-third of
the directors elected each year. Three directors will be elected at FirstBank's
annual meeting to serve for a three-year term, or until their successors have
been elected and qualified. The nominees for election this year are W. Dean
Jurgens, Clyde E. Conklin and Steve R. Cox. Messrs. Jurgens, Conklin and Cox are
current members of the boards of directors of FirstBank and FirstBank Northwest.
It is intended that the proxies solicited by the board of directors
will be voted FOR the election of the above named nominees. If a nominee is
unable to serve, the shares represented by all valid proxies will be voted for
the election of such substitute as the board of directors may recommend, or the
board of directors may adopt a resolution to amend the bylaws and reduce the
size of the board. At this time the board of directors knows of no reason why
any nominee might be unavailable to serve.
The board of directors recommends a vote "FOR" the election of Messrs.
Jurgens, Conklin and Cox.
Information with Respect to Nominees and Continuing Directors
The following table sets forth certain information regarding the
nominees for election at the FirstBank annual meeting, as well as information
regarding those directors continuing in office after the annual meeting.
Year First
Elected or Appointed Term to
Name Age (1) Director (2) Expire
- --------------------- ----------------- ---------------------- ----------------
NOMINEES
--------
W. Dean Jurgens 71 1969 2006(3)
Clyde E. Conklin 52 1997 2006(3)
Steve R. Cox 56 1986 2006(3)
(table continues on following page)
84
Year First
Elected or Appointed Term to
Name Age (1) Director (2) Expire
- --------------------- ----------------- ---------------------- ----------------
CONTINUING DIRECTORS
--------------------
William J. Larson 72 1973 2004
Larry K. Moxley 52 1997 2004
James N. Marker 66 1974 2005
Robert S. Coleman, Sr. 75 1978 2005
- --------------
(1) As of March 31, 2003.
(2) Includes prior service on the board of directors of FirstBank
Northwest.
(3) Assuming the individual is re-elected.
The principal occupation and other business experience during the last
five years of each nominee for election and each director continuing in office
is set forth below:
W. Dean Jurgens, a retired certified public accountant, is the former
President and co-owner of Jurgens & Co., P.A.
Clyde E. Conklin, who joined FirstBank Northwest in 1987, has served as
the Chief Executive Officer of FirstBank Northwest since February 1996 and as
President and Chief Executive Officer of FirstBank since its formation in 1997.
From September 1994 to February 1996, Mr. Conklin served as Senior Vice
President - Lending. From 1993 to 1999, Mr. Conklin served as Vice President -
Lending. Prior to that time, Mr. Conklin served as Agricultural Lending Manager.
Steve R. Cox is the President and a shareholder of Randall, Blake &
Cox, P.A., a law firm in Lewiston, Idaho, and is a non-practicing certified
public accountant.
William J. Larson is a partner in the Quality Inn and Convention Center
in Clarkston, Washington and other various real estate development projects.
Prior to 1993, he was a partner in Houser & Son, Inc., a livestock and farming
operation.
Larry K. Moxley, who joined FirstBank Northwest in 1973, has served as
Chief Financial Officer of FirstBank Northwest since February 1996. Mr. Moxley
has served as Executive Vice President, Chief Financial Officer and Secretary of
FirstBank since its formation in 1997. Mr. Moxley served as Senior Vice
President - Finance from 1993 to February 1996 and as Vice President - Finance
from 1984 to 1993.
James N. Marker is President and owner of Idaho Truck Sales Co., Inc.,
a heavy duty truck dealership.
Robert S. Coleman, Sr., a retired businessman, is the former President
and co-owner of Coleman Oil Co., a petroleum distributor.
Meetings and Committees of the Board of Directors
The boards of directors of FirstBank and FirstBank Northwest conduct
their business through meetings of the Boards and through their committees.
During the year ended March 31, 2003, the board of directors of FirstBank held
21 meetings and the board of directors of FirstBank Northwest held 18 meetings.
No director of FirstBank or FirstBank Northwest attended fewer than 75% of the
total meetings of the boards and committees on which such person served during
this period.
Committees of FirstBank's Board. FirstBank's board of directors has a
standing Audit Committee. The Audit Committee, consisting of directors Cox,
Jurgens, Larson, Marker, and Coleman, meets with the independent
85
auditors to discuss the results of the annual audit and to identify and assign
audit duties. The Audit Committee met four times during the year ended March 31,
2003.
FirstBank's board of directors does not have a standing nominating
committee; rather, the entire board of directors is responsible for this
function. The full board of directors met once in this capacity during the
fiscal year ended March 31, 2003.
Committees of FirstBank Northwest's Board. FirstBank Northwest's board
of directors has standing Audit and Executive Committees.
The Audit Committee, consisting of directors Cox and Jurgens and
Russell H. Zenner, a director of FirstBank Northwest, but not FirstBank, meets
with the independent auditors to discuss the results of the annual audit and to
identify and assign audit duties. The Audit Committee met four times during the
fiscal year ended March 31, 2003.
The Executive Committee, consisting of directors Cox, Jurgens, Coleman,
Conklin and Moxley, is responsible for specific orders of business for FirstBank
Northwest that requires expedient action. The Executive Committee did not meet
during the fiscal year ended March 31, 2003.
The Personnel Committee consists of the entire board of directors of
FirstBank Northwest. The Personnel Committee met three times in this capacity
during the fiscal year ended March 31, 2003.
Directors' Compensation
During the year ended March 31, 2003, non-employee directors received
an annual retainer of $9,600, and $500 for each regular and special meeting they
attended. The chairman of the board received an additional $5,900 annually
during the year. Directors of FirstBank who are also employees received an
annual retainer of $7,680 and $400 for each meeting attended during the year
ended March 31, 2003. FirstBank and FirstBank Northwest paid total fees to
directors of $132,260 for the fiscal year ended March 31, 2003.
86
Executive Compensation
Summary Compensation Table. The following information is furnished for
the Chief Executive Officer and each of the other executive officers of
FirstBank or FirstBank Northwest who received salary and bonus in excess of
$100,000 during the year ended March 31, 2003.
Long-term
Compensation
Annual Compensation Awards
---------------------------------------- ---------------
Restricted
Name and Other Annual Stock All Other
Position Year Salary($) Bonus Compensation(1) Awards($)(2) Compensation($)(3)
- ----------------------- ------ ----------- ------------ --------------- --------------- ------------------
Clyde E. Conklin 2003 $107,100 $102,000 $ 11,880 -- $ 57,226
President, Chief 2002 102,000 64,362 9,980 -- 53,548
Executive Officer 2001 102,000 44,295 8,480 -- 37,702
and Director
Larry K. Moxley 2003 $100,800 $ 96,000 $ 11,880 -- $ 57,319
Executive Vice 2002 96,000 60,576 9,980 -- 52,592
President, Chief 2001 96,000 33,350 8,480 -- 36,492
Financial Officer
and Director
Terence A. Otte 2003 $ 86,600 $ 49,770 -- -- $ 21,318
Senior Vice 2002 83,938 30,999 -- -- 20,083
President, Chief 2001 79,000 14,931 -- -- 7,993
Operating Officer
Donn L. Durgan 2003 $ 84,450 $ 48,510 -- -- $ 27,820
Senior Vice 2002 81,813 29,337 -- -- 25,867
President, Chief 2001 77,000 12,285 -- -- 7,366
Lending Officer
Richard R. Acuff 2003 $ 63,000 $ 39,600 -- -- $ 14,649
Senior Vice 2002 63,000 17,864 -- -- 13,661
President, 2001 53,661 7,298 -- -- 5,864
Management
Information
Systems and Data
Processing
Department
<FN>
- ------------------
(1) Consists of directors fees. Does not include perquisites which did not
exceed the lesser of $50,000 or 10% of salary and bonus.
(2) Messrs. Conklin, Moxley, Otte and Durgen were awarded the following
number of shares of restricted stock on October 1, 1998: Mr. Conklin,
15,800 shares, Mr. Moxley, 15,800 shares, Mr. Otte, 6,000 shares and
Mr. Durgan, 4,600 shares. These shares vest ratably over a five-year
period, beginning on October 1, 1999. At March 31, 2003, the number of
shares of restricted stock held by such individuals was: Mr. Conklin,
3,120, Mr. Moxley, 3,120, Mr. Otte, 1,200 and Mr. Durgan, 920. The
value of these shares at March 31, 2003 was: Mr. Conklin, $73,713, Mr.
Moxley, $28,428, Mr. Otte, $28,428 and Mr. Durgan, $21,795.
</FN>
(footnotes continued on following page)
87
(3) Amounts reflect contributions of $8,664, $8,663, $6,831, $6,450 and
$4,552 to the employee stock ownership plan for Messrs. Conklin,
Moxley, Otte, Durgan and Acuff, respectively, and of $48,562, $48,656,
$14,484, $21,370 and $10,097 to the Executive Non-Qualified Retirement
Plan for Messrs. Conklin, Moxley, Otte, Durgan and Acuff, respectively.
Option Grants. There were no stock options granted to Messrs. Conklin,
Moxley, Otte, Durgan or Acuff during the fiscal year ended March 31, 2003.
Option Exercise/Value Table. The following table sets forth information
with respect to the number and value of stock options held by the Chief
Executive Officer and the named executive officers at March 31, 2003. None of
these individuals exercised any stock options during the fiscal year ended March
31, 2003.
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year End(#) at Fiscal Year End($)(1)
Acquired on Value -------------------------------- -----------------------------------
Name Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ---------------- ------------- -------------- ----------------- --------------- -------------------
Clyde E. Conklin -- $ -- 19,200 4,600 $151,296 $36,248
Larry K. Moxley -- -- 19,200 4,600 151,296 36,248
Terence A. Otte -- -- 8,800 2,200 69,344 17,336
Donn L. Durgan -- -- 8,800 2,200 69,344 17,336
Richard R. Acuff -- -- -- -- -- --
<FN>
- -----------------
(1) Represents the difference between the fair market value of the common
stock at March 31, 2003 and the exercise price of the option. The
exercise price of the option is $15.81. The market price of the common
stock at the close of business on March 31, 2003 was $23.69. Options
are in the money only if the market value of the shares covered by the
options is greater than the option exercise price.
</FN>
Employment and Severance Agreements
Employment Agreements. On July 1, 1997, FirstBank and the FirstBank
Northwest, collectively referred to as the "Employers" in this discussion,
entered into three-year employment agreements with Messrs. Conklin and Moxley.
The base salaries under the agreements for Messrs. Conklin and Moxley are
currently $107,100 and $100,800, respectively, which amounts are paid by
FirstBank Northwest and may be increased at the discretion of the board of
directors or an authorized committee of the board. On each anniversary of the
commencement date of the agreements, the term of the agreements may be extended
for an additional year. The agreements are terminable by the Employers at any
time, or by the executive if he is assigned duties inconsistent with his initial
position, duties, responsibilities and status, or upon the occurrence of certain
events specified by federal regulations. In the event that an executive's
employment is terminated without cause or upon the executive's voluntary
termination following the occurrence of an event described in the preceding
sentence, FirstBank Northwest would be required to honor the terms of the
agreement for a period of one year, including payment of current cash
compensation and continuation of employee benefits.
The employment agreements provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreements as having occurred when, among other things, (a) a
person other than FirstBank purchases shares of common stock pursuant to a
tender or exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) is or
becomes the beneficial owner, directly or indirectly, of securities of FirstBank
representing 25% or more of the combined voting power of its then outstanding
securities, (c) the membership of the board of directors changes as the result
of a contested election, or (d) shareholders of FirstBank
88
approve a merger, consolidation, sale or disposition of all or substantially all
of FirstBank's assets, or a plan of partial or complete liquidation.
The severance payment from the Employers will equal three times the
executive's average annual compensation during the five-year period preceding
the change in control. This amount will be paid in a lump sum within ten
business days following the termination of employment. Assuming that a change in
control had occurred at March 31, 2002, Mr. Conklin and Mr. Moxley would be
entitled to severance payments of approximately $657,873 and $635,172,
respectively. Section 280G of the Internal Revenue Code states that severance
payments which equal or exceed three times the base compensation of the
individual for the most recently completed five taxable years are deemed to be
"excess parachute payments" if they are contingent upon a change in control.
Individuals receiving excess parachute payments are subject to a 20% excise tax
on the amount of such excess payments, and the Employers would not be entitled
to deduct the amount of such excess payments.
The agreements restrict the executive's right to compete against the
Employers for a period of one year from the date of termination of the agreement
if the executive voluntarily terminates employment, except in the event of a
change in control.
Severance Agreements. On April 1, 1998, the Employers entered into
severance agreements with Terence A. Otte, Senior Vice President, Chief
Operating Officer and Donn L. Durgan, Senior Vice President, Chief Lending
Officer. Each agreement is for a three-year term, and may be extended by the
boards of directors for one year on each April 1. Each agreement provides that
if a "change in control" of FirstBank or FirstBank Northwest occurs, and within
12 months thereafter the executive's employment is involuntarily terminated
without just cause, or the executive voluntarily terminates his employment for
good reason, as defined in the agreement, he will be entitled to receive a
severance payment equal to one and one-half times his annual compensation.
Assuming that a change in control had occurred at March 31, 2002, Mr. Otte and
Mr. Durgan would be entitled to severance payments of approximately $172,406 and
$166,725, respectively.
In connection with the merger, FirstBank is planning to offer severance
agreements to certain executive officers of Oregon Trail that are retained after
consummation of the merger.
Executive Non-Qualified Retirement Plan
Effective December 2001, FirstBank Northwest adopted an Executive
Non-Qualified Retirement Plan ("Non-Qualified Retirement Plan") that provides
supplemental retirement benefits to selected executives. Participation in the
Non-Qualified Retirement Plan is limited to a "select group of management and
highly compensated employees," who are selected by the Plan Committee to
participate. With respect to any participant, benefits are provided pursuant to
a participation agreement entered into between FirstBank Northwest and the
participant. Upon a participant's termination of employment on or after
attaining his retirement age (set forth in the participant's participation
agreement), the participant will commence receiving the monthly amount set forth
in his participation agreement, payable for life. If provided for in the
participant's participation agreement, the monthly amount may be increased
annually to reflect a specified cost of living increase. If the participant
terminates employment before his retirement age, then he will receive a partial
benefit, determined based on the length of his service with FirstBank Northwest,
commencing on the participant's retirement age, and payable for life. If the
participant dies while actively employed with FirstBank Northwest or an
affiliate, then the participant's beneficiary will receive a monthly partial
benefit (determined as if the participant terminated employment immediately
prior to his death) over 240 months. If the participant dies after his benefits
commence and before 240 payments have been made, his beneficiary will continue
to receive monthly payments until the cumulative number of payments made to or
on behalf of the participant equals 240. The Committee may accelerate the
payment of monthly benefits at any time. Participants are 100% vested in the
benefits at all times, except upon termination for cause. No benefits will be
paid on account of a participant's termination for cause.
Under their respective agreements under the Non-Qualified Retirement
Plan, Messrs. Conklin, Moxley, Otte and Durgan (the "Executives") will receive
lifetime benefits of $5,396, $5,079, $4,000 and $4,000 per month, respectively,
upon termination of employment after attaining age 60 for Messrs. Conklin and
Moxley or age 62 for
89
Messrs. Otte and Durgan ("retirement age"), subject to an annual increase of 2
1/2 percent for inflation beginning on the first anniversary of the date the
benefits commence. The Executives are entitled to a partial accrued benefit in
the event of termination of employment prior to retirement age, other than on
account of death or termination for cause. The payment of such benefits,
however, will not commence until the first day of the month after the Executive
turns the retirement age (if he is then living). If the Executive is not living
at that time, his designated beneficiary will receive a partial accrued benefit
commencing when the Executive would have attained the retirement age.
FirstBank Northwest previously entered into salary continuation
agreements with Mr. Conklin and Mr. Moxley. Benefits payable under the salary
continuation agreements, however, shall be paid only in the event of the
cancellation of the Executive Non-Qualified Retirement Plan. Under the
agreements, if the Executive Non-Qualified Retirement Plan is canceled, then
Messrs. Conklin and Moxley would receive lifetime benefits of $4,583 and $4,375
per month, respectively, upon retirement at or after attaining the retirement
age. The monthly benefit would be reduced proportionately in accordance with a
specified vesting schedule in the event of termination of employment prior to
the retirement age. The agreements also provide for payment of a reduced benefit
in the event of disability and a lump sum death benefit in the event of death
while employed by FirstBank Northwest. In the event of a change in control of
FirstBank Northwest, the agreements provide that the executive would be entitled
to a lump sum payment based on his vested benefit when the change in control
occurred.
Deferred Compensation Plan
In 2001, FirstBank Northwest adopted the FirstBank Northwest Deferred
Compensation Plan (the "Plan"). Participation in the Plan is limited to a
"select group of management and highly compensated employees" and directors of
FirstBank Northwest and FirstBank, who are selected by the Plan Committee to
participate. The Plan permits participants to make annual elections to defer all
or a portion of the cash compensation they receive from FirstBank Northwest or
its related entities. The deferred amounts are credited to the participants'
accounts, which do not hold assets but are maintained only for record-keeping
purposes. The amounts deferred under the Plan are credited at a fixed interest
rate as determined by the Plan Committee. Participant accounts are fully vested
and nonforfeitable. Within 60 days after a Participant's retirement, his account
will be distributed in installments over a number of months selected by the
participant (not less than 60). Within 60 days after a Participant's termination
of employment or death while actively employed, his account will be distributed
in installments over a number of months equal to the number of months during
which the participant made compensation deferrals into the Plan. During the year
ended March 31, 2003, FirstBank Northwest had accrued $101,658 to reflect the
anticipated liability. The Plan constitutes an unfunded and unsecured obligation
of FirstBank Northwest. Directors Cox, Zenner and Young and Messrs. Conklin,
Moxley currently participate in the Plan.
Audit Committee Matters
Audit Committee Charter. The Audit Committee operates under which a
written charter approved by FirstBank's board of directors. The Audit Committee
reports to the board of directors and is responsible for overseeing and
monitoring financial accounting and reporting, the system of internal controls
established by management and the audit process of FirstBank. The Audit
Committee charter sets out the responsibilities, authority and specific duties
of the Audit Committee. The charter specifies, among other things, the structure
and membership requirements of the Audit Committee, as well as the relationship
of the Audit Committee to the independent accountants, the internal audit
department, and management of FirstBank. A copy of the Audit Committee charter
was attached to FirstBank's 2002 annual meeting proxy statement.
Report of the Audit Committee. The Audit Committee reports as follows
with respect to FirstBank's audited financial statements for the year ended
March 31, 2003:
o The Audit Committee has completed its initial review and
discussion of FirstBank's 2003 audited financial statements
with management;
90
o The Audit Committee has discussed with the independent
auditors (Moss-Adams, LLP) the matters required to be
discussed by Statement on Auditing Standards ("SAS") No. 61,
Communication with Audit Committees, as amended by SAS No. 90,
Audit Committee Communications, including matters related to
the conduct of the audit of FirstBank's financial statements;
o The Audit Committee has received written disclosures, as
required by Independence Standards Board Standard No. 1,
Independence Discussions with Audit Committee, indicating all
relationships, if any, between the independent auditor and its
related entities and FirstBank and its related entities which,
in the auditors' professional judgment, reasonably may be
thought to bear on the auditors' independence, and the letter
from the independent auditors confirming that, in its
professional judgment, it is independent from FirstBank and
its related entities, and has discussed with the auditors the
auditors' independence from FirstBank; and
o The Audit Committee has, based on its initial review and
discussions with management of FirstBank's 2003 audited
financial statements and discussions with the independent
auditors, recommended to the board of directors that
FirstBank's audited financial statements for the year ended
March 31, 2003 be included in its Annual Report on Form
10-KSB.
Audit Committee: Steve R. Cox, Chairman
W. Dean Jurgens
Russell H. Zenner
Independence and Other Matters. Each member of the Audit Committee is
"independent," as defined, in the case of FirstBank, under The Nasdaq Stock
Market Rules. The Audit Committee members do not have any relationship to
FirstBank that may interfere with the exercise of their independence from
management and FirstBank. None of the Audit Committee members are current
officers or employees of FirstBank or its affiliates.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires FirstBank's executive
officers and directors, and persons who own more than 10% of any registered
class of FirstBank's equity securities, to file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater than 10%
shareholders are required by regulation to furnish FirstBank with copies of all
Section 16(a) forms they file.
Based solely on its review of the copies of such forms provided to
FirstBank by the above referenced persons, FirstBank believes that, during the
fiscal year ended March 31, 2003, all transactions which were required to be
filed were filed in a timely manner.
Transactions with Management
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons (unless the loan or extension of
credit if made under a benefit program generally available to all employees and
does not give preference to any insider over any other employee) and must not
involve more than the normal risk of repayment or present other unfavorable
features. FirstBank Northwest is therefore prohibited from making any new loans
or extensions of credit to its executive officers and directors and at different
rates or terms than those offered to the general public and has adopted a policy
to this effect. The aggregate amount of loans by FirstBank Northwest to its
executive officers and directors was approximately $1.4 million at March 31,
2003. These loans (i) were made in the ordinary course of business, (ii) were
made on substantially the same terms and conditions, including interest rates
and collateral, as those prevailing at the time for comparable transactions with
FirstBank Northwest's other customers, and (iii) did not involve more than the
normal risk of collectibility or present other unfavorable features when made.
91
ELECTION OF DIRECTORS OF OREGON TRAIL
(Oregon Trail Proposal 2)
General
Oregon Trail's board of directors consists of six members. As required
by Oregon Trail's articles of incorporation, the board is divided into three
classes with three-year staggered terms, with approximately one-third of the
directors elected each year. The board of directors has nominated Stephen R.
Whittemore and Charles H. Rouse for election as directors, each to serve for a
three-year period or until their respective successors have been duly elected
and qualified. Messrs. Whittemore and Rouse are both current members of the
board of directors of Oregon Trail and each has consented to being named in this
document and to serving as a director on the board if elected.
It is intended that the proxies solicited by the board of directors
will be voted FOR the election of the above named nominees. If any nominee is
unable to serve, the shares represented by all valid proxies will be voted for
the election of such substitute as the board of directors may recommend or the
board of directors may adopt a resolution to amend the bylaws and reduce the
size of the Board. At this time, the board of directors knows of no reason why
any nominee might be unavailable to serve.
The board of directors recommends a vote "FOR" the election of Messrs.
Whittemore and Rouse.
Information with Respect to Nominees and Continuing Directors
The following table sets forth certain information regarding the
nominees for election at the meeting, as well as information regarding those
directors continuing in office after the meeting.
Year First Elected or Term to
Name Age(1) Appointed Director (2) Expire
- ------------------------ -------------- ------------------------ --------------
NOMINEES
--------
Stephen R. Whittemore 53 1983 2006(3)
Charles H. Rouse 57 1991 2006(3)
CONTINUING DIRECTORS
--------------------
John Gentry 55 1992 2004
Kevin D. Padrick 48 2001 2004
Albert H. Durgan 72 1985 2005
Edward H. Elms 55 1986 2005
- ------------------
(1) As of March 31, 2003.
(2) Includes prior service on the board of directors of Pioneer Bank. Each
member of the board of directors of Oregon Trail, except Kevin D.
Padrick, is also a member of the board of directors of Pioneer Bank.
(3) Each nominee has been nominated to serve for a three-year period or
until their respective successors have been duly elected and qualified.
The principal occupation and other business experience during the last
five years of each nominee for election and each director continuing in office
is set forth below:
Stephen R. Whittemore is currently a private investor. Mr. Whittemore
was the owner of BesTruss, an engineered roof systems company from 1996 to 2001.
He was a partner in Wallowa Lake Tram, Inc. from 1983 to 2001, and was the owner
of La Grande Lumber Company, a distributor of building materials, from 1971 to
1996. Mr. Whittemore has a Bachelor of Science degree in Economics from Oregon
State University.
92
Charles H. Rouse is currently a private investor and consultant. Mr.
Rouse was employed by Norris Beggs & Simpson Realtors, Portland, Oregon, as Vice
President, Corporate Services, from January 2001 to August 2002. Prior to that,
Mr. Rouse was an authorized Sears dealer in Baker City, Oregon, and a property
developer and manager since 1995. He was the owner of Rouse's Home Furnishings,
Baker City, Oregon, from 1985 to 1995. He has been a Director of the Oregon
Tourism Commission and the Western Building Materials Association. Mr. Rouse has
a Bachelor of Science degree in Biology and a Masters of Business Administration
from Oregon State University.
John Gentry has been President and General Manager of Gentry Ford
Sales, Inc., an automobile dealership located in Ontario, Oregon, since 1985. He
served as Vice President of that company between 1972 and 1985. Mr. Gentry has a
Bachelor of Science degree in Business/Journalism from the University of Oregon.
He has been a Director and President of the Ontario, Oregon, Chamber of
Commerce, a Director of the City of Ontario, Oregon, Budget Board, a Director
and President of the Oregon Automobile Dealers Association, and a Director of
the Western States Ford Dealer Advertising Association.
Kevin D. Padrick, an attorney, is a consultant for businesses in need
of an individual with a background in both business and law. Most recently, in
September 1998, Mr. Padrick was hired as a consultant by Southern Pacific
Funding Corporation and from October 1998 to 1999 Mr. Padrick served as
Executive Vice President and later as President of Southern Pacific Funding
Corporation. Mr. Padrick has a Bachelor of Science degree from the University of
Santa Clara, a Masters of Business Administration from the University of Santa
Clara Business School and a Juris Doctor from the University of Santa Clara Law
School.
Albert H. Durgan is retired from Pioneer Bank after 34 years of
service. He served as President of Pioneer Bank from 1986 to 1992. Prior to
being President, he held the position of Executive Vice President for seven
years, Branch Manager for 18 years, and also served in other front-line and back
office positions. Mr. Durgan has a Bachelor of Science degree in Real Estate and
Finance from the University of Oregon.
Edward H. Elms has been the owner of P&E Distributing Company, a
beverage distributor, located in Baker City, Oregon, for 30 years. He also owns
and manages commercial and residential rental properties in the Baker City area.
Mr. Elms was the co-owner of Heritage Chevrolet, a car dealership located in
Baker City, Oregon, from 1996 to 1999. Mr. Elms has a degree in Diesel
Technology from the Oregon Institute of Technology.
Meetings and Committees of the Board of Directors
The boards of directors of Oregon Trail and Pioneer Bank conduct their
business through meetings of the boards and through their committees. During the
fiscal year ended March 31, 2003, the board of directors of Oregon Trail held 12
special meetings and four regularly scheduled meetings, and the board of
directors of Pioneer Bank held no special meetings and 12 regularly scheduled
meetings. No director of Oregon Trail or Pioneer Bank attended fewer than 75% of
the total meetings of the boards and committees on which such person served
during this period.
Committees of Oregon Trail's Board. Oregon Trail's board of directors
has established Audit and Nominating Committees.
The Audit Committee consists of directors Elms (Chairman), Gentry,
Durgan and Padrick. It receives and reviews all reports prepared by Oregon
Trail's external and internal auditors. The internal auditor reports monthly to
the Audit Committee. The Audit Committee met five times during the fiscal year
ended March 31, 2003.
The full board of directors acts as a Nominating Committee for the
annual selection of management's nominees for election as directors of Oregon
Trail. The full board of directors met once in its capacity as Nominating
Committee on July 21, 2003.
Committees of Pioneer Bank's Board. Pioneer Bank's board of directors
has established Personnel and Compensation, Audit and Nominating Committees,
among others.
93
The Personnel and Compensation Committee, consisting of directors Rouse
(Chairman), Elms and John Lienkaemper, is responsible for all personnel issues,
including recommending compensation levels for all employees and senior
management of Oregon Trail and Pioneer Bank to their respective board of
directors. The Personnel and Compensation Committee meets at least twice a year
and met three times during the year ended March 31, 2003.
The Audit Committee, consisting of directors Elms (Chairman), Gentry
and Durgan, receives and reviews all reports prepared by Pioneer Bank's external
auditor and the internal audit function. The Audit Committee met four times
during the year ended March 31, 2003.
The full board of directors of Pioneer Bank acts as a Nominating
Committee for the annual selection of its nominees for election as directors.
The full board of directors met once in its capacity as Nominating Committee
during the year ended March 31, 2003.
Directors' Compensation
Fees. Oregon Trail and Pioneer Bank each pay fees to its directors.
During the year ended March 31, 2003, each director of Oregon Trail received a
quarterly fee of $1,000, except that the chairman of the board received a
quarterly fee of $1,250. Each director of Pioneer Bank, other than the chairman
of the board, received a monthly fee of $1,075 during the year. The chairman of
the board of Pioneer Bank received a monthly fee of $1,125 during the year. Each
director received an additional $125 per month for service on the board of
directors of Pioneer Development Corporation, a wholly-owned subsidiary of
Pioneer Bank. Oregon Trail and Pioneer Bank paid total fees to directors of
$165,000 for the fiscal year ended March 31, 2003.
Directors Emeritus Plan. Pioneer Bank maintains the Pioneer Bank
Director's Plan which confers director emeritus status on a director who retires
at or after attaining age 70 with 10 or more years of service. Under the
Director's Plan, a director emeritus receives a fee equal to the greater of $800
or 65% of the fee payable to regular board members for attendance at monthly
board meetings. The fee is payable for the life of the director emeritus. As a
condition of receipt of benefits under the Director's Plan, a director emeritus
is expected to be available to advise and consult with management of Pioneer
Bank, represent and promote the interests of Pioneer Bank in its primary market
area, and refrain from business activities that are competitive with or contrary
to the interests of Pioneer Bank. An additional feature of the Director's Plan
provides that, in the event of a change in control of Oregon Trail or Pioneer
Bank (as defined in the Director's Plan), each active director would be treated
as a director emeritus on the effective date of the change of control. Within 30
days of such date, each director would receive a payment equal to the present
value of seven times the annual fees payable to the director at the effective
time of the change in control. The present value calculation is based on the
applicable federal rate as published by the Internal Revenue Service. If a
change in control had occurred at March 31, 2003, the aggregate amount payable
under the Director's Plan to all current directors would be approximately
$710,586.
Other. Pursuant to Oregon Trail's Option Plan, 16,228 stock options
were granted to each of Messrs. Gentry, Durgan, Elms, Whittemore, Rouse and
Lienkaemper, and 5,000 stock options were granted to Mr. Padrick, on October 23,
2001, the grant date. The options were granted at an exercise price of $16.625
and vested immediately on the grant date. Pursuant to Oregon Trail's Management
Recognition and Development Plan, 9,727 shares of restricted common stock were
awarded to each of Messrs. Gentry, Durgan, Elms, Whittemore, Rouse and
Lienkaemper on October 23, 2001. These shares vest pro rata over a three-year
period with the first vesting on October 23, 2003 and subsequent vesting on
October 23, 2004 and October 23, 2005 so long as the recipient continues service
as a director of Oregon Trail or any of its subsidiaries.
94
Executive Compensation
Summary Compensation Table. The following information is provided for
the Chief Executive Officer and each of the other executive officers of Oregon
Trail or Pioneer Bank who received salary and bonus in excess of $100,000 during
the year ended March 31, 2003.
Long-term Compensation
Annual Compensation (1) Awards
--------------------------- -------------------------------
Restricted Number All
Name and Stock of Other Annual
Position Year Salary ($) Bonus Awards ($)(2) Options (3) Compensation (4)
- ---------------------------- ----------- -------------- ------------ ---------------- -------------- --------------------
2003 $185,096 $ 87,500 $ -- -- $77,812
Berniel L. Maughan 2002 165,385 75,000 -- -- 76,820
President and Chief 2001 124,039 25,000 -- 50,000 3,000
Executive Officer
Zane F. Lockwood 2003 $113,532 $ -- $ -- -- $38,929
Executive Vice President 2002 104,423 -- -- -- 34,527
and Corporate Secretary 2001 96,000 -- -- -- 27,758
Jonathan P. McCreary 2003 $107,224 $ 30,600 $ -- -- $44,525
Senior Vice President and 2002 98,609 27,000 62,200 10,000 16,084
Chief Financial Officer 2001 64,039 -- -- 5,047 4,500
<FN>
- ---------------
(1) Does not include certain benefits, the aggregate amounts of which do
not exceed 10% of total annual salary and bonus.
(2) Pursuant to the Management Recognition and Development Plan, 18,779
shares of restricted common stock were awarded to Mr. Lockwood on
October 8, 1998, the award date, which had a value of $209,386. For Mr.
McCreary, represents the value of restricted stock awards at September
18, 2001, the award date, pursuant to the Management Recognition and
Development Plan. The Management Recognition and Development Plan was
approved by shareholders at the 1998 Annual Meeting of Shareholders and
provides for the award of common stock in the form of restricted stock
awards to directors, officers and key employees. Dividends are paid on
such awards if and when declared and paid by Oregon Trail on the common
stock. At March 31, 2003, the value of the unvested awards for Mr.
Lockwood (which vest pro rata over a five-year period at a rate of 20%)
was $86,365 (3,755 shares at $23.00 per share) and the value of Mr.
McCreary's unvested awards (which vest pro rata over a three-year
period at a rate of 33.33% beginning on September 18, 2002) was $61,341
(2,667 shares at $23.00 per share).
(3) Pursuant to the Option Plan, Mr. Maughan was granted 50,000 options on
May 22, 2000, Mr. Lockwood was granted 46,948 options on October 8,
1998 and Mr. McCreary was granted 5,047 options on July 19, 2000 and
10,000 options on September 18, 2001. The options for Messrs. Maughan
and Lockwood vest at a rate of 20% per year over a five year period.
The options for Mr. McCreary awarded July 19, 2000 vest at a rate of
25% per year over a four year period and the options awarded September
18, 2001 vest at a rate of 33.33% per year over a three year period.
(4) Consists of employer 401(k) plan contributions, shares allocated but
not necessarily vested under the employee stock ownership plan and life
insurance premium benefit. Shares allocated under the employee stock
ownership plan are valued at Oregon Trail's common stock share price on
the close of business on March 31, 2003 ($23.00). Mr. Maughan received
a $14,400 auto allowance for the year ended March 31, 2003.
</FN>
95
Option Exercise/Value Table. The following table sets forth information
with respect to the number and value of stock options held by the Chief
Executive Officer and the named executive officers at March 31, 2003. None of
these individuals exercised any stock options during the fiscal year ended March
31, 2003.
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year End(#) at Fiscal Year End($)(1)
Acquired on Value -------------------------------- ---------------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------ ---------------- ------------- -------------- ----------------- --------------- -----------------
Berniel L. Maughan -- $-- 20,000 30,000 $277,500 $416,250
Zane F. Lockwood -- -- 37,558 9,389 445,062 111,260
Jonathan P. McCreary -- -- 5,857 9,190 55,744 96,038
<FN>
- ---------------
(1) Value of unexercised in-the-money options equals market value of shares
covered by in-the-money options on March 31, 2003 less the option
exercise price. Options are in-the-money if the market value of the
shares covered by the options is greater than the option exercise
price.
</FN>
Employment Agreements
Oregon Trail, referred to as the "Employer" in this discussion, entered
into employment agreements with Messrs. Maughan, Lockwood and McCreary on May
22, 2000, April 1, 2000 and September 18, 2001, respectively. Messrs. Maughan's
and Lockwood's employment agreements were subsequently amended on February 12,
2001 to provide the benefits to the executive intended when the board of
directors adopted the initial employment agreements.
Mr. Maughan's employment agreement has an initial four-year term, which
may be extended annually for an additional year at the discretion of the board
of directors of Oregon Trail. Mr. Lockwood's employment agreement was for an
initial term of 20 months until June 1, 2001, and may be extended annually for
an additional year at the discretion of the board of directors of Oregon Trail.
Mr. McCreary's employment agreement is for an initial term of 20 months until
August 1, 2002, and may be extended annually for an additional year at the
discretion of the board of directors of Oregon Trail. The employment agreements
provide that the executive's base salary is subject to annual review by the
board of directors. The current base salaries for Messrs. Maughan, Lockwood and
McCreary are $187,500, $115,570 and $109,148, respectively. The employment
agreements are terminable by the Employer at any time, by the executive if the
executive is assigned duties inconsistent with his initial position, duties,
responsibilities and status, or upon the occurrence of certain events specified
by federal regulations.
The employment agreements provide for liquidated damages in the event
of involuntary termination. Under this provision, Mr. Maughan would receive the
lesser of three years' base salary or the base salary for the remaining term of
his employment agreement, plus the average bonus paid over the last two fiscal
years, all payable monthly. Messrs. Lockwood and McCreary would receive the
lesser of 18 month's base salary or the base salary for the remaining term of
each of their respective employment agreements, payable monthly. The executives
would also be entitled to health and other insurance coverage as currently
provided. All of these payments would be reduced, dollar for dollar, by any
earnings or insurance the executive receives over this same time period from any
other employment.
The employment agreements also provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employer. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than Oregon Trail purchases shares of common stock pursuant to a
tender or exchange offer for such shares, (b) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of Oregon Trail representing 25% or
more of the combined voting power of Oregon Trail's then
96
outstanding securities, (c) a majority of the membership of the board of
directors changes as the result of a contested election, or (d) shareholders of
Oregon Trail approve a merger, consolidation, sale or disposition of all or
substantially all of Oregon Trail's assets, or a plan of partial or complete
liquidation.
In the event of the executive's termination six months preceding, at
the time of, or within 24 months following a change of control, the Executives
would be entitled to receive the liquidated damages described above and a lump
sum cash payment equal to 2.99 times the executive's base amount of
compensation, minus the acceleration and lapse value of any unvested stock
options. Assuming that a change in control had occurred at March 31, 2003 and
that the executives received a lump sum cash payment under the change in control
provisions of the employment agreements, Messrs. Maughan, Lockwood and McCreary
would have been entitled to a payment of approximately $616,354 $382,567 and
$379,986, respectively. Section 280G of the Internal Revenue Code provides that
severance payments that equal or exceed three times the individual's base amount
are deemed to "excess parachute payments" if they are contingent upon a change
in control. Individuals receiving excess parachute payments are subject to a 20%
excise tax on the amount of such excess payments. The employment agreements
provide that in the event any payments or benefits provided to the executives
constitute excess parachute payments, the Employer will pay the executive in
cash any additional amounts equal to the amount needed to ensure that the amount
of such payment and the value of such benefits received by the executive, net of
any taxes, equals the amount of such payments and value of such benefits as the
executive would receive in the absence of any excise taxes.
The employment agreements restrict the executive's right to compete
against the Employers for a period of one year from the date of termination of
the employment agreement if the executive voluntarily terminates employment,
except in the event of a change in control.
Audit Committee Matters
Audit Committee Charter. The Audit Committee operates under a written
charter approved by Oregon Trail's board of directors. The Audit Committee
reports to the board of directors and is responsible for overseeing and
monitoring financial accounting and reporting, the system of internal controls
established by management and the audit process of Oregon Trail. The Audit
Committee charter sets out the responsibilities, authority and specific duties
of the Audit Committee. The charter specifies, among other things, the structure
and membership requirements of the Audit Committee, as well as the relationship
of the Audit Committee to the independent accountants, the internal audit
department, and management of Oregon Trail. A copy of the Audit Committee
charter was attached to Oregon Trail's 2001 annual meeting proxy statement.
Report of the Audit Committee. In connection with the specific
activities performed by the Audit Committee in its oversight role, it has issued
the following report:
(1) The Audit Committee has reviewed and discussed the audited
financial statements as of and for the year ended March 31,
2003 with management of Oregon Trail.
(2) The Audit Committee has discussed with the independent
auditors the matters required to be discussed by SAS 61 and
SAS 90.
(3) The Audit Committee has received from the independent
accountants, as required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committee,
(i) a written disclosure, indicating all relationships, if
any, between the independent auditor and its related entities
and Oregon Trail and its related entities which, in the
auditor's professional judgment, reasonably may be thought to
bear on the auditor's independence, and (ii) a letter from the
independent auditor confirming that, in its professional
judgment, it is independent of Oregon Trail; and the Audit
Committee has discussed with the auditor the auditor's
independence from Oregon Trail.
97
Based on the review and discussions referred to in paragraphs (1)
through (3) above, the Audit Committee recommended to the board of directors
that the audited financial statements should be included in Oregon Trail's
Annual Report on Form 10-K for the fiscal year ended March 31, 2003, for filing
with the SEC.
The Audit Committee:
Edward H. Elms (Chairman)
John Gentry
Albert H. Durgan
Kevin D. Padrick
Independence and Other Matters. Each member of the Audit Committee is
"independent," as defined under the Nasdaq Stock Market Rules. The Audit
Committee members do not have any relationship to Oregon Trail that may
interfere with the exercise of their independence from management and Oregon
Trail. None of the Audit Committee members are current officers or employees of
Oregon Trail or its affiliates.
Compensation Committee Matters
Notwithstanding anything to the contrary set forth in any of Oregon
Trail's previous filings under the Securities Act of 1933, as amended, or the
Exchange Act that might incorporate future filings, including this document, in
whole or in part, the following Report of the Compensation Committee and
Performance Graph shall not be incorporated by reference into any such filings.
Report of the Compensation Committee. Under rules established by the
SEC, Oregon Trail is required to provide certain data and information in regard
to the compensation and benefits provided to Oregon Trail's Chief Executive
Officer and other executive officers. The disclosure requirements for the Chief
Executive Officer and other executive officers include the use of tables and a
report explaining the rationale and considerations that led to the fundamental
executive compensation decisions affecting those individuals.`
The Personnel and Compensation Committee ("Committee") of Pioneer
Bank's board of directors sets and administers all policies, as defined by the
SEC, that govern the total compensation, including long-term compensation of
Oregon Trail's Chief Executive Officer and other executive officers. None of the
members of the Committee is an employee of Oregon Trail. The Committee's policy
is to offer executive officers competitive compensation and benefits that will
permit Oregon Trail to attract and retain highly qualified individuals and to
motivate such individuals by rewarding them based on Oregon Trail's performance.
Currently, Oregon Trail's executive compensation package consists
primarily of base salary and bonus awards. Individual executive salaries are
established based on the individual's subjective performance evaluation, Oregon
Trail's performance, and market parity. The Committee uses compensation and
bonus survey data from the Oregon Banker's Association, America's Community
Bankers, and the Washington Financial Industry for its market comparison. The
data compares Oregon Trail's executive officers to those similarly situated in
other similarly sized financial institutions in the region. The compensation of
Mr. Maughan, Oregon Trail's President and Chief Executive Officer, is determined
in the same manner as other executive officers as described above. Therefore,
Mr. Maughan's compensation is largely dependent upon his individual performance,
Oregon Trail's overall performance, and market comparison.
Bonuses may be awarded to executive and other officers of Oregon Trail
based on their performance and that of Oregon Trail. The Committee determines
the appropriate level of bonuses using the Committee's assessment of each
executive officer's contributions to Oregon Trail's success. More specifically,
Oregon Trail's return on average assets, return on equity, corporate management,
and staffing controls all are used in this assessment.
Oregon Trail has implemented a Stock Option Plan and management
recognition and development plan as part of its overall compensation to
executive officers.
98
Oregon Trail provides benefits to its executive officers that are
generally available to other officers and employees of Oregon Trail. This
includes a 401(k) profit sharing plan, an employee stock ownership plan, and a
non-qualified deferred compensation plan for key executives. A committee
appointed by the board of directors administers the plans. Mr. Maughan
participates in the 401(k) profit sharing plan and the employee stock ownership
plan.
The Committee has recognized that the efforts of key executives of
Oregon Trail are, and will continue to be, paramount to its success. Therefore,
the board of directors approved, based upon the Committee's recommendation, the
adoption of an employment agreement with Mr. Maughan, which is designed to
retain him and allow him a concerted focus on operations of Oregon Trail. The
terms of Mr. Maughan's employment agreement is discussed under "--Executive
Compensation -- Employment Agreements."
The Committee has reviewed the total compensation of all executive
officers during fiscal year 2003 and has concluded that their compensation is
reasonable and consistent with Oregon Trail's compensation philosophy and
industry practice.
PERSONNEL AND COMPENSATION COMMITTEE
/s/ Charles H. Rouse (Chairman)
/s/ John Lienkaemper
/s/ Edward H. Elms
Compensation Committee Interlocks and Insider Participation. No
executive officer of Oregon Trail or Pioneer Bank has served as a member of the
compensation committee of another entity, one of whose executive officers served
on the Personnel Committee. No executive officer of Oregon Trail or Pioneer Bank
has served as a director of another entity, one of whose executive officers
served on the Personnel Committee. No executive officer of Oregon Trail or
Pioneer Bank has served as a member of the compensation committee of another
entity, one of whose executive officers served as a director of Oregon Trail or
Pioneer Bank.
99
Performance Graph
The following graph compares the cumulative total shareholder return on
Oregon Trail's common stock with the cumulative total return on the Nasdaq U.S.
Companies Index and a peer group of the SNL Securities, Inc. $250 Million to
$500 Million Asset Thrift Index. Total return assumes (i) the reinvestment of
all dividends and (ii) the value of the investment in Oregon Trail's common
stock and each index was $100 at the close of trading on March 31, 1998.
[GRAPHIC OMITTED]
Period Ended
-----------------------------------------------------------------------------
Index 03/31/98 03/31/99 03/31/00 03/31/01 03/31/02 03/31/03
- -------------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Oregon Trail Financial Corp. 100.00 73.65 51.75 84.97 115.22 145.33
NASDAQ - Total U.S.* 100.00 135.08 250.99 100.60 101.32 74.37
SNL $250MM to $500MM Thrift Index 100.00 85.17 89.56 119.48 169.86 220.55
<FN>
* Source: CRSP, Center for Research in Security Prices, Graduate School of
Business, The University of Chicago, 2001. Used with permission. All rights
reserved. crsp.com
</FN>
100
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Oregon Trail's executive
officers and directors, and persons who own more than 10% of any registered
class of its equity securities, to file reports of ownership and changes in
ownership with the SEC. Executive officers, directors and greater than 10%
shareholders are required by regulation to furnish Oregon Trail with copies of
all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it has received
and written representations provided to it by the above referenced persons,
Oregon Trail believes that during the fiscal year ended March 31, 2003 all
filing requirements applicable to its reporting officers, directors and greater
than 10% shareholders were properly and timely complied with.
Transactions with Management
Federal regulations require that all loans or extensions of credit to
executive officers and directors of insured financial institutions must be made
on substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other persons,
except for loans made pursuant to programs generally available to all employees,
and must not involve more than the normal risk of repayment or present other
unfavorable features. Oregon Trail's subsidiary financial institution is
therefore prohibited from making any new loans or extensions of credit to
executive officers and directors at different rates or terms than those offered
to the general public, except for loans made pursuant to programs generally
available to all employees, and has adopted a policy to this effect. In
addition, loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to such person and his or her
related interests, are in excess of the greater of $25,000 or 5% of Pioneer
Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the board of directors. At
March 31, 2003, loans to directors and executive officers totalled approximately
$1.539 million.
CHANGE IN FIRSTBANK'S INDEPENDENT AUDITORS
On January 18, 2002, FirstBank determined that the firm of BDO Seidman,
LLP, Spokane, Washington, would no longer serve as FirstBank's independent
accounting firm after its completion of the audit for the fiscal year ended
March 31, 2002. The decision to dismiss BDO Seidman, LLP was made by the Audit
Committee of the board of directors upon the recommendation of management.
The report of BDO Seidman, LLP on FirstBank's financial statements for
either of the last two fiscal years did not contain an adverse opinion or a
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope, or accounting principles.
During FirstBank's two most recent fiscal years and subsequent interim
period preceding the change in auditors, FirstBank was not in disagreement with
BDO Seidman, LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreement, if not
resolved to the satisfaction of BDO Seidman, LLP, would have caused BDO Seidman,
LLP to make reference to the subject matter of the disagreement in connection
with its report.
On January 18, 2002, FirstBank's board of directors, at the
recommendation of its Audit Committee, engaged Moss-Adams, LLP, Spokane,
Washington, as FirstBank's certifying accountants for the fiscal year ending
March 31, 2003. FirstBank has not consulted with Moss-Adams, LLP during its two
most recent fiscal years nor during any subsequent interim period preceding the
change in auditors regarding the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on FirstBank's financial statements.
101
APPROVAL OF APPOINTMENT OF FIRSTBANK'S INDEPENDENT AUDITORS
(FirstBank Proposal 3)
Moss-Adams, LLP served as FirstBank's independent auditors for the
fiscal year ended March 31, 2003. A representative of Moss-Adams, LLP will be
present at FirstBank's annual meeting to respond to shareholders' questions and
will have the opportunity to make a statement if he or she so desires.
Audit Fees
The aggregate fees billed to FirstBank by Moss-Adams, LLP, for
professional services rendered for the audit of FirstBank's financial statements
for fiscal 2003 and the reviews of the financial statements included in
FirstBank's Forms 10-QSB for that year, including travel expenses, were $56,500.
Financial Information Systems Design and Implementation Fees
Moss-Adams, LLP performed no financial information system design or
implementation work for FirstBank during the fiscal year ended March 31, 2003.
All Other Fees
Other than audit fees, the aggregate fees billed to FirstBank by
Moss-Adams, LLP for the fiscal year ended March 31, 2003, none of which were
financial information systems design and implementation fees, were $6,951 for
tax services $14,083 in connection with the merger, $16,689 were for consulting
services and $6,750 for the FirstBank Northwest 401(k) Plan audit and Form 11-K.
The Audit Committee of the board of directors of FirstBank has determined that
the services provided by Moss-Adams, LLP, other than audit services, are not
incompatible with Moss-Adams maintaining its independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT OF MOSS-ADAMS, LLP AS INDEPENDENT AUDITORS OF
FIRSTBANK FOR THE FISCAL YEAR ENDING MARCH 31, 2004.
APPROVAL OF APPOINTMENT OF OREGON TRAIL'S INDEPENDENT AUDITORS
(Oregon Trail Proposal 3)
Deloitte & Touche LLP served as Oregon Trail's independent auditors for
the calendar year ended March 31, 2003. The board of directors has appointed
Deloitte & Touche LLP as independent auditors for the fiscal year ending March
31, 2004, subject to approval by shareholders. A representative of Deloitte &
Touche LLP is expected to be present at the meeting to respond to shareholders'
questions and will have the opportunity to make a statement if he or she so
desires.
Audit Fees
The aggregate fees billed to Oregon Trail by Deloitte & Touche LLP for
professional services rendered for the audit of Oregon Trail's financial
statements for fiscal 2003 and the reviews of the financial statements included
in Oregon Trail Forms 10-Q for that year, including travel expenses, were
$99,000.
Financial Information Systems Design and Implementation Fees
Deloitte & Touche LLP performed no financial information system design
or implementation work for Oregon Trail during the fiscal year ended March 31,
2003.
102
All Other Fees
Other than audit fees, the aggregate fees billed to Oregon Trail by
Deloitte & Touche LLP for fiscal 2003 none of which were financial information
systems design and implementation fees, were approximately $20,229. The Audit
Committee of the board of directors determined that the services performed by
Deloitte & Touche LLP other than audit services are not incompatible with
Deloitte & Touche LLP maintaining its independence.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS OF
OREGON TRAIL FOR THE FISCAL YEAR ENDING MARCH 31, 2004.
LEGAL MATTERS
The validity of the shares of FirstBank common stock to be issued in
connection with the merger will be passed upon for FirstBank by Breyer &
Associates PC, McLean, Virginia.
In addition, Silver Freedman and Taff L.L.P., Washington, D.C., will
deliver an opinion concerning federal income tax consequences of the merger.
EXPERTS
The financial statements of FirstBank as of March 31, 2003 and for the
two fiscal years ended March 31, 2003 included in the Annual Report to
Shareholders delivered together with this proxy statement-prospectus have been
audited by Moss-Adams, LLP, independent auditors, as stated in their report
appearing herein and have been so included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of FirstBank NW Corp. as of and for the year
ended March 31, 2002 included in this proxy statement/prospectus for the year
ended March 31, 2003 have been incorporated by reference in reliance on the
report of BDO Seidman, LLP, independent certified public accountants, given upon
the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Oregon Trail as of March 31,
2003 and 2002, and for each of the three years in the period ended March 31,
2003, included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein and elsewhere
in the registration statement, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
FUTURE PROPOSALS OF SHAREHOLDERS
FirstBank
Proposals of shareholders intended to be presented at FirstBank's
annual meeting expected to be held in July 2004 must be received by FirstBank no
later than February 16, 2004 to be considered for inclusion in the proxy
materials and form of proxy relating to such meeting. Any such proposals shall
be subject to the requirements of the proxy rules adopted under the Exchange
Act.
FirstBank's articles of incorporation provide that in order for a
shareholder to make nominations for the election of directors or proposals for
business to be brought before the annual meeting, a shareholder must deliver
notice in writing of such nominations and/or proposals to the Secretary not less
than 30 nor more than 60 days prior to the date of the annual meeting; provided
that if less than 31 days' notice of the annual meeting is given to
shareholders, such notice must be delivered not later than the close of the
tenth day following the day on which notice of the annual meeting was mailed to
shareholders. As specified in the articles of incorporation, the notice with
respect to nominations for election of directors must set forth certain
information regarding each nominee for election as a director, including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director, if elected, and certain information regarding the
shareholder giving such notice. The
103
notice with respect to business proposals to be brought before the annual
meeting must state the shareholder's name, address and number of shares of
common stock held, and briefly discuss the business to be brought before the
annual meeting, the reasons for conducting such business at the annual meeting
and any interest of the shareholder in the proposal.
Oregon Trail
If the merger takes place, Oregon Trail will have no more annual
meetings. If the merger does not take place, any shareholder proposal to take
action at next year's annual meeting must be received at Oregon Trail's main
office at 2055 First Street, Baker City, Oregon, no later than March 29, 2004.
Any such proposals shall be subject to the requirements of the proxy
solicitation rules adopted under the Securities Exchange Act of 1934.
Oregon Trail's articles of incorporation generally provide that
shareholders will have the opportunity to nominate directors of Oregon Trail if
such nominations are made in writing and are delivered to the Secretary of
Oregon Trail not less than 30 days nor more than 60 days before the annual
meeting of shareholders; provided, however, if less than 31 days notice of the
annual meeting is given, such notice shall be delivered to the Secretary of
Oregon Trail no later than the close of the tenth day following the date on
which notice of the meeting was mailed to shareholders. The notice must set
forth (i) the name, age, business address and, if known, residence address of
each nominee for election as a director, (ii) the principal occupation or
employment of each nominee, (iii) the number of shares of stock of Oregon Trail
which are beneficially owned by each such nominee, (iv) such other information
as would be required to be included in a proxy statement soliciting proxies for
the election of the proposed nominee pursuant to the Exchange Act, including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director, if elected, and (v) as to
the shareholder giving such notice (a) his or her name and address as they
appear on Oregon Trail's books and (b) the class and number of shares of Oregon
Trail which are beneficially owned by such shareholder.
WHERE YOU CAN FIND MORE INFORMATION
FirstBank has filed with the Securities and Exchange Commission a
registration statement under the Securities Act that registers the distribution
to Oregon Trail shareholders of the shares of FirstBank common stock to be
issued in connection with the merger. The registration statement, including the
exhibits, contains additional relevant information about FirstBank and FirstBank
common stock. The rules and regulations of the Securities and Exchange
Commission allow FirstBank to omit certain information included in the
registration statement from this proxy statement-prospectus.
FirstBank files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information that FirstBank files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. Please call the SEC
at 1-800-SEC-0330 for further information on the SEC's public reference rooms.
FirstBank's public filings are also available to the public from commercial
document retrieval services and at the Internet World Wide Website maintained by
the SEC at "http://www.sec.gov."
The SEC allows FirstBank and Oregon Trail to "incorporate by reference"
information into this proxy statement-prospectus. This means that FirstBank and
Oregon Trail can disclose important information to you by referring you to
another document filed separately with the SEC. The information incorporated by
reference is deemed to be part of this document, except for any information
superseded by information contained directly in this document. This document
incorporates by reference the other documents that are listed below that
FirstBank and Oregon Trail have previously filed with the SEC. These documents
contain important information about FirstBank's and Oregon Trail's financial
condition.
104
FirstBank SEC Filings (File No. 22435) Period/Date
- ------------------------------------------- ------------------------------------
Annual Report on Form 10-K Year Ended March 31, 2003
Current Reports on Form 8-K Filed on February 25, and April 22,
2003
Oregon Trail SEC Filings (File No. 22953) Period/Date
- ------------------------------------------- ------------------------------------
Annual Report on Form 10-K Year Ended March 31, 2003
Current Reports on Form 8-K Filed on February 26 and May 8, 2003
Documents incorporated by reference are available from the appropriate
company without charge (except for exhibits to the documents unless the exhibits
are specifically incorporated in this document by reference). You may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from FirstBank at the following address:
FirstBank NW Corp. Oregon Trail Financial Corp.
920 Main Street 2055 First Street
Lewiston, Idaho 83501 Baker City, Oregon 97814
Attention: Larry K. Moxley, Attention: Zane F. Lockwood,
Corporate Secretary Corporate Secretary
Telephone No.: (208) 746-9610 Telephone: (541) 523-6327
(Nasdaq: FBNW) (Nasdaq: OTFC)
If you would like to request documents from either company, please do
so by August 27, 2003 in order to receive them before the special meeting of
shareholders. If you request any incorporated documents, from us, we will mail
them to you by first-class mail, or other equally prompt means, within one
business day of its receipt of your request.
Accompanying this document are the following documents:
o FirstBank's 2003 Annual Report to Shareholders, including the
audited consolidated balance sheets of FirstBank as of March
31, 2003 and 2002 and the related consolidated statements of
operations, changes in shareholders' equity and statements of
cash flows for each of the two years in the period ended March
31, 2003 (see Appendix E to this proxy statement-prospectus.)
o Oregon Trail's 2003 Annual Report to Shareholders, including
the audited consolidated balance sheets of Oregon Trail as of
March 31, 2003 and 2002 and the related consolidated
statements of operations, changes in shareholders' equity and
statements of cash flows for each of the three years in the
period ended March 31, 2003 (see Appendix D to this proxy
statement-prospectus.)
FirstBank has supplied all information contained in this proxy
statement-prospectus relating to FirstBank, and Oregon Trail has supplied all
information relating to Oregon Trail.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the meeting. We have not
authorized anyone to provide you with information that is different from what is
contained or incorporated by reference in this document. This document is dated
July 28, 2003. You should not assume that the information contained in this
document is accurate as of any date other than that date, and neither the
mailing of this document to shareholders nor the issuance of FirstBank's common
stock in the merger shall create any implication to the contrary.
105
APPENDIX A
Merger Agreement
MERGER AGREEMENT
dated as of February 24, 2003
by and among
FIRSTBANK NW CORP.
and
OREGON TRAIL FINANCIAL CORP.
TABLE OF CONTENTS
Page
MERGER AGREEMENT..............................................................1
RECITALS......................................................................1
AGREEMENT.....................................................................1
ARTICLE 1
DEFINITIONS
1.1 Definitions.................................................1
ARTICLE 2
THE MERGERS AND RELATED MATTERS
2.1 Corporate Merger............................................7
(a) Surviving Corporation..............................7
(b) Articles of Incorporation and Bylaws...............7
(c) Effects of the Corporate Merger....................7
(d) Transfer of Assets.................................7
(e) Assumption of Liabilities..........................7
2.2 The Bank Merger.............................................7
(a) The Continuing Bank................................7
(b) Rights, Etc........................................8
(c) Liabilities........................................8
(d) Articles of Incorporation; Bylaws; Directors;
Officers...........................................8
2.3 Effective Time..............................................8
2.4 Conversion of Oregon Trail Common Stock.....................8
2.5 FirstBank Common Stock......................................9
2.6 Fractional Shares...........................................9
2.7 Anti-Dilution Provisions....................................9
2.8 Options/Restricted Stock....................................9
2.9 Standstill Agreement.......................................10
2.10 Election and Exchange Procedures...........................10
2.11 Closing....................................................13
2.12 Withholding Rights.........................................13
2.13 Reservation of Right to Revise Transaction.................13
2.14 Additional Actions.........................................14
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FIRSTBANK
3.1 Organization and Corporate Authority of FirstBank .........14
3.2 Organization and Qualification of FirstBank Northwest......14
3.3 Authorization, Execution and Delivery; Merger Agreement
Not in Breach..............................................15
3.4 No Legal Bar...............................................15
3.5 Government Approvals.......................................15
3.6 FirstBank Financial Statements.............................15
3.7 Absence of Certain Changes.................................16
3.8 Capitalization of FirstBank ...............................16
(i)
3.9 Capitalization of FirstBank Northwest......................16
3.10 Disclosure.................................................16
3.11 Tax Matters................................................16
3.12 Litigation.................................................16
3.13 Compliance with Laws.......................................17
3.14 Absence of Regulatory Actions..............................17
3.15 Reports....................................................17
3.16 Statements True and Correct................................17
3.17 Financial Ability..........................................18
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF OREGON TRAIL
4.1 Organization and Qualification of Oregon Trail and
Subsidiaries...............................................18
4.2 Organization and Qualification of Pioneer Bank.............18
4.3 Authorization, Execution and Delivery; Merger Agreement
Not in Breach..............................................18
4.4 No Legal Bar...............................................19
4.5 Government and Other Approvals.............................19
4.6 Compliance With Law........................................19
4.7 Charter Documents..........................................20
4.8 Financial Statements.......................................20
4.9 Absence of Certain Changes.................................20
4.10 Deposits...................................................21
4.11 Properties.................................................21
4.12 Oregon Trail Subsidiaries..................................22
4.13 Condition of Fixed Assets and Equipment....................22
4.14 Tax Matters................................................22
4.15 Litigation.................................................23
4.16 Hazardous Materials........................................23
4.17 Insurance..................................................25
4.18 Labor and Employment Matters...............................25
4.19 Records and Documents......................................26
4.20 Capitalization of Oregon Trail.............................26
4.21 Capitalization of Pioneer Bank.............................26
4.22 Sole Agreement.............................................26
4.23 Disclosure.................................................27
4.24 Absence of Undisclosed Liabilities.........................27
4.25 Allowance for Loan Losses..................................27
4.26 Compliance with Laws.......................................27
4.27 Absence of Regulatory Actions..............................28
4.28 Employee Benefit Plans.....................................28
4.29 Material Contracts.........................................32
4.30 Material Contract Defaults.................................33
4.31 Reports....................................................33
4.32 Statements True and Correct................................33
4.33 Brokers and Finders........................................34
4.34 Derivatives Contracts; Structured Notes; Etc...............34
4.35 Loans......................................................34
(ii)
ARTICLE 5
COVENANTS OF FIRSTBANK
5.1 Regulatory and Shareholder Approvals.......................34
5.2 Preparation of Registration Statement......................35
5.3 Registration Statement Effectiveness.......................35
5.4 Conduct of Business........................................35
5.5 Employees and Employee Benefits............................35
5.6 Reasonable Efforts to Close................................37
5.7 Addition to Board of Directors.............................37
5.8 Indemnification and Insurance..............................37
5.9 Access.....................................................39
5.10 Nasdaq.....................................................39
5.11 Updating of Representations................................39
ARTICLE 6
COVENANTS OF OREGON TRAIL
6.1 Shareholders' Meeting......................................39
6.2 Conduct of Business -- Affirmative Covenants...............39
6.3 Conduct of Business -- Negative Covenants..................41
6.4 Conduct of Business -- Certain Actions.....................44
6.5 Accruals and Reserves......................................44
6.6 Affiliate Agreements.......................................44
ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Oregon Trail..............45
(a) Performance.......................................45
(b) Representations and Warranties....................45
(c) Documents.........................................45
(d) Opinion of FirstBank 's Counsel...................45
7.2 Conditions to the Obligations of FirstBank.................46
(a) Performance.......................................46
(b) Representations and Warranties....................46
(c) Documents.........................................46
(d) Opinion of Oregon Trail's Counsel.................47
(e) Other Business Combinations, Etc..................48
(f) Accruals and Reserves ............................48
(g) Receipt of Affiliate Agreements...................48
(h) Voting Agreements..................................48
(i) Standstill Agreement...............................48
7.3 Conditions to Obligations of All Parties...................48
(a) No Pending or Threatened Claims...................48
(b) Government Approvals and Acquiescence Obtained....48
(c) Effective Registration Statement..................48
(d) Tax Opinion.......................................48
(e) Shareholder Vote..................................49
(iii)
ARTICLE 8
TERMINATION
8.1 Termination................................................49
8.2 Effect of Termination......................................50
8.3 FirstBank Fee.............................................50
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices....................................................51
9.2 Assignability and Parties in Interest......................52
9.3 Governing Law..............................................52
9.4 Counterparts...............................................52
9. 9.5 Publicity..................................................52
9.6 Entire Agreement...........................................52
9.7 Severability...............................................53
9.8 Modifications, Amendments and Waivers......................53
9.9 Interpretation.............................................53
9.10 Payment of Expenses........................................53
9.11 Equitable Remedies.........................................53
9.12 Attorneys' Fees............................................53
9.13 No Waiver..................................................54
9.14 Remedies Cumulative........................................54
9.15 Non-Survival of Representations and Warranties.............54
9.16 Standard Breach............................................54
(iv)
MERGER AGREEMENT
THIS MERGER AGREEMENT ("Merger Agreement") is made and entered into
this 24th day of February 2003, by and between FIRSTBANK NW CORP., a corporation
chartered and existing under the laws of the State of Washington ("FirstBank"),
and OREGON TRAIL FINANCIAL CORP., a corporation chartered and existing under the
laws of the State of Oregon ("Oregon Trail").
RECITALS
A. FirstBank and Oregon Trail on the terms and conditions
hereinafter set forth, desire to effect an acquisition transaction pursuant to
which FirstBank will acquire all of the shares of Oregon Trail Common Stock (as
hereinafter defined) outstanding immediately prior to the Effective Time (as
hereinafter defined) at a purchase price equal to the amount set forth in
Section 2.4 hereof.
B. To effect the acquisition, Oregon Trail shall be merged with
and into FirstBank (the "Corporate Merger") pursuant to the Plan of Merger
("Corporate Plan of Merger") substantially in the form attached hereto as
Exhibit A. FirstBank will be the surviving corporate entity in the Corporate
Merger (the "Surviving Corporation"). The federally chartered financial
institution subsidiary of Oregon Trail, Pioneer Bank, A Federal Savings Bank
("Pioneer Bank"), shall be merged with and into the Washington chartered
financial institution subsidiary of FirstBank, FirstBank Northwest (the "Bank
Merger") pursuant to the Plan of Merger ("Bank Plan of Merger") substantially in
the form attached hereto as Exhibit B. FirstBank Northwest will be the
continuing financial institution (the "Continuing Bank") following the Bank
Merger.
C. The parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Corporate Merger and
also to prescribe various conditions to the Corporate Merger.
D. Concurrently with the execution and delivery of this Merger
Agreement, and as an inducement to FirstBank 's willingness to enter into this
Merger Agreement, each member of the Board of Directors of Oregon Trail and each
Major Shareholder of Oregon Trail (as hereinafter defined) has entered into an
agreement with FirstBank pursuant to which, among other things, they have agreed
to vote in favor of approval of the transactions contemplated by this Merger
Agreement at the Oregon Trail Shareholders' Meeting (as hereinafter defined).
E. Prior to the execution and delivery of this Merger Agreement,
and as a material inducement to FirstBank's willingness to enter into this
Merger Agreement, Joseph Stilwell and his Affiliates (as hereinafter defined)
have entered into the Standstill Agreement (as hereinafter defined) with
FirstBank.
F. The respective Boards of Directors of FirstBank and Oregon
Trail have duly approved this Merger Agreement and have duly authorized its
execution and delivery.
NOW THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants and agreements herein contained
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Parties (as hereinafter defined) agree as
follows:
AGREEMENT
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Merger Agreement, the
following terms have the definitions indicated:
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"Acquisition Proposal" shall have the meaning assigned to such
term in Section 6.4 of this Merger Agreement.
"Affiliate" of a party means any person, partnership,
corporation, association or other legal entity directly or indirectly
controlling, controlled by or under common control, with that party.
"Aggregate Cash Consideration" shall have the meaning assigned
to such term in Section 2.4(a) of this Merger Agreement.
"Applicable Environmental Laws" shall have the meaning
assigned to such term in Section 4.16(a) of this Merger Agreement.
"Balance Sheet Date" shall have the meaning assigned to such
term in Section 4.9 of this Merger Agreement.
"Bank Common Stock" shall have the meaning assigned to such
term in Section 4.21 of this Merger Agreement.
"Bank Merger" shall have the meaning assigned to such term in
the Recitals of this Merger Agreement.
"Bank Plan of Merger" shall have the meaning assigned to such
term in the Recitals of this Merger Agreement.
"Cash Election Shares" shall have the meaning assigned to such
term in Section 2.10(a) of this Merger Agreement.
"Cash Election Designated ESOP Shares" shall have the meaning
assigned to such term in Section 2.10(a) of this Merger Agreement.
"CERCLA" shall have the meaning set forth in Section 4.16(a)
of this Merger Agreement.
"CERCLIS" shall have the meaning set forth in Section 4.16(c)
of this Merger Agreement.
"Closing" shall have the meaning assigned to such term in
Section 2.11 of this Merger Agreement.
"Closing Date" shall have the meaning assigned to such term in
Section 2.11 of this Merger Agreement.
"Continuing Bank" shall have the meaning assigned to such term
in the Recitals of this Merger Agreement.
"Continuing Employees" shall have the meaning assigned to such
term in Section 5.5(a) of this Merger Agreement.
"Corporate Merger" shall have the meaning assigned to such
term in the Recitals of this Merger Agreement.
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"Corporate Plan of Merger" shall have the meaning assigned to
such term in the Recitals of this Merger Agreement.
"CRA" shall have the meaning assigned to such term in Section
4.26(c) of this Merger Agreement.
"Deposits" shall mean all deposits (including, but not limited
to, certificates of deposit, savings accounts, NOW accounts and checking
accounts) of Pioneer Bank.
"Derivatives Contract" shall have the meaning assigned to such
term in Section 4.34 of this Merger Agreement.
"Effective Date of the Corporate Merger" shall mean that date
on which the Effective Time shall have occurred.
"Effective Time" shall have the meaning assigned in Section
2.3 of this Merger Agreement.
"Election Deadline" shall have the meaning assigned in Section
2.10(b) of this Merger Agreement.
"Election Form" shall have the meaning assigned to such term
in Section 2.10(a) of this Merger Agreement.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
"ESOP" shall have the meaning assigned to such term in Section
5.5(c) of this Merger Agreement.
"Exchange Agent" shall mean the independent agent selected by
FirstBank to effect the exchange of certificates representing Oregon Trail
Common Stock described in Section 2.10(a) for the consideration described in
Section 2.4.
"Exchange Ratio" shall have the meaning assigned to such term
in Section 2.4(a) of this Merger Agreement.
"FDIC" means the Federal Deposit Insurance Corporation, or any
successor thereto.
"FirstBank" shall mean FirstBank NW Corp., a savings and loan
holding company having its principal place of business in Lewiston, Idaho, that
is currently incorporated under the laws of the State of Washington.
"FirstBank Common Stock" shall mean the common stock, par
value $0.01 per share, of FirstBank.
"FirstBank Disclosure Schedule" means the disclosure schedule
to be delivered by FirstBank to Oregon Trail pursuant to the initial paragraph
of Article III of this Agreement.
"FirstBank Fee" shall have the meaning assigned to such term
in Section 8.3 of this Merger Agreement.
"FirstBank Financial Statements" shall have the meaning
assigned to such term in Section 3.6 of this Merger Agreement.
"FirstBank Option" shall mean an option to acquire shares of
FirstBank Common Stock.
"FirstBank Shareholders" shall mean the holders of the
FirstBank Common Stock.
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"FirstBank Shareholders' Meeting" shall mean the special
meeting of FirstBank Shareholders to be held pursuant to Section 5.1(b) of this
Merger Agreement, including any adjournment or adjournments thereof.
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"Government Approvals" shall have the meaning assigned to such
term in Section 3.5 of this Merger Agreement.
"Hazardous Substances" shall have the meaning set forth in
Section 4.16(a) of this Merger Agreement.
"Internal Revenue Code" shall mean the Internal Revenue Code
of 1986, as amended.
"Loan Property" shall have the meaning assigned to such term
in Section 4.16(a) of this Merger Agreement.
"Major Shareholder" shall mean any person, other than the
ESOP, who as of the date hereof owns or controls more than nine percent (9.0%)
of the issued and outstanding shares of Oregon Trail Common Stock.
"Material Adverse Change" or "Material Adverse Effect" shall
mean, when used in connection with Oregon Trail or FirstBank, any change,
effect, event, occurrence or state of facts that is, or would reasonably be
expected to be, materially adverse to the business, financial condition or
results of operations of such Party and its Subsidiaries taken as a whole, other
than (i) any change, effect, event or occurrence relating to the United States
economy or financial or securities markets in general, (ii) any change, effect,
event or occurrence relating to the banking and financial services industry to
the extent not effecting such Party to a materially greater extent than it
affects other persons in the banking and financial services industry, (iii) any
change, effect, event or occurrence relating to the announcement or performance
of this Merger Agreement and the transactions contemplated hereby, (iv) with
respect to Oregon Trail, any change, effect, event or occurrence resulting from
any action or omission taken with the prior written consent of FirstBank, (v)
any change in banking, savings association or similar laws, rules or regulations
of general applicability or interpretations thereof by courts or governmental
authorities and (vi) any change in GAAP or regulatory accounting requirements
applicable to banks, savings associations or their holding companies generally.
"Merger Agreement" means this Merger Agreement (including
Exhibit A and Exhibit B) and all exhibits and schedules annexed to, and
incorporated by specific reference as a part of, this Merger Agreement.
"MRDP" shall have the meaning assigned to such term in Section
2.8(b) of this Merger Agreement.
"NASD" means the National Association of Securities Dealers,
Inc.
"No-Election Shares" shall have the meaning assigned to such
term in Section 2.10(a) of this Merger Agreement.
"OBCA" shall mean the Oregon Business Corporation Act.
"Officer" shall have the meaning set forth in Section 4.9(k)
of this Merger Agreement.
"Option Plan" shall have the meaning assigned to such term in
Section 2.8(a) of this Merger Agreement.
"Oregon Trail" shall mean Oregon Trail Financial Corp., a
savings and loan holding company having its principal place of business in Baker
City, Oregon.
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"Oregon Trail Common Stock" has the meaning assigned to such
term in Section 2.4(a) of this Merger Agreement.
"Oregon Trail Disclosure Schedule" means the disclosure
schedules to be delivered by Oregon Trail to FirstBank pursuant to the initial
paragraph of Article IV of this Merger Agreement.
"Oregon Trail Financial Statements" shall have the meaning
assigned to such term in Section 4.8(a) of this Merger Agreement.
"Oregon Trail Option" shall mean an option granted by Oregon
Trail under the Option Plan, as defined in Section 2.8(a) of this Merger
Agreement, to purchase shares of Oregon Trail Common Stock.
"Oregon Trail Shareholders" shall mean the holders of the
Oregon Trail Common Stock.
"Oregon Trail Shareholders' Meeting" shall mean the special
meeting of Oregon Trail Shareholders to be held pursuant to Section 6.1 of this
Merger Agreement, including any adjournment or adjournments thereof.
"OTS" shall mean the Office of Thrift Supervision.
"Parties" shall mean Oregon Trail and FirstBank collectively;
Oregon Trail on the one hand, or FirstBank on the other hand, may sometimes be
referred to as a "Party."
"Pension Plan" shall mean any employee pension benefit plan as
such term is defined in Section 3(2) of ERISA which is maintained by the
referenced Party.
"Per Share Cash Consideration" shall have the meaning assigned
to such term in Section 2.4(a) of this Merger Agreement.
"Person" shall mean any natural person, fiduciary,
corporation, partnership, joint venture, association, business trust or any
other entity of any kind.
"Plans of Merger" shall mean the Corporate Plan of Merger to
be executed by authorized representatives of Oregon Trail and FirstBank and
filed with the Secretary of State of the State of Oregon along with the Articles
of Merger in accordance with Oregon law and with the Secretary of State of the
State of Washington along with the Articles of Merger in accordance with
Washington law and providing for the Corporate Merger of Oregon Trail with and
into FirstBank as contemplated by Section 2.1 of this Merger Agreement, and the
Bank Plan of Merger to be executed by authorized representatives of Pioneer Bank
and FirstBank Northwest and filed with the Washington Department providing for
the Bank Merger of Pioneer Bank with and into FirstBank Northwest as
contemplated by Section 2.2 of this Merger Agreement.
"Post Termination Payments" shall have the meaning assigned to
such term in Section 5.5(e) of this Merger Agreement.
"Property" shall have the meaning assigned to such term in
Section 4.16(a) of this Merger Agreement.
"Proxy Statement/Prospectus" shall mean the joint proxy
statement to be used by Oregon Trail and FirstBank to solicit proxies with a
view to securing the approval of the Oregon Trail Shareholders and the FirstBank
Shareholders of this Merger Agreement and the Plans of Merger, which shall also
serve as the prospectus for the shares of FirstBank Common Stock to be issued to
the Oregon Trail Shareholders.
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"RCRA" shall have the meaning assigned to such term in Section
4.16(a) of this Merger Agreement.
"Realty" means the real property of Pioneer Bank owned or
leased by Pioneer Bank or any Subsidiary of Pioneer Bank.
"Records" means all available records, minutes of meetings of
the Board of Directors, committees and Oregon Trail Shareholders and Pioneer
Bank, original instruments and other documentation, pertaining to Oregon Trail
and Pioneer Bank, Oregon Trail's and Pioneer Bank's assets (including plans and
specifications relating to the Realty), and liabilities, the Oregon Trail Common
Stock, the Deposits and the loans, and all other business and financial records
which are necessary or customary for use in the conduct of Oregon Trail's and
Pioneer Bank's business by Oregon Trail and Pioneer Bank on and after the
Effective Time as it was conducted prior to the Closing Date.
"Registration Statement" shall have the meaning assigned to
such term in Section 5.2 of this Merger Agreement.
"Regulatory Authorities" shall mean, collectively, the
Department of Justice, the FDIC, the SEC, the OTS, the Washington Department or
any other state or federal governmental or quasi-governmental entity which has,
or may hereafter have, jurisdiction over any of the transactions described in
this Merger Agreement.
"Release" shall have the meaning assigned to such term in
Section 4.16(b)(i) of this Merger Agreement.
"REO" shall mean Real Estate Owned.
"SEC" shall mean the Securities and Exchange Commission, or
any successor thereto.
"SEC Documents" shall mean all reports, proxy statements and
registration statements filed, or required to be filed, by a Party or any of its
Subsidiaries pursuant to the Securities Laws, whether filed, or required to be
filed, with the SEC, the OTS, or with any other Regulatory Authority pursuant to
the Securities Laws.
"Securities Laws" shall mean the Securities Act of 1933, as
amended ("1933 Act"), the Securities Exchange Act of 1934, as amended ("1934
Act"), the Investment Company Act of 1940, as amended, the Investment Advisers
Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of the SEC promulgated thereunder, as well as any similar
state securities laws and any similar rules and regulations promulgated by the
applicable federal bank Regulatory Authorities.
"Standstill Agreement" shall mean the agreement, substantially
in the form of Exhibit E, to be entered into by Joseph Stilwell and his
Affiliates with FirstBank providing for, among other things, that Joseph
Stilwell nor any of his Affiliates shall directly or indirectly for a stated
period of time acquire any voting securities (or securities which are
convertible to voting securities) of FirstBank in excess of a specified
aggregate limitation and all voting securities of FirstBank owned or controlled
by them or any of them shall be voted with management of FirstBank.
"Stock Election Shares" shall have meaning assigned to such
term in Section 2.10(a) of this Merger Agreement.
"Subsidiaries" shall mean all of those corporations, or other
entities of which the entity in question owns or controls five percent (5%) or
more of the outstanding voting equity securities either directly or through an
unbroken chain of entities as to each of which five percent (5%) or more of the
outstanding equity securities is owned directly or indirectly by its parent, and
may sometimes be referred to as a "Subsidiary."
"Substituted Option" shall have meaning assigned to such term
in Section 2.8(a) of this Merger Agreement.
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"Surviving Corporation" shall have the meaning assigned to
such term in the Recitals of this Merger Agreement.
"Voting Agreement" shall mean the Voting Agreement
substantially in the form of Exhibit C hereto to be executed by each Major
Shareholder and director of Oregon Trail simultaneous with the execution and
delivery of this Merger Agreement.
"Washington Department" shall mean the Department of Financial
Institutions of the State of Washington.
"WBCA" shall mean the Washington Business Corporation Act.
ARTICLE 2
THE MERGERS AND RELATED MATTERS
2.1 Corporate Merger. Subject to the terms and conditions
of this Merger Agreement, and pursuant to the provisions of the OBCA, the WBCA,
the Home Owners Loan Act, as amended ("HOLA"), and the rules and regulations
promulgated thereunder, at the Effective Time (as hereinafter defined):
(a) Surviving Corporation. Oregon Trail shall be
merged with and into FirstBank pursuant to the terms and conditions set forth
herein and pursuant to the Corporate Plan of Merger. Upon consummation of the
Corporate Merger, the separate existence of Oregon Trail shall cease and
FirstBank shall continue as the Surviving Corporation.
(b) Articles of Incorporation and Bylaws. The
Articles of Incorporation and Bylaws of FirstBank, in effect immediately prior
to the Effective Time, shall become the Articles of Incorporation and Bylaws of
the Surviving Corporation.
(c) Effects of the Corporate Merger. The
separate existence of Oregon Trail shall cease, and Oregon Trail shall be merged
with and into FirstBank which, as the Surviving Corporation, shall thereupon and
thereafter possess all of the assets, rights, privileges, appointments, powers,
licenses, permits and franchises of the two merged corporations, whether of a
public or a private nature, and shall be subject to all of the liabilities,
restrictions, disabilities and duties of both FirstBank and Oregon Trail.
(d) Transfer of Assets. All rights, assets,
licenses, permits, franchises and interests of FirstBank and Oregon Trail in and
to every type of property, whether real, personal, or mixed, whether tangible or
intangible, shall be deemed to be vested in FirstBank as the Surviving
Corporation by virtue of the Corporate Merger becoming effective and without any
deed or other instrument or act of transfer whatsoever.
(e) Assumption of Liabilities. The Surviving
Corporation shall become and be liable for all debts, liabilities, obligations
and contracts of FirstBank as well as those of Oregon Trail, whether the same
shall be matured or unmatured; whether accrued, absolute, contingent or
otherwise; and whether or not reflected or reserved against in the balance
sheets, other financial statements, books of account or records of FirstBank or
Oregon Trail.
2.2. The Bank Merger. At the time selected by FirstBank
after the Effective Time:
(a) The Continuing Bank. Pioneer Bank shall be
merged into FirstBank Northwest pursuant to the terms and conditions set forth
herein and pursuant to the Bank Plan of Merger. Upon consummation of the Bank
Merger, the separate existence of Pioneer Bank shall cease and FirstBank
Northwest shall survive as the Continuing Bank.
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(b) Rights, Etc. The Continuing Bank shall
thereupon and thereafter possess all of the rights, privileges, immunities and
franchises, of a public as well as of a private nature, of each of the
institutions so merged; and all property, real, personal and mixed, and all
debts due on whatever account, and all and every other interest, of or belonging
to or due to each of the institutions so merged, shall be deemed to be vested in
the Continuing Bank without further act or deed; and the title to any real
estate or any interest therein, vested in each of such institutions, shall not
revert or be in any way impaired by reason of the Bank Merger.
(c) Liabilities. The Continuing Bank shall
thenceforth be responsible and liable for all the liabilities, obligations and
penalties of each of the institutions so merged, in accordance with applicable
law.
(d) Articles of Incorporation; Bylaws;
Directors; Officers. The Articles of Incorporation and Bylaws of the Continuing
Bank shall be those of FirstBank Northwest, as in effect immediately prior to
the Bank Merger becoming effective. The directors and officers of FirstBank
Northwest in office immediately prior to the Bank Merger becoming effective
shall be the directors and officers of the Continuing Bank, together with such
additional directors and officers as may thereafter be elected, who shall hold
office until such time as their successors are elected and qualified.
2.3 Effective Time. As soon as practicable after each of
the conditions set forth in Article 7 hereof have been satisfied or waived, the
Parties will file, or cause to be filed, with the Secretary of State of the
State of Oregon and the Secretary of State of the State of Washington such
Articles of Merger as they may deem necessary or appropriate for the Corporate
Merger which Articles of Merger shall be in the form required by and executed in
accordance with the applicable provisions of the OBCA and the WBCA. The
Corporate Merger shall become effective at such time as may be specified in such
Articles of Merger (the "Effective Time"). The Bank Merger will be consummated
after the Corporate Merger at the time selected by FirstBank.
2.4 Conversion of Oregon Trail Common Stock. At the
Effective Time:
(a) Subject to the other provisions in this
Section 2.4, and the provisions of Section 2.10(d) and (e) each share of common
stock of Oregon Trail, $0.01 par value per share ("Oregon Trail Common Stock"),
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Corporate Merger and without any action on the part of the holder
thereof, be converted into the right to receive from FirstBank, at the election
of the holder thereof:
(i) a cash amount equal to $22.00 per
share (the "Per Share Cash Consideration") for each of 1,659,091 issued
and outstanding shares of Oregon Trail Common Stock ("Aggregate Cash
Consideration"); or
(ii) a number of shares of FirstBank
Common Stock which is equal to the quotient, rounded to the nearest one
thousandth (the "Exchange Ratio") determined by dividing (x) 1,480,064
(the number of shares of FirstBank to be issued in the Corporate
Merger) by (y) the number of shares of Oregon Trail Common Stock issued
and outstanding (including any shares issued as a result of the
exercise of Oregon Trail Options) minus 1,659,091 (the number of shares
of Oregon Trail Common Stock receiving cash), subject to adjustment as
provided in Section 2.7.
(b) Notwithstanding any other provision of this
Merger Agreement, any shares of Oregon Trail Common Stock issued and outstanding
immediately prior to the Effective Time which are then owned beneficially or of
record by FirstBank, Oregon Trail or by any direct or indirect Subsidiary of any
of them or are held in the treasury of Oregon Trail shall, by virtue of the
Corporate Merger, be canceled without payment of any consideration therefor and
without any conversion thereof.
(c) The holders of certificates representing
shares of Oregon Trail Common Stock shall cease to have any rights as
stockholders of Oregon Trail, except such rights, if any, as they may have
pursuant to the
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OBCA. Except as provided above, until certificates representing shares of Oregon
Trail Common Stock are surrendered for exchange, each certificate shall, after
the Effective Time, represent for all purposes only the right to receive the
amount of consideration into which its shares of Oregon Trail Common Stock shall
have been converted by the Corporate Merger as provided above.
(d) The stock transfer books of Oregon Trail
shall be closed and no transfer of shares of Oregon Trail Common Stock shall be
made thereafter.
2.5 FirstBank Common Stock. At the Effective Time, the
shares of FirstBank Common Stock issued and outstanding immediately prior to the
Effective Time shall, on and after the Effective Time, remain issued and
outstanding as shares of FirstBank Common Stock.
2.6 Fractional Shares. Notwithstanding any other
provision hereof, no fractional shares of FirstBank Common Stock and no
certificates or scrip therefor, or other evidence of ownership thereof, will be
issued in the Corporate Merger; instead, FirstBank shall pay to each Oregon
Trail Shareholder who would otherwise be entitled to a fractional share an
amount in cash determined by multiplying such fraction by the average of the
closing sales price per share of FirstBank Common Stock, as quoted on the Nasdaq
National Market, for the 20-day trading period ending on the business day which
is five (5) business days prior to the Effective Date of the Corporate Merger.
2.7 Anti-Dilution Provisions. In the event FirstBank
changes the number of shares of FirstBank Common Stock issued and outstanding
prior to the Effective Time as a result of a stock split, stock dividend or
recapitalization with respect to the outstanding FirstBank Common Stock and the
record date therefor shall be prior to the Effective Date of the Corporate
Merger, the Exchange Ratio shall be proportionately adjusted.
2.8 Options/Restricted Stock.
(a) At the Effective Time, by virtue of the
Corporate Merger, and without any action on the part of any holder of an option
granted under the Oregon Trail 1998 Stock Option Plan (the "Option Plan"), each
Oregon Trail Option that is then outstanding and unexercised shall become fully
vested in accordance with the Option Plan and shall be assumed by FirstBank and
be converted into a FirstBank Option (the "Substituted Option") on the same
terms and conditions as are in effect with respect to the Oregon Trail Option
immediately prior to the Effective Time, except that (i) each Substituted Option
may be exercised solely for shares of FirstBank Common Stock, (ii) the number of
shares of FirstBank Common Stock subject to such Substituted Option shall be
equal to the number of shares of Oregon Trail Common Stock subject to the
assumed Oregon Trail Option immediately prior to the Effective Time multiplied
by the Exchange Ratio, the product being rounded, if necessary, up or down to
the nearest whole share, and (iii) the per share exercise price under each such
Substituted Option shall be adjusted by dividing the per share exercise price of
the assumed Oregon Trail Option immediately prior to the Effective Time by the
Exchange Ratio, and rounding up to the nearest cent. It is intended that the
foregoing assumption shall be effected in a manner which is consistent with the
requirements of Section 424 of the Internal Revenue Code, as to any Oregon Trail
Option that is an incentive stock option. The number of shares of Oregon Trail
Common Stock which are issuable upon exercise of Oregon Trail Options as of the
date hereof is set forth on Oregon Trail Disclosure Schedule 2.8. At the
Effective Time, the Option Plan shall be deemed terminated within five (5)
business days after the Effective Time, FirstBank shall file a registration
statement on Form S-3 or S-8, as the case may be (or any successor or other
appropriate forms), with respect to the shares of FirstBank Common Stock subject
to the Substituted Options and shall use its reasonable efforts to maintain the
current status of the prospectus or prospectuses contained therein for so long
as such options remain outstanding in the case of a Form S-8 or, in the case of
a Form S-3, until the shares subject to such options may be sold without any
further holding period under Rule 144 of the 1933 Act.
(b) At the Effective Time, by virtue of the
Corporate Merger, each holder of an award granted under the Oregon Trail 1998
Management Recognition and Development Plan (the "MRDP") shall be entitled to
receive the consideration as provided in Section 2.4 of this Merger Agreement
for each share of restricted stock granted under the MRDP subject to the
provisions of Section 2.12. Notwithstanding the foregoing, no consideration
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will be paid for the ungranted restricted stock awards under the MRDP. At the
Effective Time, the MRDP shall be deemed terminated.
2.9 Standstill Agreement. Prior to the date hereof,
Joseph Stilwell has executed the Standstill Agreement in the form attached
hereto as Exhibit E.
2.10 Election and Exchange Procedures.
(a) FirstBank shall designate an exchange agent
to act as agent (the "Exchange Agent"), who shall be reasonably acceptable to
Oregon Trail, for purposes of conducting the election procedure and the exchange
procedure as described in this Section 2.10. FirstBank shall use its best
efforts to cause the Exchange Agent, no later than three (3) business days
following the Effective Time, to mail or make available to each holder of record
of a certificate or certificates that immediately prior to the Effective Time
represented issued and outstanding shares of Oregon Trail Common Stock (i) a
notice and letter of transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the certificates theretofore representing
shares of Oregon Trail Common Stock shall pass only upon proper delivery of such
certificates to the Exchange Agent) advising such holder of the effectiveness of
the Corporate Merger and the procedure for surrendering to the Exchange Agent
such certificate or certificates that immediately prior to the Effective Time
represented issued and outstanding shares of Oregon Trail Common Stock in
exchange for the consideration set forth in Section 2.4 hereof deliverable in
respect thereof pursuant to this Merger Agreement and (ii) an election form in
such form as FirstBank and Oregon Trail shall mutually agree ("Election Form").
Each Election Form shall permit the holder (or in the case of nominee record
holders, the beneficial owner through proper instructions and documentation) (i)
to elect to receive FirstBank Common Stock with respect to all of such holder's
Oregon Trail Common Stock as hereinabove provided (the "Stock Election Shares"),
(ii) to elect to receive cash with respect to all of such holder's Oregon Trail
Common Stock as hereinabove provided (the "Cash Election Shares"), or (iii) to
indicate that such holder makes no such election with respect to such holder's
shares of Oregon Trail Common Stock (the "No-Election Shares"). Nominee record
holders who hold Oregon Trail Common Stock on behalf of multiple beneficial
owners shall indicate how many of the shares held by them are Stock Election
Shares, Cash Election Shares and No-Election Shares. Any shares of Oregon Trail
Common Stock with respect to which the holder thereof shall not, as of the
Election Deadline (as hereinafter defined), have made such an election by
submission to the Exchange Agent of an effective, properly completed Election
Form shall be deemed to be No-Election Shares. Any number of unallocated ESOP
shares held by the ESOP trustee sufficient in number to repay the ESOP loan in
full (the "Cash Election Designated ESOP Shares") shall be deemed to be Cash
Election Shares, and with respect to such shares the holders thereof shall in no
event be classified as Reallocated Stock Shares (as hereinafter defined).
(b) The term "Election Deadline" shall mean 5:00
p.m., Eastern Time, twenty (20) to forty (40) business days following but not
including the date of mailing of the Election Form or such other date as
FirstBank and Oregon Trail shall mutually agree upon.
(c) Any election to receive FirstBank Common
Stock or cash shall have been properly made only if the Exchange Agent shall
have actually received a properly completed Election Form by the Election
Deadline. An Election Form will be properly completed only if accompanied by a
certificate or certificates representing all shares of Oregon Trail Common Stock
covered thereby, subject to the provisions of subsection (h) below of this
Section 2.10. Any Election Form may be revoked or changed by the person
submitting such Election Form to the Exchange Agent by written notice to the
Exchange Agent only if such notice is actually received by the Exchange Agent at
or prior to the Election Deadline. The Exchange Agent shall have reasonable
discretion to determine when any election, modification or revocation is
received and whether any such election, modification or revocation has been
properly made.
(d) Within five (5) business days after the
Election Deadline, the Exchange Agent shall effect the allocation among Oregon
Trail Shareholders of rights to receive FirstBank Common Stock or cash in the
Corporate Merger in accordance with the Election Forms as follows:
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(i) If the number of Cash Election
Shares times the Per Share Cash Consideration is less than the
Aggregate Cash Consideration, then:
(A) all Cash Election Shares
shall be converted into the right to receive cash,
(B) No-Election Shares shall
then be deemed to be Cash Election Shares to the extent
necessary to have the total number of Cash Election Shares
times the Per Share Cash Consideration equal the Aggregate
Cash Consideration. If less than all of the No-Election Shares
need to be treated as Cash Election Shares, then the Exchange
Agent shall select which No-Election Shares shall be treated
as Cash Election Shares in such manner as the Exchange Agent
shall determine, and all remaining No-Election Shares shall
thereafter be treated as Stock Election Shares,
(C) If all of the No-Election
Shares are treated as Cash Election Shares under the preceding
subsection and the total number of Cash Election Shares times
the Per Share Cash Consideration is less than the Aggregate
Cash Consideration, then the Exchange Agent shall convert on a
pro rata basis as described below a sufficient number of Stock
Election Shares into Cash Election Shares ("Reallocated Cash
Shares") such that the sum of the number of Cash Election
Shares plus the number of Reallocated Cash Shares times the
Per Share Cash Consideration equals the Aggregate Cash
Consideration, and all Reallocated Cash Shares will be
converted into the right to receive cash, and
(D) the Stock Election Shares
which are not Reallocated Cash Shares shall be converted into
the right to receive FirstBank Common Stock.
(ii) If the number of Cash Election
Shares times the Per Share Cash Consideration is greater than the
Aggregate Cash Consideration, then:
(A) all Stock Election Shares
and all No-Election Shares shall be converted into the right
to receive FirstBank Common Stock,
(B) all Cash Election
Designated ESOP Shares shall be converted into the right to
receive cash,
(C) the Exchange Agent shall
convert on a pro rata basis as described below a sufficient
number of remaining Cash Election Shares ("Reallocated Stock
Shares") such that the number of remaining Cash Election
Shares, when aggregated with the Cash Election Designated ESOP
Shares, times the Per Share Cash Consideration equals the
Aggregate Cash Consideration, and all Reallocated Stock Shares
shall be converted into the right to receive FirstBank Common
Stock, and
(D) the Cash Election Shares
which are not Reallocated Stock Shares shall be converted into
the right to receive cash.
(iii) If the number of Cash Election
Shares times the Per Share Cash Consideration is equal to the Aggregate
Cash Consideration, then subparagraphs (d)(i) and (ii) above shall not
apply and all No-Election Shares and all Stock Election Shares will be
converted into the right to receive FirstBank Common Stock.
(e) In the event that the Exchange Agent is
required pursuant to Section 2.10(d)(i)(3) to convert some Stock Election Shares
into Reallocated Cash Shares, each holder of Stock Election Shares shall be
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allocated a pro rata portion of the total Reallocated Cash Shares. In the event
the Exchange Agent is required pursuant to Section 2.10(d)(ii)(2) to convert
some Cash Election Shares into Reallocated Stock Shares, each holder of Cash
Election Shares (other than with respect to the Cash Election Designated ESOP
Shares) shall be allocated a pro rata portion of the total Reallocated Stock
Shares.
(f) At the Effective Time, FirstBank shall
deliver to the Exchange Agent the number of shares of FirstBank Common Stock
issuable and the amount of cash payable in the Corporate Merger (which shall be
held by the Exchange Agent in trust for the holders of Oregon Trail Common Stock
and invested only in deposit accounts of an FDIC-insured institution, direct
obligations of the U.S. Government or obligations issued or guaranteed by an
agency thereof which carry the full faith and credit of the United States). The
Exchange Agent shall use its best efforts to distribute FirstBank Common Stock
and cash as provided herein, no later than ten (10) business days after the
Election Deadline. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of FirstBank Common Stock
held by it from time to time hereunder, except that it shall receive and hold
all dividends or other distributions paid or distributed with respect to such
shares for the account of the persons entitled thereto.
(g) After the completion of the foregoing
allocation, each holder of an outstanding certificate or certificates which
prior thereto represented shares of Oregon Trail Common Stock who surrenders
such certificate or certificates to the Exchange Agent will, upon acceptance
thereof by the Exchange Agent, be entitled to a certificate or certificates
representing the number of full shares of FirstBank Common Stock and/or the
amount of cash into which the aggregate number of shares of Oregon Trail Common
Stock previously represented by such certificate or certificates surrendered
shall have been converted pursuant to this Merger Agreement and, if such
holder's shares of Oregon Trail Common Stock have been converted into FirstBank
Common Stock, any other distribution theretofore paid with respect to FirstBank
Common Stock issuable in the Corporate Merger, in each case without interest.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. Each
outstanding certificate which prior to the Effective Time represented Oregon
Trail Common Stock and which is not surrendered to the Exchange Agent in
accordance with the procedures provided for herein shall, except as otherwise
herein provided, until duly surrendered to the Exchange Agent be deemed to
evidence ownership of the number of shares of FirstBank Common Stock or the
right to receive the amount of cash into which such Oregon Trail Common Stock
shall have been converted. After the Effective Time, there shall be no further
transfer on the records of Oregon Trail of certificates representing shares of
Oregon Trail Common Stock and if such certificates are presented to Oregon Trail
for transfer, they shall be cancelled against delivery of certificates for
FirstBank Common Stock or cash as hereinabove provided. No dividends which have
been declared will be remitted to any person entitled to receive shares of
FirstBank Common Stock under this Section 2.10 until such person surrenders the
certificate or certificates representing Oregon Trail Common Stock, at which
time such dividends shall be remitted to such person, without interest.
(h) FirstBank shall not be obligated to deliver
cash and/or a certificate or certificates representing shares of FirstBank
Common Stock to which an Oregon Trail Shareholder would otherwise be entitled as
a result of the Corporate Merger until such holder surrenders the certificate or
certificates representing the shares of Oregon Trail Common Stock for exchange
as provided in this Section 2.10, or, in default thereof, an appropriate
affidavit of loss and indemnity agreement and/or a bond as may be required by
the Exchange Agent. If any certificates evidencing shares of FirstBank Common
Stock are to be issued in a name other than that in which the certificate
evidencing Oregon Trail Common Stock surrendered in exchange therefor is
registered, it shall be a condition of the issuance thereof that the certificate
so surrendered shall be properly endorsed or accompanied by an executed form of
assignment separate from the certificate and otherwise in proper form for
transfer and that the person requesting such exchange pay to the Exchange Agent
any transfer or other tax required by reason of the issuance of a certificate
for shares of FirstBank Common Stock in any name other than that of the
registered holder of the certificate surrendered or otherwise establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
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(i) Any portion of the shares of FirstBank
Common Stock and cash delivered to the Exchange Agent by FirstBank pursuant to
Section 2.10(f) that remains unclaimed by the Oregon Trail Shareholders for six
(6) months after the Effective Time (as well as any proceeds from any investment
thereof) shall be delivered by the Exchange Agent to FirstBank. Any Oregon Trail
Shareholders who have not theretofore complied with Section 2.10(g) shall
thereafter look only to FirstBank for the consideration deliverable in respect
of each share of Oregon Trail Common Stock such shareholder holds as determined
pursuant to this Merger Agreement without any interest thereon. If outstanding
certificates for shares of Oregon Trail Common Stock are not surrendered or the
payment for them is not claimed prior to the date on which such shares of
FirstBank Common Stock or cash would otherwise escheat to or become the property
of any governmental unit or agency, the unclaimed items shall, to the extent
permitted by abandoned property and any other applicable law, become the
property of FirstBank (and to the extent not in its possession shall be
delivered to it), free and clear of all claims or interest of any person
previously entitled to such property. Neither the Exchange Agent nor any party
to this Merger Agreement shall be liable to any holder of stock represented by
any certificate for any consideration paid to a public official pursuant to
applicable abandoned property, escheat or similar laws. FirstBank and the
Exchange Agent shall be entitled to rely upon the stock transfer books of Oregon
Trail to establish the identity of those persons entitled to receive
consideration specified in this Merger Agreement, which books shall be
conclusive with respect thereto. In the event of a dispute with respect to
ownership of stock represented by any certificate, FirstBank and the Exchange
Agent shall be entitled to deposit any consideration represented thereby in
escrow with an independent third party and thereafter be relieved with respect
to any claims thereto.
2.11 Closing. Subject to the provisions of Article 7
hereof, the closing of the transactions contemplated by this Merger Agreement
(the "Closing") shall take place as soon as practicable after the satisfaction
or waiver of all of the conditions to Closing, and shall be on such date, time
and location as is mutually agreed to by FirstBank and Oregon Trail. At the
Closing the Parties shall use their respective best efforts to deliver the
certificates, letters and opinions which constitute conditions to effecting the
Corporate Merger and the Bank Merger and each Party will provide the other
Parties with such proof or indication of satisfaction of the conditions to the
obligations of such other Parties to consummate the Corporate Merger and the
Bank Merger as such other Parties may reasonably require. If all conditions to
the obligations of each of the Parties shall have been satisfied or lawfully
waived by the Party entitled to the benefits thereof, the Parties shall, at the
Closing, duly execute the Corporate Plan of Merger for filing with the Secretary
of State of the State of Oregon and the Secretary of State of the State of
Washington and promptly thereafter shall take all steps necessary or desirable
to consummate the Corporate Merger in accordance with all applicable laws, rules
and regulations and the Corporate Plan of Merger. The Bank Merger will be
consummated after the Corporate Merger at the time selected by FirstBank and
pursuant to the terms of the Bank Plan of Merger. The Parties shall thereupon
take such other and further actions as may be required by law or this Merger
Agreement to consummate the transactions contemplated herein. The date on which
the Closing actually occurs is herein referred to as the "Closing Date."
2.12 Withholding Rights. FirstBank (through the Exchange
Agent, if applicable) shall be entitled to deduct and withhold from any amounts
otherwise payable pursuant to this Merger Agreement to any Oregon Trail
Shareholder such amounts as FirstBank is required under the Internal Revenue
Code or any provision of state, local or foreign tax law to deduct and withhold
with respect to the making of such payment. Any amounts so withheld shall be
treated for all purposes of this Merger Agreement as having been paid to an
Oregon Trail Shareholder in respect of which such deduction and withholding was
made by FirstBank.
2.13 Reservation of Right to Revise Transaction. FirstBank
shall have the unilateral right to revise the method of effecting either the
Corporate Merger, the Bank Merger or both in order to achieve tax benefits or
for any other reason which FirstBank may deem advisable; provided, however, that
FirstBank shall not have the right, without the prior written approval of the
Board of Directors of Oregon Trail, and, if required, the approval of the Oregon
Trail Shareholders, to make any revision to the structure of the Corporate
Merger (i) which changes the amount or kind of the consideration which the
Oregon Trail Shareholders are entitled to receive (determined in the manner
provided in Section 2.4 of this Merger Agreement), (ii) adversely affects the
tax treatment of Oregon Trail Shareholders or (iii) will materially delay or
jeopardize the receipt of any necessary consents or approvals of Regulatory
Authorities with respect
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to the Corporate Merger or the Bank Merger. FirstBank may exercise this right of
revision by giving written notice thereof to Oregon Trail in the manner provided
in Section 9.1 of this Merger Agreement.
2.14 Additional Actions. If at any time after the
Effective Time the Surviving Corporation shall consider that any further
assignments or assurances in law or any other acts are necessary or desirable to
(i) vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation its rights, title or interest in, to or under any of the rights,
properties or assets of Oregon Trail acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Corporate Merger, or (ii)
otherwise carry out the purposes of this Merger Agreement, Oregon Trail and its
proper officers and directors shall be deemed to have granted to the Surviving
Corporation an irrevocable power of attorney to execute and deliver all such
proper deeds, assignments and assurances in law and to do all acts necessary or
proper to vest, perfect or confirm title to and possession of such rights,
properties or assets in the Surviving Corporation and otherwise to carry out the
purposes of this Merger Agreement; and the proper officers and directors of the
Surviving Corporation are fully authorized in the name of Oregon Trail or
otherwise to take any and all such action.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FIRSTBANK
Except as set forth on the FirstBank Disclosure Schedule delivered by
FirstBank to Oregon Trail prior to the execution of this Merger Agreement, each
of FirstBank and the FirstBank Subsidiaries hereby represents and warrants to
Oregon Trail as follows:
3.1 Organization and Corporate Authority of FirstBank.
FirstBank is a corporation duly organized, validly existing and in good standing
under the laws of the State of Washington. FirstBank is registered as a savings
and loan holding company with the OTS and engages only in activities permitted
by the HOLA and the rules and regulations promulgated by the OTS thereunder.
FirstBank (i) has the requisite corporate power and authority to own, operate
and lease its material properties and carry on its businesses as they are
currently being conducted; (ii) is in good standing and is duly qualified to do
business in each jurisdiction where the character of its properties owned or
held under lease or the nature of its business makes such qualification
necessary and where the failure to so qualify would individually or in the
aggregate have a Material Adverse Effect on FirstBank; and (iii) has in effect
all federal, state, local and foreign governmental authorizations, permits and
licenses necessary for it to own or lease its properties and assets and to carry
on its businesses as they are currently being conducted. Each FirstBank
Subsidiary is duly organized, validly existing and in good standing under the
laws of the state or jurisdiction of its organization and (a) has all requisite
corporate power and authority to own, operate and lease its material properties
and to carry on its business as it is currently being conducted and (b) is in
good standing and is duly qualified to do business in each jurisdiction where
the character of its properties owned or held under lease or the nature of its
business makes such qualification necessary and where the failure to so qualify
would individually or in the aggregate have a Material Adverse Effect on
FirstBank. The Articles of Incorporation and Bylaws of FirstBank, as amended to
date, are in full force and effect as of the date of this Merger Agreement.
3.2 Organization and Qualification of FirstBank
Northwest. FirstBank Northwest is a Washington-chartered savings bank, duly
organized, validly existing and in good standing under the laws of the State of
Washington and engages only in activities (and holds properties only of the
types) permitted by the State of Washington and the rules and regulations
promulgated thereunder by the Washington Department and the FDIC for insured
depository institutions. FirstBank Northwest (a) has all requisite corporate
power and authority to own, operate and lease its properties and to carry on its
business as it is currently being conducted and (b) is in good standing and is
duly qualified to do business in each jurisdiction where the character of its
properties owned or held under lease or the nature of its business makes such
qualification necessary and where the failure to so qualify would individually
or in the aggregate have a Material Adverse Effect on FirstBank. FirstBank
Northwest's deposit accounts are insured by the FDIC to the fullest extent
permitted under applicable law.
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3.3 Authorization, Execution and Delivery; Merger
Agreement Not in Breach.
(a) FirstBank has all requisite corporate power
and authority to execute and deliver this Merger Agreement and the Plans of
Merger and to consummate the transactions contemplated hereby and thereby. This
Merger Agreement, and all other agreements and instruments contemplated to be
executed in connection herewith by FirstBank have been (or upon execution will
have been) duly executed and delivered by FirstBank, except for approval by
FirstBank's Shareholders, have been (or upon execution will have been)
authorized by all necessary action, corporate or otherwise, and no other
corporate proceedings on the part of FirstBank are (or will be) necessary to
authorize such execution and delivery, and, subject to receipt of any required
Government Approvals, constitute (or upon execution will constitute) legal,
valid and enforceable obligations of FirstBank, subject, as to enforceability,
to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally, and to the application
of equitable principles and judicial discretion.
(b) The execution and delivery of this Merger
Agreement, the consummation of the transactions contemplated hereby and the
fulfillment of the terms hereof will not result in a breach of any of the terms
or provisions of, or constitute a default under (or an event which, with the
passage of time or the giving of notice or both, would constitute a default
under), or conflict with, or permit the acceleration of any obligation under,
(i) any material mortgage, lease, covenant, agreement, indenture or other
instrument to which FirstBank or any FirstBank Subsidiary is a party or by which
FirstBank or any FirstBank Subsidiary or their respective properties or any of
their respective assets are bound, (ii) the Articles of Incorporation or Bylaws
of FirstBank or any FirstBank Subsidiary, (iii) any judgment, decree, order or
award of any court, governmental body or arbitrator by which FirstBank or any
FirstBank Subsidiary are bound, or (iv) any material permit, concession, grant,
franchise, license, law, statute, ordinance, rule or regulation applicable to
FirstBank or any FirstBank Subsidiary or their respective properties; or result
in the creation of any lien, claim, security interest, encumbrance, charge,
restriction or right of any third party of any kind whatsoever upon the property
or assets of FirstBank or any FirstBank Subsidiary, except that the Government
Approvals shall be required in order for FirstBank and any FirstBank Subsidiary
to consummate the Corporate Merger.
3.4 No Legal Bar. Neither FirstBank nor any FirstBank
Subsidiary is a party to, subject to or bound by any agreement, judgment, order,
writ, prohibition, injunction or decree of any court or other governmental
authority or body of competent jurisdiction or any law which would prevent the
execution of this Merger Agreement or the Plans of Merger by FirstBank or
FirstBank Northwest, its delivery thereof to Oregon Trail and Pioneer Bank or
(upon receipt of Governmental Approvals) the consummation of the transactions
contemplated hereby, and no action or proceeding is pending or threatened
against FirstBank or any FirstBank Subsidiary in which the validity of this
Merger Agreement, any of the transactions contemplated hereby and thereby, or
any action which has been taken by any of the Parties in connection herewith or
in connection with any of the transactions contemplated hereby is at issue.
3.5 Government Approvals. No consent, approval, order or
authorization of, or registration, declaration or filing with, any federal,
state or local governmental authority is required to be made or obtained by
FirstBank or any FirstBank Subsidiary in connection with the execution and
delivery of this Merger Agreement or the consummation of the transactions
contemplated hereby by FirstBank or any FirstBank Subsidiary, except for the
prior approval of the FDIC, the OTS, the Washington Department and such other
agencies as may have jurisdiction (collectively, the "Government Approvals").
3.6 FirstBank Financial Statements. The consolidated
balance sheets of FirstBank as of March 31, 2002 and 2001, and the related
consolidated statements of income and changes in stockholders' equity and cash
flows of FirstBank for the years ended March 31, 2002, 2001 and 2000 which were
included in FirstBank's Annual Report on Form 10-KSB for the fiscal year ended
March 31, 2002 as filed with the SEC and the comparative interim financial
statements for any subsequent quarter ending after March 31, 2002 and prior to
the date hereof included in FirstBank's Quarterly Reports on Form 10-QSB as
filed with the SEC (collectively, the "FirstBank Financial Statements") (i) were
prepared from the books and records of FirstBank, which are complete and
accurate in all material respects and have been maintained in accordance with
good business practices; (ii) were prepared in accordance with GAAP; (iii)
accurately present FirstBank's consolidated financial condition and the
consolidated results of its operations,
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changes in stockholders' equity and cash flows as stated including any
amendments thereto at the relevant dates thereof and for the periods covered
thereby (subject, in the case of financial statements for interim periods, to
normal recurring adjustments); and (iv) do contain or reflect all necessary
adjustments and accruals for an accurate presentation of FirstBank's
consolidated financial condition and the consolidated results of FirstBank's
operations and cash flows for the periods covered by the FirstBank Financial
Statements.
3.7 Absence of Certain Changes. Since March 31, 2002
there has not been any Material Adverse Change in FirstBank.
3.8 Capitalization of FirstBank. The authorized capital
stock of FirstBank consists of 5,000,000 shares of common stock, $0.01 par value
per share ("FirstBank Common Stock") and 500,000 shares of preferred stock
having a par value of $0.01 per share. As of the date of this Merger Agreement,
1,384,672 shares of FirstBank Common Stock were issued and outstanding, no
shares of FirstBank Common Stock were held by FirstBank as treasury stock and no
shares of the preferred stock were issued and outstanding. All of the
outstanding FirstBank Common Stock is validly issued, fully paid and
nonassessable and has not been issued in violation of any preemptive rights of
any FirstBank shareholder. Except (i) as provided for in this Merger Agreement
and (ii) for options to acquire 147,000 shares under the existing stock benefit
plans of FirstBank, there are no outstanding securities or other obligations
which are convertible into FirstBank Common Stock or into any other equity or
debt security of FirstBank, and there are no outstanding options, warrants,
rights, scrip, rights to subscribe to, calls or other commitments of any nature
which would entitle the holder, upon the exercise thereof, to be issued
FirstBank Common Stock or other equity or debt security of FirstBank. The shares
of FirstBank Common Stock to be issued in exchange for the Stock Election
Shares, when issued in accordance with the terms of this Merger Agreement, will
be duly authorized, validly issued, fully paid and nonassessable and the
issuance thereof will not be subject to any preemptive right.
3.9 Capitalization of FirstBank Northwest. The authorized
capital stock of FirstBank Northwest consists of 1,000 shares of common stock
having a par value of $1.00 per share and 9,000 shares of preferred stock having
no par value. As of the date of this Merger Agreement, 1,000 shares of FirstBank
Northwest's common stock were issued and outstanding, no shares of the common
stock were held by FirstBank Northwest as treasury stock and no shares of
preferred stock were issued and outstanding. All of the outstanding common stock
of FirstBank Northwest is held beneficially and of record by FirstBank, free and
clear of any lien, claim, security interest, encumbrance, charge, restriction or
right of any third party of any kind whatsoever.
3.10 Disclosure. The information concerning, and the
representations or warranties made by FirstBank and the FirstBank Subsidiaries
as set forth in this Merger Agreement, or in any document, statement,
certificate or other writing furnished or to be furnished by FirstBank and the
FirstBank Subsidiaries to Oregon Trail pursuant hereto, do not and will not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated herein or therein which is necessary to make the
statements and facts contained herein or therein, in light of the circumstances
under which they were or are made, not false or misleading. Copies of all
documents heretofore or hereafter delivered or made available to Oregon Trail by
FirstBank pursuant hereto were complete and accurate copies of such documents.
3.11 Tax Matters. FirstBank does not have any reason to
believe that any conditions exist that might prevent or impede the Corporate
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Internal Revenue Code.
3.12 Litigation. Except as set forth in FirstBank
Disclosure Schedule 3.12 hereto, there is no action, suit or proceeding pending,
or to the best knowledge of FirstBank and the FirstBank Subsidiaries, threatened
against FirstBank or any FirstBank Subsidiary before any court or arbitrator or
any governmental body, agency or official, including, but not limited to, any
action, suit or proceeding that (i) has been brought by or on behalf of any
person employed or formerly employed by FirstBank or any FirstBank Subsidiary or
(ii) purports or seeks to enjoin or restrain the transactions contemplated by
this Merger Agreement. Except as set forth on FirstBank Disclosure Schedule 3.12
there are no actions, suits, or proceedings pending or, to the best knowledge of
FirstBank and the FirstBank
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Subsidiaries threatened against any Officers or directors of FirstBank or any
FirstBank Subsidiary by any stockholder of FirstBank or any FirstBank Subsidiary
(or by any former stockholder of FirstBank or any FirstBank Subsidiary) relating
to or arising out of such person's status as a stockholder.
3.13 Compliance with Laws. FirstBank and each FirstBank
Subsidiary:
(a) Is in compliance with all laws, rules,
regulations, reporting and licensing requirements, and orders applicable to its
business or employees conducting its business (including, but not limited to,
those relating to consumer disclosure and currency transaction reporting) the
breach or violation of which would or could reasonably be expected to have a
Material Adverse Effect on FirstBank;
(b) Has received no notification or
communication from any agency or department of federal, state, or local
government or any of the Regulatory Authorities, or the staff thereof (i)
asserting that FirstBank or any FirstBank Subsidiary is or may not be in
compliance with any of the statutes, rules, regulations, or ordinances which
such governmental authority or Regulatory Authority enforces, which, as a result
of such noncompliance, would have a Material Adverse Effect on FirstBank, (ii)
threatening to revoke any license, franchise, permit, or governmental
authorization which is material to the financial condition or operations of
FirstBank or any FirstBank Subsidiary, or (iii) requiring FirstBank or any
FirstBank Subsidiary to enter into a cease and desist order, consent, agreement,
or memorandum of understanding; and
(c) Is in material compliance with the
applicable provisions of the Community Reinvestment Act ("CRA") and the
regulations promulgated thereunder, and FirstBank Northwest currently has a CRA
rating of satisfactory or better.
3.14 Absence of Regulatory Actions. Neither FirstBank nor
any of the FirstBank Subsidiaries is a party to any cease or desist order,
written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from, or
has adopted any board resolutions at the request of, federal or state
governmental authorities charged with the supervision or regulation of
depository institutions or depository institution holding companies or engaged
in the insurance of bank and/or savings and loan deposits nor has it been
advised by any such governmental authority that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
3.15 Reports. Except as set forth in FirstBank Disclosure
Schedule 3.15, since January 1, 2000, FirstBank and all FirstBank Subsidiaries
have filed all reports and statements, together with any amendments required to
be made with respect thereto, that it was required to file with (i) the SEC;
(ii) the Washington Department; (iii) the FDIC; (iv) the OTS; and (v) any other
applicable federal or state securities or banking authorities. As of their
respective dates, each of such reports and documents, including the financial
statements, exhibits, and schedules thereto, complied in all material respects
with all of the requirements of their respective forms and all of the statutes,
rules, and regulations enforced or promulgated by the Regulatory Authority with
which they were filed. All such reports were true and complete in all material
respects and did not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. FirstBank and all FirstBank Subsidiaries have previously
provided or made available to Oregon Trail and Pioneer Bank true and correct
copies of all such reports and any amendments thereto filed by FirstBank or the
FirstBank Subsidiaries after January 1, 2000.
3.16 Statements True and Correct. None of the information
prepared by or on behalf of FirstBank or any FirstBank Subsidiary regarding
FirstBank or any FirstBank Subsidiary included in the Proxy Statement/Prospectus
mailed to the Oregon Trail Shareholders and FirstBank Shareholders in connection
with the Oregon Trail Shareholders' Meeting and the FirstBank Shareholders'
Meeting, and any other documents filed with the SEC, the FDIC or any other
Regulatory Authority in connection with the transaction contemplated herein (if
applicable),
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will be, at the respective times such documents are filed, and, with respect to
the Proxy Statement/Prospectus, when first mailed to the Oregon Trail
Shareholders, false or misleading with respect to any material fact, or will
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, or, in
the case of the Proxy Statement/Prospectus or any amendment thereof or
supplement thereto, at the time of the Oregon Trail Shareholders' Meeting, false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make any statements therein, in light of the circumstances
under which they were made, not misleading.
3.17 Financial Ability. On the Effective Date, FirstBank
or FirstBank Northwest will have all funds necessary to consummate the Corporate
Merger and the Bank Merger and pay the aggregate cash and stock consideration to
holders of Oregon Trail Common Stock pursuant to Section 2.4 hereof. Upon
completion of the Bank Merger, FirstBank Northwest will be in compliance with
all regulatory capital requirements applicable to it.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF OREGON TRAIL
Except as set forth on the Oregon Trail Disclosure Schedules delivered
by Oregon Trail to FirstBank prior to the execution of this Merger Agreement,
each of Oregon Trail and the Oregon Trail Subsidiaries hereby represents and
warrants to FirstBank as follows:
4.1 Organization and Qualification of Oregon Trail and
Subsidiaries. Oregon Trail is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Oregon. Oregon Trail is
registered as a unitary savings and loan holding company with the OTS and
engages only in activities permitted by the HOLA and the rules and regulations
promulgated by the OTS thereunder. Oregon Trail (a) has all requisite corporate
power and authority to own, operate and lease its material properties and to
carry on its business as it is currently being conducted and (b) is in good
standing and is duly qualified to do business in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
business makes such qualification necessary and where the failure to so qualify
would individually or in the aggregate have a Material Adverse Effect on Oregon
Trail. Each Oregon Trail Subsidiary is duly organized, validly existing and in
good standing under the laws of the state or jurisdiction of its organization
and (a) has all requisite corporate power and authority to own, operate and
lease its material properties and to carry on its business as it is currently
being conducted and (b) is in good standing and is duly qualified to do business
in each jurisdiction where the character of its properties owned or held under
lease or the nature of its business makes such qualification necessary and where
the failure to so qualify would individually or in the aggregate have a Material
Adverse Effect on Oregon Trail. The activities of the Oregon Trail Subsidiaries
are permitted for subsidiaries of savings and loan holding companies pursuant to
the HOLA.
4.2 Organization and Qualification of Pioneer Bank.
Pioneer Bank is a federally-chartered stock savings bank, duly organized,
validly existing and in good standing under the laws of the United States and
engages only in activities (and hold properties only of the types) permitted by
the OTS or the FDIC for insured depository institutions. Pioneer Bank (a) has
all requisite corporate power and authority to own, operate and lease its
properties and to carry on its business as it is currently being conducted and
(b) is in good standing and is duly qualified to do business in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its business makes such qualification necessary and where the
failure to so qualify would individually or in the aggregate have a Material
Adverse Effect on Pioneer Bank. Pioneer Bank's deposit accounts are insured by
the FDIC to the fullest extent permitted under applicable law.
4.3 Authorization, Execution and Delivery; Merger
Agreement Not in Breach.
(a) Oregon Trail and the Oregon Trail
Subsidiaries have all requisite corporate power and authority to execute and
deliver this Merger Agreement and the Plans of Merger and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Merger Agreement and the Plans of Merger and
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the consummation of the proposed transaction have been (or upon execution will
have been) duly authorized by the Boards of Directors of Oregon Trail and,
except for the approval of the Oregon Trail Shareholders, no other corporate
proceedings on the part of Oregon Trail and the Oregon Trail Subsidiaries are
necessary to authorize the execution and delivery of this Merger Agreement and
the Plans of Merger and the consummation of the transactions contemplated hereby
and thereby. This Merger Agreement and all other agreements and instruments
herein contemplated to be executed and delivered by Oregon Trail and the Oregon
Trail Subsidiaries have been (or upon execution and delivery will have been)
duly executed and delivered by Oregon Trail and the Oregon Trail Subsidiaries
and (subject to any requisite shareholder approval and Government Approvals
hereof) constitute (or upon execution and delivery will constitute) legal, valid
and enforceable obligations of Oregon Trail and the Oregon Trail Subsidiaries,
subject, as to enforceability, to applicable bankruptcy, insolvency,
receivership, conservatorship, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and to the application
of equitable principles and judicial discretion.
(b) The execution and delivery of this Merger
Agreement, the consummation of the transactions contemplated hereby, and the
fulfillment of the terms hereof and thereof will not result in a violation or
breach of any of the terms or provisions of, or constitute a default under (or
an event which, with the passage of time or the giving of notice, or both, would
constitute a default under), or conflict with, or permit the acceleration of,
any obligation under (i) any mortgage, lease, covenant, agreement, indenture or
other instrument to which Oregon Trail, or any Oregon Trail Subsidiary is a
party or by which Oregon Trail or any Oregon Trail Subsidiary is bound, (ii) the
Articles of Incorporation or Bylaws of Oregon Trail and any Oregon Trail
Subsidiary, (iii) any judgment, decree, order, regulatory letter of
understanding or award of any court, governmental body, authority or arbitrator
or, (iv) (subject to the receipt of the Government Approvals) any material
permit, concession, grant, franchise, license, law, statute, ordinance, rule or
regulation applicable to Oregon Trail or any Oregon Trail Subsidiary or the
properties of any of them; or result in the creation of any lien, claim,
security interest, encumbrance, charge, restriction or right of any third party
of any kind whatsoever upon the properties or assets of Oregon Trail or any
Oregon Trail Subsidiary.
4.4 No Legal Bar. Neither Oregon Trail nor any Oregon
Trail Subsidiary is a party to, or subject to, or bound by, any agreement or
judgment, order, letter of understanding, writ, prohibition, injunction or
decree of any court or other governmental authority or body of competent
jurisdiction, or any law which would prevent the execution of this Merger
Agreement or the Plans of Merger by Oregon Trail or Pioneer Bank, the delivery
thereof to FirstBank, or (upon receipt of Government Approvals) the consummation
of the transactions contemplated hereby and thereby, and no action or proceeding
is pending or threatened against Oregon Trail or any Oregon Trail Subsidiary in
which the validity of this Merger Agreement, the transactions contemplated
hereby or any action which has been taken by any of the Parties in connection
herewith or in connection with the transactions contemplated hereby is at issue.
4.5 Government and Other Approvals. Except for the
Government Approvals described in Section 3.5 and the approvals and consents
listed on Oregon Trail Disclosure Schedule 4.5 hereto, no consent, approval,
order or authorization of, or registration, declaration or filing with, any
federal, state or local governmental authority is required to be made or
obtained by Oregon Trail or any Oregon Trail Subsidiary in connection with the
execution and delivery of this Merger Agreement or the consummation of the
transactions contemplated by this Merger Agreement nor is any consent or
approval required from any landlord, licensor or other non-governmental party
which has granted rights to Oregon Trail or any Oregon Trail Subsidiary in order
to avoid forfeiture or impairment of such rights.
4.6 Compliance With Law. Oregon Trail and all Oregon
Trail Subsidiaries hold all material licenses, franchises, permits and
authorizations necessary for them to own or lease their respective properties
and assets and for the lawful conduct of their respective businesses, as they
are presently conducted, and Oregon Trail and all Oregon Trail Subsidiaries have
complied in all material respects with all applicable statutes, laws,
ordinances, rules and regulations of all federal, state and local governmental
bodies, agencies and subdivisions having, asserting or claiming jurisdiction
over Oregon Trail and Oregon Trail Subsidiaries' properties or over any other
part of Oregon Trail's and Oregon Trail Subsidiaries' assets, liabilities or
operations. The benefits of all of such licenses, franchises, permits and
authorizations are in full force and effect and, to the best knowledge of Oregon
Trail and the Oregon Trail Subsidiaries, may continue to be enjoyed by FirstBank
and the FirstBank Subsidiaries subsequent to the Closing of the transactions
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contemplated herein other than the Government Approvals and other approvals
referenced in Section 4.5 above. Neither Oregon Trail nor any Oregon Trail
Subsidiary has received notice of any proceeding for the suspension or
revocation of any such license, franchise, permit, or authorization and no such
proceeding is pending or has been threatened by any governmental authority.
4.7 Charter Documents. Included in Oregon Trail
Disclosure Schedule 4.7 hereto are true and correct copies of the Articles of
Incorporation and Bylaws of Oregon Trail and the Oregon Trail Subsidiaries. The
Articles of Incorporation and Bylaws of Oregon Trail and the Oregon Trail
Subsidiaries, as amended to date, are in full force and effect.
4.8 Financial Statements.
(a) Oregon Trail previously has delivered or
made available to FirstBank the consolidated balance sheets of Oregon Trail as
of March 31, 2002 and 2001, and the related consolidated statements of income
and changes in stockholders' equity and cash flows of Oregon Trail for the years
ended March 31, 2002, 2001 and 2000 ("Oregon Trail Financial Statements"). Such
financial statements (i) were prepared from the books and records of Oregon
Trail, which are complete and accurate in all material respects and have been
maintained in accordance with good business practices; (ii) were prepared in
accordance with GAAP; (iii) accurately present Oregon Trail's consolidated
financial condition and the consolidated results of its operations, changes in
stockholders' equity and cash flows as stated including any amendments thereto
at the relevant dates thereof and for the periods covered thereby; and (iv) do
contain or reflect all necessary adjustments and accruals for an accurate
presentation of Oregon Trail's consolidated financial condition and the
consolidated results of Oregon Trail's operations and cash flows for the periods
covered by the Oregon Trail Financial Statements.
(b) Oregon Trail has delivered to FirstBank (or
will deliver, when available, with respect to periods ended after the date of
this Merger Agreement) true, correct and complete copies of (i) all Thrift
Financial Reports, including any amendments thereto, filed with any Regulatory
Authorities by Pioneer Bank and (ii) all reports, including any amendments
thereto filed with any Regulatory Authorities by Oregon Trail, each for any
quarter ending after March 31, 2002. Such reports (i) were (or will be) prepared
from the books and records of Oregon Trail or Pioneer Bank, which are complete
and accurate in all material respects and have been maintained in accordance
with good business practices; (ii) were (or will be) prepared in accordance with
regulatory accounting principles consistently applied; (iii) accurately present
(or, when prepared, will present) Oregon Trail's and/or Pioneer Bank's
consolidated financial condition and the consolidated results of its operations
and changes in stockholders' equity at the relevant dates thereof and for the
periods covered thereby; and (iv) do contain or reflect (or, when prepared, will
contain and reflect) all necessary adjustments and accruals for an accurate
presentation of Oregon Trail's and/or Pioneer Bank's consolidated financial
condition and the consolidated results of Oregon Trail's or Pioneer Bank's
operations for the periods covered thereby.
4.9 Absence of Certain Changes. Except as disclosed in
Oregon Trail Disclosure Schedule 4.9 or as provided for or contemplated in this
Merger Agreement, since March 31, 2002 (the "Balance Sheet Date") there has not
been:
(a) any material transaction by Oregon Trail or
any Oregon Trail Subsidiary not in the ordinary course of business and in
conformity with past practice; or
(b) any Material Adverse Change in Oregon Trail;
(c) any damage, destruction or loss, whether or
not covered by insurance, which has had or may have a Material Adverse Effect on
any of the properties, business or prospects of Oregon Trail and the Oregon
Trail Subsidiaries or their future use and operation by Oregon Trail and the
Oregon Trail Subsidiaries;
(d) any acquisition or disposition by Oregon
Trail or any Oregon Trail Subsidiary of any property or asset of Oregon Trail or
any Oregon Trail Subsidiary, whether real or personal, having a fair market
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value, singularly or in the aggregate, in an amount greater than Thirty Thousand
Dollars ($30,000), except in the ordinary course of business and in conformity
with past practice;
(e) any mortgage, pledge or subjection to lien,
charge or encumbrance of any kind on any of the respective properties or assets
of Oregon Trail or any Oregon Trail Subsidiary, except to secure extensions of
credit in the ordinary course of business and in conformity with past practice;
(f) any amendment, modification or termination
of any contract or agreement, relating to Oregon Trail or any Oregon Trail
Subsidiary, to which Oregon Trail or any Oregon Trail Subsidiary is a party
which would have a Material Adverse Effect upon Oregon Trail;
(g) except as disclosed on Oregon Trail
Disclosure Schedule 4.9(g), any increase in, or commitment to increase, the
compensation payable or to become payable to any Officer, director, employee or
agent of Oregon Trail or any Oregon Trail Subsidiary, or any bonus payment or
similar arrangement made to or with any of such Officers, directors, employees
or agents;
(h) any incurring of, assumption of, or taking
of, by Oregon Trail or any Oregon Trail Subsidiary, any property subject to, any
liability, except for liabilities incurred or assumed or property taken
subsequent to the Balance Sheet Date in the ordinary course of business and in
conformity with past practice;
(i) any material alteration in the manner of
keeping the books, accounts or records of Oregon Trail or any Oregon Trail
Subsidiary, or in the accounting policies or practices therein reflected;
(j) any release or discharge of any obligation
or liability of any person or entity related to or arising out of any loan made
by Oregon Trail or any Oregon Trail Subsidiary of any nature whatsoever, except
in the ordinary course of business and in conformity with past practice; or
(k) any loan by Oregon Trail or any Oregon Trail
Subsidiary to any Officer, director of Oregon Trail or any Oregon Trail
Subsidiary or any Affiliate of Oregon Trail or any Oregon Trail Subsidiary or
Major Shareholder; or to any member of the immediate family of such Officer,
director or Major Shareholder of Oregon Trail or any Oregon Trail Subsidiary or
any Affiliate of Oregon Trail or any Oregon Trail Subsidiary; or to any Person
in which such Officer, director or Major Shareholder directly or indirectly owns
beneficially or of record ten percent (10%) or more of any class of equity
securities in the case of a corporation, or of any equity interest, in the case
of a partnership or other non-corporate entity; or to any trust or estate in
which such Officer, director or Major Shareholder has a ten percent (10%) or
more beneficial interest; or as to which such Officer, director or Major
Shareholder serves as a trustee or in a similar capacity. As used herein,
"Officer" shall refer to a person who holds the title of chairman, president,
executive vice president, senior vice president, controller, chief financial
officer, secretary, cashier or treasurer.
4.10 Deposits. Except as set forth in Oregon Trail
Disclosure Schedule 4.10, none of the Pioneer Bank Deposits is a "brokered"
Deposit or subject to any encumbrance, legal restraint or other legal process.
4.11 Properties. Except as described in Oregon Trail
Disclosure Schedule 4.11 hereto or adequately reserved against in the Oregon
Trail Financial Statements, Oregon Trail and each Oregon Trail Subsidiary has
good and marketable title free and clear of all material liens, encumbrances,
charges, defaults, or equities of whatever character to all of its properties
and assets, tangible or intangible, other than as reflected in the Oregon Trail
Financial Statements. All buildings, and all fixtures, equipment, and other
property and assets that are material to the business of Oregon Trail and the
Oregon Trail Subsidiaries, taken as a whole, held under leases or subleases by
Oregon Trail or any Oregon Trail Subsidiary, are held under valid instruments
enforceable in accordance with their respective terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other laws affecting the enforcement of creditors' rights generally, and
except that the availability of the equitable
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remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceedings may be pending).
4.12 Oregon Trail Subsidiaries. Oregon Trail Disclosure
Schedule 4.12 hereto lists all of the active and inactive Oregon Trail
Subsidiaries as of the date of this Merger Agreement and describes generally the
business activities conducted, or permitted to be conducted, by each Oregon
Trail Subsidiary. No equity securities of any of the Oregon Trail Subsidiaries
are or may become required to be issued by reason of any options, warrants,
scrip, rights to subscribe to, calls, or commitments of any character whatsoever
relating to, or securities or rights convertible into or exchangeable for,
shares of the capital stock of any Oregon Trail Subsidiary, and there are no
contracts, commitments, understandings, or arrangements by which any Oregon
Trail Subsidiary is bound to issue any additional shares of its capital stock or
options, warrants, or rights to purchase or acquire any additional shares of its
capital stock. All of the shares of capital stock of each Oregon Trail
Subsidiary held by Pioneer Bank or by any Oregon Trail Subsidiary are fully paid
and nonassessable and are owned by Pioneer Bank or such Oregon Trail Subsidiary
free and clear of any claim, lien, or encumbrance of any nature whatsoever,
whether perfected or not. Except as set forth on Oregon Trail Disclosure
Schedule 4.12, neither Pioneer Bank nor any Oregon Trail Subsidiary holds any
interest in a partnership or joint venture of any kind.
4.13 Condition of Fixed Assets and Equipment. Except as
disclosed in Oregon Trail Disclosure Schedule 4.13 hereto, all of Oregon Trail's
and the Oregon Trail Subsidiaries' buildings, structures and equipment in
regular use are in good and serviceable condition, normal wear and tear
excepted. None of the buildings, structures and equipment of Oregon Trail or any
Oregon Trail Subsidiary violates or fails to comply in any material respect with
any applicable health, fire, environmental, safety, zoning or building laws or
ordinances or any restrictive covenant pertaining thereto.
4.14 Tax Matters. Except as described in Oregon Trail
Disclosure Schedule 4.14 hereto:
(a) All federal, state, local, and foreign tax
returns and information returns required to be filed by or on behalf of Oregon
Trail and each Oregon Trail Subsidiary have been timely filed or requests for
extensions have been timely filed, granted, and have not expired for periods
ended on or before the date of this Merger Agreement, and all returns filed are,
and the information contained therein is, complete and accurate. All tax
obligations reflected in such returns have been paid or adequately provided for.
As of the date of this Merger Agreement, there is no audit examination,
deficiency, or refund litigation or matter in controversy with respect to any
taxes that might result in a determination materially adverse to Oregon Trail or
any Oregon Trail Subsidiary except as fully reserved for in the Oregon Trail
Financial Statements. All taxes, interest, additions, and penalties due with
respect to completed and settled examinations or concluded tax litigation have
been paid.
(b) Neither Oregon Trail nor any Oregon Trail
Subsidiary has executed an extension or waiver of any statute of limitations on
the assessment or collection of any tax due that is currently in effect.
(c) Adequate provision for any federal, state,
local, or foreign taxes due or to become due for Oregon Trail and all Oregon
Trail Subsidiaries for all periods through and including March 31, 2002, has
been made and is reflected on the March 31, 2002 consolidated financial
statements included in the Oregon Trail Financial Statements and has been and
will continue to be made with respect to periods ending after March 31, 2002 and
subsequent periods.
(d) Deferred taxes of Oregon Trail and each
Oregon Trail Subsidiary have been and will be provided for in accordance with
GAAP.
(e) To the best knowledge of Oregon Trail and
the Oregon Trail Subsidiaries, neither the Internal Revenue Service nor any
foreign, state, local or other taxing authority is now asserting or threatening
to assert against Oregon Trail or any Oregon Trail Subsidiary any deficiency or
claim for additional taxes, or interest thereon or penalties in connection
therewith. All income, payroll, withholding, property, excise, sales, use,
franchise
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and transfer taxes, and all other taxes, charges, fees, levies or other
assessments, imposed upon Oregon Trail or any Oregon Trail Subsidiary by the
United States or by any state, municipality, subdivision or instrumentality of
the United States or by any other taxing authority, including all interest,
penalties or additions attributable thereto, which are due and payable by Oregon
Trail or any Oregon Trail Subsidiary, either have been paid in full, or have
been properly accrued and reflected in the Oregon Trail Financial Statements.
4.15 Litigation. Except as set forth in Oregon Trail
Disclosure Schedule 4.15 hereto, there is no action, suit or proceeding pending,
or to the best knowledge of Oregon Trail and the Oregon Trail Subsidiaries,
threatened against Oregon Trail or any Oregon Trail Subsidiary before any court
or arbitrator or any governmental body, agency or official, including, but not
limited to, any action suit or proceeding that (i) has been brought by or on
behalf of any person employed or formerly employed by Oregon Trail or any Oregon
Trail Subsidiary or (ii) purports or seeks to enjoin or restrain the
transactions contemplated by this Merger Agreement. Except as set forth on
Oregon Trail Disclosure Schedule 4.15 there are no actions, suits, or
proceedings pending or, to the best knowledge of Oregon Trail and the Oregon
Trail Subsidiaries, threatened against any Officers or directors of Oregon Trail
or any Oregon Trail Subsidiary by any stockholder of Oregon Trail or any Oregon
Trail Subsidiary (or by any former stockholder of Oregon Trail or any Oregon
Trail Subsidiary) relating to or arising out of such person's status as a
stockholder.
4.16 Hazardous Materials.
(a) To the best knowledge of Oregon Trail and
the Oregon Trail Subsidiaries, Oregon Trail and all the Oregon Trail
Subsidiaries have obtained all permits, licenses and other authorizations which
are required to be obtained by them with respect to the Property (as defined
herein) under all Applicable Environmental Laws (as defined herein). All
Property controlled, directly or indirectly, by Oregon Trail or any Oregon Trail
Subsidiary is in compliance with the terms and conditions of all of such
permits, licenses and authorizations, and, to the best of knowledge of Oregon
Trail and the Oregon Trail Subsidiaries, is also in compliance with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in any Applicable Environmental
Laws or in any regulation, code, plan, order, decree, judgment, injunction,
notice or demand letter issued, entered, promulgated or approved thereunder,
except as described in detail in Oregon Trail Disclosure Schedule 4.16 hereto.
For purposes hereof, the following terms shall have the following meanings:
"Applicable Environmental Laws" shall mean
all federal, state, local and municipal environmental laws, rules or regulations
to the extent applicable to the Property, including, but not limited to, (a) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq. ("CERCLA"); (b) the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq. ("RCRA"); (c) the Federal Water Pollution Control
Act, 33 U.S.C. Section 1251 et seq.; (d) the Clean Air Act, 42 U.S.C. Section
7401 et seq.; (e) the Hazardous Materials Transportation Act, 49 U.S.C. Section
1471 et seq.; (f) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq.; (g) the Emergency Planning and Community Right-to-Know Act, 42 U.S.C.
Section 11001 et seq.; (h) the National Environmental Policy Act, 42 U.S.C.
Section 4321 et seq.; (i) the Rivers and Harbours Act of 1899, 33 U.S.C. Section
401 et seq.; (j) the Occupational Safety and Health Act, 29 U.S.C. Section 651
et seq.; (k) the Safe Drinking Water Act, 42 U.S.C. Section 300(f) et seq.; (l)
the Oil Pollution Act of 1990, 33 U.S.C. Section 2701 et seq.; and (m) any rule,
regulation, order, injunction, judgment, declaration or decree implementing or
interpreting any of the foregoing Acts, as amended.
"Hazardous Substances" shall mean any
substance, material, waste, or pollutant that is now (or prior to the Closing)
listed, defined, characterized or regulated as hazardous, toxic or dangerous
under or pursuant to any statute, law, ordinance, rule or regulation of any
federal, state, regional, county or local governmental authority having
jurisdiction over the Property of Oregon Trail or any Oregon Trail Subsidiary or
its use or operation, including, without limitation, (a) any substance,
material, element, compound, mixture, solution, waste, chemical or pollutant
listed, defined, characterized or regulated as hazardous, toxic or dangerous
under any Applicable Environmental Laws, (b) petroleum, petroleum derivatives or
by-products, and other hydrocarbons, (c) polychlorinated biphenyls (PCBs),
asbestos and urea formaldehyde, and (d) radioactive substances, materials or
waste.
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"Loan Property" means any real property in
which Oregon Trail or any Oregon Trail Subsidiary holds a security interest.
"Property" means any real property owned,
controlled, leased or held by Oregon Trail or any Oregon Trail Subsidiary, in
whole or in part, solely or in a joint venture or other business arrangement,
either for operational or investment purposes, and whether assigned, purchased,
or obtained through foreclosure (or similar action) or in satisfaction of debts
previously contracted.
(b) In addition, except as set forth in Oregon
Trail Disclosure Schedule 4.16(b) hereto:
(i) No notice, notification, demand,
request for information, citation, summons or order has been received
by Oregon Trail or any Oregon Trail Subsidiary, no complaint has been
filed and served on Oregon Trail or any Oregon Trail Subsidiary, no
penalty has been assessed and to the best knowledge of Oregon Trail and
the Oregon Trail Subsidiaries, no investigation or review is pending by
any governmental or other entity with respect to any alleged failure by
Oregon Trail or any Oregon Trail Subsidiary to have any permit, license
or authorization required in connection with the conduct of the
business of Oregon Trail or any Oregon Trail Subsidiary or with respect
to any generation, treatment, storage, recycling, transportation,
release or disposal, or any release as defined in 42 U.S.C. Section
9601(22) ("Release"), of any Hazardous Substances at any Property or
any Loan Property;
(ii) To the best knowledge of Oregon
Trail and the Oregon Trail Subsidiaries, no Property or Loan Property
has received or held any Hazardous Substances in such amount and in
such manner as to constitute a violation of the Applicable
Environmental Laws, and no Hazardous Substances have been Released or
disposed of on, in or under any of the Property during or prior to
Oregon Trail's or any Oregon Trail Subsidiary's occupancy thereof, or
during or prior to the occupancy thereof by any assignee or sublessee
of any Oregon Trail Subsidiary, except in compliance with all
Applicable Environmental Laws;
(iii) To the best knowledge of Oregon
Trail and the Oregon Trail Subsidiaries, there are no Hazardous
Substances being stored at any Property or Loan Property or located in,
on or upon, any Property or Loan Property (including the subsurface
thereof) or installed or affixed to structures or equipment on any
Property or Loan Property; and, to the best knowledge of Oregon Trail
and the Oregon Trail Subsidiaries, there are no underground storage
tanks for Hazardous Substances, active or abandoned, at any Property;
and
(iv) To the best knowledge of Oregon
Trail and the Oregon Trail Subsidiaries, no Hazardous Substances have
been Released in a reportable quantity, where such a quantity has been
established by statute, ordinance, rule, regulation or order, at, on or
under any Property.
(c) Neither Oregon Trail nor any Oregon Trail
Subsidiary has knowingly transported or arranged for the transportation of any
Hazardous Substances to any location which is listed on the National Priorities
List under CERCLA, listed for possible inclusion on the National Priorities List
by the Environmental Protection Agency in the CERCLA Information System
("CERCLIS") or on any similar state list or which is the subject of federal,
state or local enforcement actions or other investigations which may lead to
claims against the owner of the Property for cleanup costs, remedial work,
damages to natural resources or for personal injury claims, including, but not
limited to, claims under CERCLA.
(d) No Hazardous Substances have been knowingly
generated, recycled, treated, stored, disposed of or Released by, Oregon Trail
or any Oregon Trail Subsidiary in violation of Applicable Environmental Laws.
(e) No oral or written notification of a Release
of Hazardous Substances has been given or filed by or on behalf of Oregon Trail
or any Oregon Trail Subsidiary relating to any Property and no Property is
listed
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or proposed for listing on the National Priority List promulgated pursuant to
CERCLA, on CERCLIS or on any similar state list of sites requiring investigation
or clean-up.
(f) To the best knowledge of Oregon Trail and
the Oregon Trail Subsidiaries, there are no liens arising under or pursuant to
any Applicable Environmental Laws on any Property, and no government actions
have been taken or, to the best knowledge of Oregon Trail and the Oregon Trail
Subsidiaries, threatened, or are in process which could subject any Property to
such liens and none of the Property would be required to place any notice or
restriction relating to the presence of Hazardous Substances at any Property in
any deed to such Property.
(g) There have been no environmental
investigations, studies, audits, tests, reviews or other analyses conducted by
or which are in the possession of Oregon Trail, the Oregon Trail Subsidiaries or
any Affiliate of Oregon Trail and the Oregon Trail Subsidiaries in relation to
any Property, which have not been made available to FirstBank.
(h) Neither Oregon Trail nor any of the Oregon
Trail Subsidiaries is aware of any facts which might suggest that Oregon Trail
or any Oregon Trail Subsidiary has engaged in any management practice with
respect to any of its past or existing borrowers which could reasonably be
expected to subject Oregon Trail or any Oregon Trail Subsidiary or any Property
or Loan Property to any liability under any Applicable Environmental Laws.
4.17 Insurance. Oregon Trail, the Oregon Trail
Subsidiaries and all of Oregon Trail's and the Oregon Trail Subsidiary's
material assets, businesses, real property and other material properties are
insured against fire, casualty, theft, liability, loss, interruption, title and
such other events against which it is customary in the banking industry to
insure, all such insurance policies being in amounts that are believed by Oregon
Trail and the Oregon Trail Subsidiaries to be adequate and consistent with past
practice and experience. Set forth on Oregon Trail Disclosure Schedule 4.17 is a
list of all insurance policies (excluding policies maintained on one- to
four-family residential properties acquired through foreclosure) maintained by
or for the benefit of Oregon Trail or any of the Oregon Trail Subsidiaries or
their respective directors, Officers, employees or agents. All such insurance
policies are in full force and effect. Each of Oregon Trail and the Oregon Trail
Subsidiaries has taken or will take all requisite action (including without
limitation the making of claims and the giving of notices) pursuant to its
directors' and officers' liability insurance policy or policies in order to
preserve all rights thereunder with respect to all matters (other than matters
arising in connection with this Merger Agreement and the transactions
contemplated hereby) occurring prior to the Effective Time that are known to
Oregon Trail or any of the Oregon Trail Subsidiaries. Neither Oregon Trail nor
any of the Oregon Trail Subsidiaries has had an insurance policy canceled or
been denied insurance coverage for which any of such companies has applied. The
fidelity bonds in effect as to which Pioneer Bank is a named insured are
believed by Oregon Trail and the Oregon Trail Subsidiaries to be sufficient.
4.18 Labor and Employment Matters. Except as reflected in
Oregon Trail Disclosure Schedule 4.18 hereto, there is no (i) collective
bargaining agreement or other labor agreement to which Oregon Trail or any
Oregon Trail Subsidiary is a party or by which any of them is bound; (ii)
employment, profit sharing, deferred compensation, bonus, stock option,
purchase, retainer, consulting, retirement, welfare or incentive plan or
contract to which Oregon Trail or any Oregon Trail Subsidiary is a party or by
which it is bound; or (iii) plan or agreement under which "fringe benefits"
(including, but not limited to, vacation plans or programs, sick leave plans or
programs and related benefits) are afforded any of the employees of Oregon Trail
or any Oregon Trail Subsidiary. Neither Oregon Trail nor any of the Oregon Trail
Subsidiaries has received any notice that any party to any such agreement, plan
or contract is in default with respect to any material term or condition
thereof, nor has any event occurred which, through the passage of time or the
giving of notice, or both, would constitute a default thereunder or would cause
the acceleration of any obligation of any party thereto. Neither Oregon Trail
nor any Oregon Trail Subsidiary has received notice from any governmental agency
of any alleged violation of applicable laws that remains unresolved respecting
employment and employment practices, terms and conditions of employment and
wages and hours. Oregon Trail and each Oregon Trail Subsidiary have complied in
all material respects with all applicable laws, rules and regulations relating
to the employment of labor, including those related to its employment practices,
employee disabilities, wages, hours, collective bargaining and the payment and
withholding of taxes and other sums as required by the appropriate governmental
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authorities, and Oregon Trail and each Oregon Trail Subsidiary have withheld and
paid to the appropriate governmental authorities or are holding for payment not
yet due to such authorities, all amounts required to be withheld from the
employees of Oregon Trail and each Oregon Trail Subsidiary and are not liable
for any arrears of wages, taxes, penalties or other sums for failure to comply
with any of the foregoing. Except as set forth in Oregon Trail Disclosure
Schedule 4.18, there is no: unfair labor practice complaint against Oregon Trail
or any Oregon Trail Subsidiary pending before the National Labor Relations Board
or any state or local agency; pending labor strike or, to the best of knowledge
of Oregon Trail and Pioneer Bank, other labor trouble affecting Oregon Trail or
any Oregon Trail Subsidiary; labor grievance pending against Oregon Trail or any
Oregon Trail Subsidiary; to the best knowledge of Oregon Trail and the Oregon
Trail Subsidiaries, pending representation question respecting the employees of
Oregon Trail or any Oregon Trail Subsidiary; pending arbitration proceedings
arising out of or under any collective bargaining agreement to which Oregon
Trail or any Oregon Trail Subsidiary is a party, or to the best knowledge of
Oregon Trail and the Oregon Trail Subsidiaries, any basis for which a claim may
be made under any collective bargaining agreement to which Oregon Trail or any
Oregon Trail Subsidiary is a party.
4.19 Records and Documents. The Records of Oregon Trail
and the Oregon Trail Subsidiaries are and will be sufficient to enable FirstBank
and the FirstBank Subsidiaries to continue to conduct the business of Oregon
Trail and the Oregon Trail Subsidiaries under similar standards as Oregon Trail
and the Oregon Trail Subsidiaries has heretofore conducted such business.
4.20 Capitalization of Oregon Trail. The authorized
capital stock of Oregon Trail consists of 8,000,000 shares of Oregon Trail
Common Stock and 250,000 shares of preferred stock having a par value of $0.01
per share. As of the date of this Merger Agreement, 3,098,974 shares of the
Oregon Trail Common Stock were issued and outstanding, no shares of the Oregon
Trail Common Stock were held by Oregon Trail as treasury stock and no shares of
the preferred stock were issued and outstanding. All of the outstanding Oregon
Trail Common Stock is validly issued, fully-paid and nonassessable and has not
been issued in violation of any preemptive rights of any Oregon Trail
Shareholder. Except as described on Oregon Trail Disclosure Schedule 4.20
hereto, as of the date hereof, there are no outstanding securities or other
obligations which are convertible into Oregon Trail Common Stock or into any
other equity or debt security of Oregon Trail, and there are no outstanding
options, warrants, rights, scrip, rights to subscribe to, calls or other
commitments of any nature which would entitle the holder, upon exercise thereof,
to be issued Oregon Trail Common Stock or any other equity or debt security of
Oregon Trail. Accordingly, immediately prior to the Effective Time, there will
be not more than 3,503,310 shares of Oregon Trail Common Stock issued and
outstanding.
4.21 Capitalization of Pioneer Bank. The authorized
capital stock of Pioneer Bank consists of 1,000 shares of common stock having a
par value of $1.00 per share (the "Bank Common Stock") and 9,000 shares of
preferred stock having no par value. As of the date of this Merger Agreement,
1,000 shares of Bank Common Stock were issued and outstanding, no shares of Bank
Common Stock were held by Pioneer Bank as treasury stock and no shares of
preferred stock were issued and outstanding. All of the outstanding Bank Common
Stock is held beneficially and of record by Oregon Trail, free and clear of any
lien, claim, security interest, encumbrance, charge, restriction or right of any
third party of any kind whatsoever. All of the outstanding Bank Common Stock is
validly issued, fully-paid and nonassessable and has not been issued in
violation of any preemptive rights of any shareholder of Pioneer Bank. There are
no outstanding securities or other obligations which are convertible into Bank
Common Stock or into any other equity or debt security of Pioneer Bank, and
there are no outstanding options, warrants, rights, scrip, rights to subscribe
to, calls or other commitments of any nature which would entitle the holder,
upon exercise thereof, to be issued Bank Common Stock or any other equity or
debt security of Pioneer Bank.
4.22 Sole Agreement. With the exception of this Merger
Agreement, as of the date of this Merger Agreement, neither Oregon Trail nor any
Oregon Trail Subsidiary has been a party to: any letter of intent or agreement
to merge, to consolidate, to sell or purchase assets (other than in the normal
course of its business) or to any other agreement which contemplates the
involvement of Oregon Trail or any Oregon Trail Subsidiary of either (or any of
their assets) in any business combination of any kind; or any agreement
obligating Oregon Trail or Pioneer Bank to issue or sell or authorize the sale
or transfer of Bank Common Stock. There are no (nor will there be at the
Effective Time any) contracts, commitments, understandings, or arrangements by
which Oregon Trail or any Oregon Trail Subsidiary is or
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may be bound to transfer or issue to any third party any shares of the capital
stock of any Oregon Trail Subsidiary, and there are no (nor will there be at the
Effective Time any) contracts, agreements, understandings or commitments
relating to the right of Oregon Trail or any of the Oregon Trail Subsidiaries to
vote or to dispose of any such shares.
4.23 Disclosure. The information concerning, and
representations and warranties made by, Oregon Trail and the Oregon Trail
Subsidiaries set forth in this Merger Agreement, or in the Oregon Trail
Disclosure Schedules hereto, or in any document, statement, certificate or other
writing furnished or to be furnished by Oregon Trail and the Oregon Trail
Subsidiaries to FirstBank pursuant hereto, does not and will not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated herein or therein necessary to make the statements and facts contained
herein or therein, in light of the circumstances in which they were or are made,
not false or misleading. Copies of all documents heretofore or hereafter
delivered or made available to FirstBank by Oregon Trail and the Oregon Trail
Subsidiaries pursuant hereto were or will be complete and accurate copies of
such documents.
4.24 Absence of Undisclosed Liabilities. Except as
described in Oregon Trail Disclosure Schedule 4.24 hereto, neither Oregon Trail
nor any Oregon Trail Subsidiary has any obligation or liability (contingent or
otherwise) that is material to the financial condition or operations of Oregon
Trail or any Oregon Trail Subsidiary, or that, when combined with all similar
obligations or liabilities, would be material to the financial condition or
operations of Oregon Trail or any Oregon Trail Subsidiary (i) except as
disclosed in the Oregon Trail Financial Statements delivered to FirstBank prior
to the date of this Merger Agreement or (ii) except obligations or liabilities
incurred in the ordinary course of its business consistent with past practices
or (iii) except as contemplated under this Merger Agreement. Since March 31,
2002, neither Oregon Trail nor any Oregon Trail Subsidiary has incurred or paid
any obligation or liability which would be material to the financial condition
or operations of Oregon Trail or such Oregon Trail Subsidiary, except for
obligations paid by Pioneer Bank under the terms of this Merger Agreement (all
such obligations or payments are fully described by Pioneer Bank in Oregon Trail
Disclosure Schedule 4.24 hereto) or in connection with transactions made by it
in the ordinary course of its business consistent with past practices, laws and
regulations applicable to any Oregon Trail Subsidiary.
4.25 Allowance for Loan Losses. The allowance for loan
losses shown on the Oregon Trail's Financial Statements is (with respect to
periods ended on or before March 31, 2002) or will be (with respect to periods
ending subsequent to March 31, 2002) adequate in the opinion of management of
Oregon Trail in all respects as of the dates thereof and is in compliance with
the requirements of GAAP. Except as disclosed in Schedule 4.25 hereto, as of the
date thereof, Pioneer Bank does not have any loan which has been criticized or
classified by bank examiners representing any Regulatory Authority as
"Substandard," "Doubtful" or "Loss" or as a "Potential Problem Loan."
4.26 Compliance with Laws. Oregon Trail and each Oregon
Trail Subsidiary:
(a) Is in compliance with all laws, rules,
regulations, reporting and licensing requirements, and orders applicable to its
business or employees conducting its business (including, but not limited to,
those relating to consumer disclosure and currency transaction reporting) the
breach or violation of which would or could reasonably be expected to have a
Material Adverse Effect on Oregon Trail or any Oregon Trail Subsidiary, or which
would or could reasonably be expected to subject Oregon Trail or any Oregon
Trail Subsidiary or any of its directors or Officers to civil money penalties;
(b) Has received no notification or
communication from any agency or department of federal, state, or local
government or any of the Regulatory Authorities, or the staff thereof (i)
asserting that Oregon Trail or any Oregon Trail Subsidiary is or may not be in
compliance with any of the statutes, rules, regulations, or ordinances which
such governmental authority or Regulatory Authority enforces, which, as a result
of such noncompliance, would result in a material adverse impact on Oregon Trail
or any Oregon Trail Subsidiary, (ii) threatening to revoke any license,
franchise, permit, or governmental authorization which is material to the
financial condition or operations of Oregon Trail or any Oregon Trail
Subsidiary, or (iii) requiring Oregon Trail or any Oregon Trail Subsidiary to
enter into a cease and desist order, consent, agreement, or memorandum of
understanding; and
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(c) Is in material compliance with the
applicable provisions of the Community Reinvestment Act ("CRA") and the
regulations promulgated thereunder, and Pioneer Bank currently has a CRA rating
of satisfactory or better. To the best knowledge of Oregon Trail and Pioneer
Bank, there is no fact or circumstance or set of facts or circumstances which
would cause Pioneer Bank to fail to comply with such provisions or cause the CRA
rating of Pioneer Bank to fall below satisfactory.
4.27 Absence of Regulatory Actions. Neither Oregon Trail
nor any of the Oregon Trail Subsidiaries is a party to any cease and desist
order, written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from, or
has adopted any board resolutions at the request of, federal or state
governmental authorities charged with the supervision or regulation of
depository institutions or depository institution holding companies or engaged
in the insurance of bank and/or savings and loan deposits nor has it been
advised by any such governmental authority that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar undertaking.
4.28 Employee Benefit Plans.
(a) Oregon Trail and the Oregon Trail
Subsidiaries have previously provided to FirstBank true and complete copies of
each "employee pension benefit plan," as defined in Section 3(2) of ERISA which,
to the best of knowledge of Oregon Trail and the Oregon Trail Subsidiaries, is
subject to any provision of ERISA and covers any employee, whether active or
retired, of Oregon Trail or any Oregon Trail Subsidiary or any other entity
which is a member of a controlled group or is under common control with Oregon
Trail or any Oregon Trail Subsidiary in the manner defined and further described
in Section 414(b), (c), (m) or (o) of the Internal Revenue Code. Such plans are
hereinafter referred to collectively as the "Employee Pension Benefit Plans,"
and each such Employee Pension Benefit Plan is listed in Oregon Trail Disclosure
Schedule 4.28(a) hereto. Oregon Trail and the Oregon Trail Subsidiaries have
also provided to FirstBank and the FirstBank Subsidiaries true and complete
copies of all trust agreements, collective bargaining agreements, and insurance
contracts related to such Employee Pension Benefit Plans.
To the best knowledge of Oregon Trail and the Oregon
Trail Subsidiaries, each Employee Pension Benefit Plan which is intended to be
qualified under Section 401(a) of the Internal Revenue Code is so qualified and
each trust forming a part thereof is exempt from tax pursuant to Section 501(a)
of the Internal Revenue Code. Copies of the latest determination letters
concerning the qualified status of each Employee Pension Benefit Plan which is
intended to be qualified under Section 401(a) of the Internal Revenue Code have
been provided to FirstBank and the FirstBank Subsidiaries. Requests for
determination letters relating to any subsequent amendments to such plans which
are currently pending have been provided to FirstBank and the FirstBank
Subsidiaries. All such requests were timely and properly filed and appropriate
notice of any such filing was timely and properly provided to affected plan
participants and beneficiaries.
Each of the Employee Pension Benefit Plans has been
operated in conformity with the written provisions of the applicable plan
documents which have been delivered to FirstBank and the FirstBank Subsidiaries
and in compliance with the requirements prescribed by all statutes, orders,
rules, and regulations (or other guidance of general applicability) including,
but not limited to, ERISA and the Internal Revenue Code, which are applicable to
such Employee Pension Benefit Plans. To the extent that the operation of an
Employee Pension Benefit Plan has deviated from the written provisions of the
plan, such operational deviations have been disclosed in Oregon Trail Disclosure
Schedule 4.28(a) hereto. All such deviations have been made in conformity with
applicable laws, including ERISA and the Internal Revenue Code.
With respect to Employee Pension Benefit Plans which
are subject to the annual report requirement of ERISA Section 103 or to the
annual return requirement of Internal Revenue Code Section 6047, all required
annual reports and annual returns, or such other documents as may have been
required as alternative means of compliance with the annual report requirement,
have been timely and correctly filed. Copies of all such annual
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returns/reports, including all attachments and Schedules, for the three (3) plan
years immediately preceding the current date have been delivered to FirstBank
and the FirstBank Northwest Subsidiaries. With respect to Employee Pension
Benefit Plans which complied with the annual return requirement by satisfaction
of an alternate compliance method, any documents required to be filed with the
Department of Labor in satisfaction of such requirements have been so provided
to the Department of Labor, with copies further provided to FirstBank and
FirstBank Northwest. Oregon Trail and the Oregon Trail Subsidiaries have
provided to FirstBank and the FirstBank Subsidiaries copies of the annual
actuarial valuation or allocation report for each Employee Pension Benefit Plan
for the three (3) plan years for such plan immediately preceding the current
date. With regard to Employee Pension Benefit Plans which are not intended to be
qualified under Section 401(a) of the Internal Revenue Code, copies of financial
statements or reports containing information regarding the expense of
maintaining any such Employee Pension Benefit Plan for three (3) plan years
preceding the current date have been delivered to FirstBank and the FirstBank
Subsidiaries.
With respect to all Employee Pension Benefit Plans
which are subject to the summary plan description requirement of ERISA Section
102, all such summary plan descriptions as were or will be required to be
distributed to participants and beneficiaries have been timely distributed.
Copies of all such summary plan descriptions have been delivered to FirstBank
and the FirstBank Subsidiaries. No Employee Pension Benefit Plan constitutes a
"multi-employer plan" as defined in Section 4001(a)(3) of ERISA.
No Employee Pension Benefit Plan subject to Part III
of Subtitle B of ERISA or Section 412 of the Internal Revenue Code, or both, has
ever incurred an "accumulated funding deficiency" within the meaning of Internal
Revenue Code Section 412, whether or not waived. All required contributions to
all Employee Pension Benefit Plans have been timely made (and proper accruals
have been established). Any penalties or taxes which have been incurred by
Oregon Trail or any Oregon Trail Subsidiary or by any Employee Pension Benefit
Plan with respect to the timing or amount of payment of any contribution to an
Employee Pension Benefit Plan have been timely paid.
Except as disclosed in Oregon Trail Disclosure
Schedule 4.28(a) hereto, no "reportable event" (as described in Section 4043(b)
of ERISA) has occurred with respect to any Employee Pension Benefit Plan. No
Employee Pension Benefit Plan or any trust created thereunder, or any
"disqualified person" (as defined in Section 4975 of the Internal Revenue Code)
or "party in interest" with respect to the plan (as defined in Section 3(14) of
ERISA), has engaged in a "prohibited transaction," as such term is defined in
Section 4975 of the Internal Revenue Code or Section 406 or ERISA, which could
subject such Employee Pension Benefit Plan, any such trust or any such
disqualified person or party in interest (other than a person for whom neither
Oregon Trail nor any Oregon Trail Subsidiary is directly or indirectly
responsible) to liability under Title I of ERISA or to the imposition of any tax
under Section 4975 of the Internal Revenue Code or tax or sanction under Section
502(1) of ERISA. Nor has there been a breach of fiduciary liability by a party
in interest under Section 404 of ERISA.
No Employee Pension Benefit Plan is subject to Title
IV of ERISA. Any Employee Pension Benefit Plan which is a "defined benefit plan"
(within the meaning of Section 414(i) of the Internal Revenue Code) previously
maintained or sponsored by Oregon Trail or any Oregon Trail Subsidiary has been
terminated and neither Oregon Trail nor any Oregon Trail Subsidiary has any
liability with respect to any previously terminated defined benefit plan.
Neither Oregon Trail nor any Oregon Trail Subsidiary participates (or has ever
participated) in or has incurred any liability under Section 4201 of ERISA for a
complete or partial withdrawal from a multi-employer plan (as such term is
defined in ERISA).
No tax has been, will be, or is reasonably
anticipated to be imposed under Internal Revenue Code Section 4978 or 4979A due
to the operation of an Employee Pension Benefit Plan sponsored by Oregon Trail
or any Oregon Trail Subsidiary which is an employee stock ownership plan.
Except as disclosed in Oregon Trail Disclosure
Schedule 4.28(a) hereto, all Employee Pension Benefit Plans were in effect for
substantially all of calendar year 2002. There has been no material amendment of
any such plans (other than amendments required to comply with applicable law) or
material increase in the cost of
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maintaining such plans or providing benefits thereunder on or after the last day
of the plan year which ended in calendar year 2002 for each such Employee
Pension Benefit Plan.
(b) Oregon Trail and the Oregon Trail
Subsidiaries have furnished to FirstBank true and complete copies of each
"Employee Welfare Benefit Plan" as defined in Section 3(1) of ERISA, which, to
the best knowledge of Oregon Trail and the Oregon Trail Subsidiaries, is subject
to any provision of ERISA and covers any employee, whether active or retired, of
Oregon Trail or any Oregon Trail Subsidiary or members of a controlled group or
entities under common control with Oregon Trail or the Oregon Trail Subsidiaries
in the manner defined and further described in Section 414(b), (c), or (m) of
the Internal Revenue Code. Such plans are hereinafter referred to collectively
as the "Employee Welfare Benefit Plans," and each such Employee Welfare Benefit
Plan is listed in Oregon Trail Disclosure Schedule 4.28(b) hereto.
Oregon Trail and the Oregon Trail Subsidiaries have
also provided to FirstBank true and complete copies of documents establishing
all funding instruments for such Employee Welfare Benefit Plans, including but
not limited to, trust agreements, cafeteria plans (pursuant to Internal Revenue
Code Section 125), and voluntary employee beneficiary associations (pursuant to
Internal Revenue Code Section 501(c)(9)). Each of the Employee Welfare Benefit
Plans has been operated in conformity with the written provisions of the plan
documents which have been delivered to FirstBank and the FirstBank Subsidiaries
and in compliance with the requirements prescribed by all statutes, orders,
rules, and regulations (including guidance of general applicability) including,
but not limited to, ERISA and the Internal Revenue Code, which are applicable to
such Employee Welfare Benefit Plans. Any deviation in the operation of such
plans from the requirements of the plan documents or of applicable laws have
been listed in Oregon Trail Disclosure Schedule 4.28(b) hereto. Oregon Trail and
the Oregon Trail Subsidiaries have provided any notification required by law to
any participant covered under any Employee Welfare Benefit Plan which has failed
to comply with the requirements of any Internal Revenue Code section which
results in the imposition of a tax on benefits provided to such participants
under such plan.
With respect to all Employee Welfare Benefit Plans
which are subject to the annual report requirement of ERISA Section 103 or to
the annual return requirement of Internal Revenue Code Section 6039D, all annual
reports and annual returns as were required to be filed pursuant to such
sections have been timely filed. Copies of all such annual returns/reports,
including all attachments and Schedules, for the three (3) plan years
immediately preceding the current date for all plans subject to such
requirements have been delivered to FirstBank and the FirstBank Subsidiaries.
With respect to all Employee Welfare Benefit Plans which are subject to the
summary plan description requirement of ERISA Section 102, all such summary plan
descriptions as were required to be distributed to participants and
beneficiaries have been timely filed and distributed. Copies of all such summary
plan descriptions have been delivered to FirstBank and the FirstBank
Subsidiaries.
Except as disclosed in Oregon Trail Disclosure
Schedule 4.28(b) hereto, all Employee Welfare Benefit Plans which are in effect
were in effect for substantially all of calendar year 2002. Except as disclosed
in Oregon Trail Disclosure Schedule 4.28(b) hereto, there has been with respect
to such Employee Welfare Benefit Plans no material amendment thereof or material
increase in the cost thereof or benefits payable thereunder on or after January
1, 2002.
No Employee Welfare Benefit Plan or any trust created
thereunder, nor any "party in interest" with respect to the plan (as defined in
Section 3(14) of ERISA), has engaged in a "prohibited transaction," as such term
is defined in Section 406 of ERISA, which could subject such Employee Welfare
Benefit Plan, any such trust, or any party in interest (other than a person for
whom neither Oregon Trail nor any Oregon Trail Subsidiary is directly or
indirectly responsible) to the imposition of a penalty for such prohibited
transaction under Section 502(i) of ERISA. Nor has there been a breach of
fiduciary liability by a party in interest under Section 404 of ERISA. The
Department of Labor has not assessed any such penalty or served notice to Oregon
Trail or any Oregon Trail Subsidiary that such a penalty may be imposed upon any
Employee Welfare Benefit Plan.
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Neither Oregon Trail nor any Oregon Trail Subsidiary
has failed to make any contribution to, or pay any amount due and owing by
Oregon Trail or any Oregon Trail Subsidiary under the terms of, an Employee
Welfare Benefit Plan. Except as disclosed in Oregon Trail Disclosure Schedule
4.28(b) hereto, no claims have been incurred with respect to any Employee
Welfare Benefit Plan which may, to the best knowledge of Oregon Trail and the
Oregon Trail Subsidiaries, constitute a liability for Oregon Trail or any Oregon
Trail Subsidiary after the application of any insurance, trust or other funds
which are applicable to the payment of such claims.
Except as disclosed in Oregon Trail Disclosure
Schedule 4.28(b) hereto, to the best knowledge of Oregon Trail and the Oregon
Trail Subsidiaries, no condition exists that could subject any Employee Welfare
Benefit Plan or any person (other than a person for whom neither Oregon Trail
nor any Oregon Trail Subsidiary is directly or indirectly responsible) to
liabilities, damages, losses, taxes, or sanctions that arise under Section 4980B
of the Internal Revenue Code or Sections 601 through 734 of ERISA for failure to
comply with the continuation health care coverage and Health Insurance
Portability and Accountability Act requirements of ERISA Sections 601 through
734 and Internal Revenue Code Section 4980B with respect to any current or
former employee of Oregon Trail or any Oregon Trail Subsidiary, or the
beneficiaries of such employee.
(c) Oregon Trail and the Oregon Trail
Subsidiaries have furnished to FirstBank true and complete copies and/or
descriptions of each plan or arrangement maintained or otherwise contributed to
by Oregon Trail or any Oregon Trail Subsidiary which is not an Employee Pension
Benefit Plan and is not an Employee Welfare Benefit Plan and which (exclusive of
base salary and base wages) provides for any form of current or deferred
compensation, bonus, stock option, profit sharing, retirement, group health or
insurance, welfare benefits, fringe benefits, or similar plan or arrangement for
the benefit of any employee or class of employees, whether active or retired, or
independent contractors of Oregon Trail or any Oregon Trail Subsidiary. Such
plans and arrangements shall collectively be referred to herein as "Benefit
Arrangements" and all such Benefit Arrangements of Oregon Trail and the Oregon
Trail Subsidiaries are listed on Oregon Trail Disclosure Schedule 4.28(c)
hereto. Except as disclosed in Oregon Trail Disclosure Schedule 4.28(c) hereto,
there are no other benefit arrangements of Oregon Trail or any Oregon Trail
Subsidiary. Except as disclosed in Oregon Trail Disclosure Schedule 4.28(c)
hereto, there has been with respect to Benefit Arrangements no material
amendment thereof or material increase in the cost thereof or benefits payable
thereunder on or after April 1, 2002. There has been no material increase in the
base salary and wage levels of Oregon Trail or any Oregon Trail Subsidiary and,
except in the ordinary course of business, no change in the terms or conditions
of employment (including severance benefits) compared, in each case, to those
prevailing for substantially all of calendar year 2002. Except as disclosed in
Oregon Trail Disclosure Schedule 4.28(c) hereto, there has been no material
increase in the compensation of, or benefits payable to, any senior executive
employee of Oregon Trail or any Oregon Trail Subsidiary on or after April 1,
2002 nor has any employment, severance, or similar contract been entered into
with any such employee, nor has any amendment to any such contract been made on
or after April 1, 2002.
With respect to all Benefit Arrangements which are
subject to the annual return requirement of Internal Revenue Code Section 6039D,
all annual returns as were required to be filed have been timely filed. Copies
of all such annual returns for the three (3) plan years immediately preceding
the current date have been delivered to FirstBank and the FirstBank
Subsidiaries.
(d) Listed in Oregon Trail Disclosure Schedule
4.28(d) hereto are Benefit Arrangements which provide compensation or benefits
to employees or directors which become effective upon a change in control of
Oregon Trail or any Oregon Trail Subsidiary, including, but not limited to,
additional compensation or benefits, or acceleration in the amount or timing of
payment of compensation or benefits which had become effective prior to the date
of such acceleration. Oregon Trail Disclosure Schedule 4.28(d) also includes in
reasonable detail, to the extent such benefits can be calculated as of the date
of this Merger Agreement and a description of benefits that cannot be so
calculated, the payments and benefits due at Closing under Oregon Trail's and
any Oregon Trail Subsidiary's employment agreements, change in control
agreements, directors' retirement plan and defined benefit plan. Except as
disclosed in Oregon Trail Disclosure Schedule 4.28(d) hereto, there is no
Employee Pension Benefit Plan, Employee Welfare Benefit Plan, or Benefit
Arrangement covering any employee or director of Oregon Trail or any Oregon
Trail Subsidiary which individually or collectively could give rise to the
payment of any amount which would constitute an
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"excess parachute payment," as such term is defined in Section 280G of the
Internal Revenue Code and Regulations proposed pursuant to that section.
(e) Except as described in Oregon Trail
Disclosure Schedule 4.28(e) hereto, each Employee Pension Benefit Plan, Employee
Welfare Benefit Plan, or Benefit Arrangement and each personal services
contract, fringe benefit, consulting contract or similar arrangement with or for
the benefit of any Officer, director, employee, or other person may be
terminated by Oregon Trail or any Oregon Trail Subsidiary within a period of no
more than thirty (30) days following the Effective Time, without payment of any
amount as a penalty, bonus, premium, severance pay, or other compensation for
such termination. No limitation on the right to terminate any such plan has been
communicated by Oregon Trail or any Oregon Trail Subsidiary to employees, former
employees, or retirees who are or may be participants in or beneficiaries of
such plans or arrangements.
(f) Except as disclosed in Oregon Trail
Disclosure Schedule 4.28(f) hereto, (1) neither Oregon Trail nor any Oregon
Trail Subsidiary has received notice from any governmental agency of any alleged
violation of applicable laws or of any prospective audit or other investigation
for the purpose of reviewing compliance with applicable laws with respect to any
Employee Pension Benefit Plan, Employee Welfare Benefit Plan or Benefit
Arrangement, and (2) except as disclosed in Oregon Trail Disclosure Schedule
4.28(f) hereto, no suits, actions, or claims have been filed in any court of law
or with any governmental agency regarding the operation of any Employee Pension
Benefit Plan, Employee Welfare Benefit Plan, or Benefit Arrangement and no such
additional suits, actions, or claims are, to the best knowledge of Oregon Trail
and the Oregon Trail Subsidiaries, anticipated to be filed (other than routine
claims for benefits).
4.29 Material Contracts.
(a) Except as set forth on Oregon Trail
Disclosure Schedule 4.29 (and with a true and correct copy of the document or
other item in question attached to such Schedule), neither Oregon Trail nor any
Oregon Trail Subsidiary is a party or subject to any of the following (whether
written or oral, express or implied):
(i) any material agreement, arrangement
or commitment (A) not made in the ordinary course of business or (B)
pursuant to which Oregon Trail or any Oregon Trail Subsidiary is or may
become obligated to invest in or contribute capital to any Oregon Trail
Subsidiary or any other entity;
(ii) any material agreement, indenture
or other instrument not disclosed in the Oregon Trail Financial
Statements relating to the borrowing of money by Oregon Trail or any
Oregon Trail Subsidiary or the guarantee by Oregon Trail or any Oregon
Trail Subsidiary of any such obligation (other than trade payables or
instruments related to transactions entered into in the ordinary course
of business by any Oregon Trail Subsidiary, such as deposits, Fed Funds
borrowings and repurchase agreements);
(iii) any contract, agreement or
understanding with any labor union or collective bargaining
organization;
(iv) any contract containing covenants
which limit the ability of Oregon Trail or any Oregon Trail Subsidiary
to compete in any line of business or with any person or containing any
restriction of the geographical area in which, or method by which,
Oregon Trail or any Oregon Trail Subsidiary may carry on its business
(other than as may be required by law or any applicable Regulatory
Authority);
(v) any contract or agreement which is
a "material contract" within the meaning of Item 601(b)(10) of
Regulation S-K promulgated by the SEC other than those previously filed
as exhibits to Oregon Trail's SEC documents;
(vi) any lease with annual rental
payments aggregating Thirty Thousand Dollars ($30,000) or more;
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(vii) consulting agreement (other than
data processing, software programming and licensing contracts entered
into in the ordinary course of business) involving the payment of more
than Thirty Thousand Dollars ($30,000) per annum;
(viii) any agreement with any Officer or
other key employee of Oregon Trail or any Oregon Trail Subsidiary other
than those disclosed on Oregon Trail Disclosure Schedule 4.28(d), the
benefits of which are contingent, or the terms of which are materially
altered or any payments or rights are accelerated, upon the occurrence
of a transaction involving Oregon Trail or any of the Oregon Trail
Subsidiaries of the nature contemplated by this Merger Agreement;
(ix) except as disclosed in Oregon Trail
Disclosure Schedules 4.28(c) or 4.28(d), any agreement with respect to
any Officer of Oregon Trail or any Oregon Trail Subsidiary providing
any term of employment or compensation guarantee extending for a period
longer than one (1) year and for the payment of in excess of Fifty
Thousand Dollars ($50,000) per annum;
(x) any agreement with any director or
Officer of Oregon Trail or any Oregon Trail Subsidiary providing for
indemnification of such person; or
(xi) agreement or plan, including any
stock option plan, stock appreciation rights plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this
Merger Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Merger Agreement.
(b) Except as disclosed on Oregon Trail
Disclosure Schedule 4.29, no Officer or director of Oregon Trail, Pioneer Bank
or any "associate" (as such term is defined in Rule 12b-2 under the 1934 Act) of
any such Officer or director, has any material interest in any material contract
or property (real or personal), tangible or intangible, used in or pertaining to
the business of Oregon Trail or any of the Oregon Trail Subsidiaries.
4.30 Material Contract Defaults. Neither Oregon Trail nor
any Oregon Trail Subsidiary is in default in any respect under any contract,
agreement, commitment, arrangement, lease, insurance policy, or other instrument
to which it is a party or by which its respective assets, business, or
operations may be bound or affected or under which it or its respective assets,
business, or operations receives benefits, and which default is reasonably
expected to have either individually or in the aggregate a Material Adverse
Effect on Oregon Trail, and there has not occurred any event that, with the
lapse of time or the giving of notice or both, would constitute such a default.
4.31 Reports. Since January 1, 2000, Oregon Trail and
Pioneer Bank have filed all reports and statements, together with any amendments
required to be made with respect thereto, that it was required to file with (i)
the SEC; (ii) the OTS; (iii) the FDIC; and (iv) any other applicable federal or
state securities or banking authorities. As of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all of the
requirements of their respective forms and all of the statutes, rules, and
regulations enforced or promulgated by the Regulatory Authority with which they
were filed. All such reports were true and complete in all material respects and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Oregon Trail has previously provided or made available to FirstBank
true and correct copies of all such reports and any amendments thereto filed by
Oregon Trail or Pioneer Bank after January 1, 2000.
4.32 Statements True and Correct. None of the information
prepared by, or on behalf of, Oregon Trail or any Oregon Trail Subsidiary
regarding Oregon Trail or any Oregon Trail Subsidiary included in the Proxy
Statement/Prospectus mailed to the Oregon Trail Shareholders in connection with
the Oregon Trail Shareholders' Meeting, and any other documents filed with the
SEC, the FDIC or any other Regulatory Authority in connection with
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the transaction contemplated herein (if applicable), will be, at the respective
times such documents are filed, and, with respect to the Proxy
Statement/Prospectus, when first mailed to the Oregon Trail Shareholders, false
or misleading with respect to any material fact, or will omit to state any
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or, in the case of the
Proxy Statement/Prospectus or any amendment thereof or supplement thereto, at
the time of the Oregon Trail Shareholders' Meeting, false or misleading with
respect to any material fact, or omit to state any material fact necessary to
make any statements therein, in light of the circumstances under which they were
made, not misleading.
4.33 Brokers and Finders. Except as set forth in Oregon
Trail Disclosure Schedule 4.33, neither Oregon Trail nor any Oregon Trail
Subsidiary nor any of their respective Officers, directors or employees has
employed any broker or finder, or agreed to pay any fees to any director or
former director or incurred any liability for any financial advisory fees,
brokerage fees, commissions or finder's fees, and no broker or finder, or
director or former director of Oregon Trail and Pioneer Bank, has acted directly
or indirectly for Oregon Trail or any Oregon Trail Subsidiary, in connection
with this Merger Agreement or the transactions contemplated hereby.
4.34 Derivatives Contracts; Structured Notes; Etc. Neither
Oregon Trail nor any Oregon Trail Subsidiary is a party to or has agreed to
enter into an exchange traded or over-the-counter equity, interest rate, foreign
exchange or other swap, forward, future, option, cap, floor or collar or any
other contract that is not included on the balance sheet and is a derivative
contract (including various combinations thereof) (each a "Derivatives
Contract") or owns securities that (1) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (2) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts, structured notes
and other instruments legally purchased or entered into in the ordinary course
of business, consistent with safe and sound banking practices and regulatory
guidance, and listed (as of the date hereof) on Oregon Trail Disclosure Schedule
4.34.
4.35 Loans.
(a) To the best knowledge of Oregon Trail, with
respect to each loan owned by Oregon Trail or any Oregon Trail Subsidiary in
whole or in part: (i) the note and any related mortgage are each legal, valid
and binding obligations of the maker or obligor thereof, enforceable against
such maker or obligor in accordance with their terms; (ii) neither Oregon Trail
nor any Oregon Trail Subsidiary nor any prior holder of a loan has modified the
related documents in any material respect or satisfied, canceled or subordinated
such mortgage or note except as otherwise disclosed by documents in the
applicable loan file; (iii) Oregon Trail or any Oregon Trail Subsidiary is the
sole holder of legal and beneficial title to each loan (or Oregon Trail's or the
Oregon Trail Subsidiarys applicable participation interest), as applicable and
there has not been any assignment or pledge of any loan; and (iv) the note,
mortgage and any other collateral documents, copies of which are included in the
loan files, are true and correct copies of the documents they purport to be and
have not been superseded, amended, modified, canceled or otherwise changed
except as disclosed by documents in the applicable loan file.
(b) Oregon Trail Disclosure Schedule 4.35
contains the aggregate balances of all indirect automobile loans made by Pioneer
Bank as of the date of the Merger Agreement and a list of all loans with
balances over $20,000.
ARTICLE 5
COVENANTS OF FIRSTBANK
5.1 Regulatory and Shareholder Approvals.
(a) Within a reasonable time after execution of
this Merger Agreement, FirstBank shall file any and all applications with the
appropriate government Regulatory Authorities in order to obtain the Government
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Approvals and shall take such other actions as may be reasonably required to
consummate the transactions contemplated in this Merger Agreement and the Plans
of Merger with reasonable promptness. FirstBank shall pay all fees and expenses
arising in connection with such applications for regulatory approval. Counsel to
Oregon Trail shall be provided with a draft of all Regulatory Applications,
other than the confidential portions of the Regulatory Applications, prior to
their submission and shall have a reasonable opportunity to review and comment
on such applications and with respect to all correspondence with Regulatory
Authorities. FirstBank agrees to provide the appropriate Regulatory Authorities
with the information required by such authorities in connection with FirstBank's
applications for regulatory approval and FirstBank agrees to use its best
efforts to obtain such regulatory approvals, and any other approvals and
consents as may be required for the Closing, as promptly as practicable;
provided, however, that nothing in this Section 5.1 shall be construed to
obligate FirstBank to take any action to meet any condition required to obtain
prior regulatory approval if any such condition materially differs from
conditions customarily imposed by such Regulatory Authorities in orders
approving acquisitions of the type contemplated by this Merger Agreement,
constitutes a significant impediment upon FirstBank's ability to carry on its
business or acquisition programs (as may be determined in the sole discretion of
FirstBank) or requires FirstBank to increase FirstBank Northwest's capital
ratios to amounts in excess of the FDIC's minimum capital ratio guidelines which
may be in effect from time to time.
(b) FirstBank shall call a special meeting of
the FirstBank Shareholders to be held as soon as practicable for purposes of
voting upon the transactions contemplated hereby and FirstBank shall use its
best efforts to solicit and obtain the votes of the FirstBank Shareholders in
favor of the transactions contemplated hereby and, subject to the exercise of
its fiduciary duties, the Board of Directors of FirstBank shall recommend
approval of such transactions by such holders. In connection with the FirstBank
Shareholders' Meeting, FirstBank and Oregon Trail shall cooperate in the
preparation of the Proxy Statement/Prospectus and, with the approval of each of
FirstBank and Oregon Trail, which approvals will not be unreasonably withheld,
the Proxy Statement/Prospectus will be mailed to the FirstBank Shareholders.
5.2 Preparation of Registration Statement. FirstBank, in
cooperation with Oregon Trail, shall prepare and file with the SEC a
Registration Statement on Form S-4 with respect to the shares of FirstBank
Common Stock to be issued in the Corporate Merger ("Registration Statement").
Such Registration Statement shall contain a Proxy Statement/Prospectus which
shall serve as the proxy statement of Oregon Trail for the Oregon Trail
Shareholders' Meeting and as the prospectus of FirstBank for the shares of
FirstBank Common Stock to be issued in the Corporate Merger. FirstBank shall use
its best efforts to cause the Registration Statement to become effective.
5.3 Registration Statement Effectiveness. FirstBank will
advise Oregon Trail, promptly after FirstBank receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment has been filed, of the issuance of any stop order or the suspension of
the qualification of the FirstBank Common Stock for offering or sale in any
jurisdiction, of the initiation or threat of any proceeding for any such
purpose, or of any request by the SEC for the amendment or supplement of the
Registration Statement or for additional information.
5.4 Conduct of Business. FirstBank will not take any
action, unless otherwise required by law, rules or regulation, that would (A)
materially adversely affect the ability of FirstBank to obtain any necessary
approvals of the Regulatory Authorities required to consummate the transactions
contemplated by this Merger Agreement, or (B) adversely affect its ability to
perform its covenants and agreements under this Merger Agreement. FirstBank
agrees that the actions prohibited by this Section 5.4 include any application
for additional branch offices of FirstBank Northwest and the direct or indirect
acquisition by FirstBank of any corporation, association, firm, organization or
other entity, other than actions relating to branches in Hayden, Idaho and
Clarkston, Washington.
5.5 Employees and Employee Benefits. Upon consummation of
the Corporate Merger, all employees of Oregon Trail and the Oregon Trail
Subsidiaries shall be deemed to be at-will employees except for those employees
who are parties to a written employment agreement.
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(a) At the discretion of FirstBank, as of the
Effective Time, and subject to Sections 5.5(c) and (d) hereof, all employee
benefit plans (within the meaning of Section 3(3) of ERISA) sponsored or
maintained by Oregon Trail and the Oregon Trail Subsidiaries shall be
terminated. Employees of Oregon Trail and the Oregon Trail Subsidiaries who
continue as employees of FirstBank and the FirstBank Subsidiaries ("Continuing
Employees") shall be entitled to participate on an equitable basis in the same
benefit plans, programs or policies as are generally available to FirstBank's
and the FirstBank Subsidiaries' employees of similar rank and status. For
purposes of eligibility and vesting (but not for the accrual of benefits, under
such plans, programs or policies), employees of Oregon Trail and the Oregon
Trail Subsidiaries who continue as FirstBank's or the FirstBank Subsidiaries'
employees will be credited for prior years of service with Oregon Trail and the
Oregon Trail Subsidiaries, and there shall be no exclusion from coverage under
FirstBank's or the FirstBank Subsidiaries' health insurance plan as a result of
pre-existing conditions to the extent such conditions were covered under any
health insurance plan maintained by Oregon Trail and the Oregon Trail
Subsidiaries prior to the Effective Time.
(b) Continuing Employees shall not be subject to
any waiting periods under the group health plan of FirstBank or the FirstBank
Subsidiaries to the extent that such periods are longer than the periods imposed
under the applicable group health plan of Oregon Trail and the Oregon Trail
Subsidiaries. To the extent that the initial period of coverage for Continuing
Employees under any plan of FirstBank or the FirstBank Subsidiaries, whichever
is applicable, that is an "employee welfare benefit plan" as defined in Section
3(1) of ERISA is not a full twelve (12) month period of coverage, Continuing
Employees shall be given credit under the applicable welfare plan for any
deductibles and co-insurance payments made by such Continuing Employees under
the corresponding welfare plan of Oregon Trail and the Oregon Trail Subsidiaries
during the balance of such twelve (12) month period of coverage. Nothing
contained herein shall obligate FirstBank or the FirstBank Subsidiaries to
provide or cause to be provided any duplicative benefits. Nothing herein shall
alter the power of FirstBank or the FirstBank Northwest Subsidiaries to amend or
terminate any of its benefit or welfare plans. Moreover, this Section 5.5(b),
shall not confer upon any Continuing Employee any rights or remedies hereunder
and shall not constitute a contract of employment or create any rights, to be
retained or otherwise, in employment at FirstBank or the FirstBank Subsidiaries.
(c) Prior to the Effective Time, the Boards of
Directors of Oregon Trail and Pioneer Bank shall take all necessary action to
cause the Pioneer Bank Employee Stock Ownership Plan ("ESOP") to be terminated
as of the Effective Time. Cash consideration received by the ESOP trustee in
connection with the Corporate Merger with respect to Cash Election Designated
ESOP Shares shall be applied by the ESOP trustee to the full repayment of the
ESOP loan. The balance of the consideration received by the ESOP trustee with
respect to the unallocated shares of Oregon Trail Common Stock after repayment
of the ESOP loan, whether in the form of cash or shares of FirstBank Common
Stock (the "surplus") shall be allocated to the participants in the ESOP. If
necessary, the ESOP shall be amended as appropriate to carry out the purposes of
the preceding sentence. The accounts of all participants and beneficiaries in
the ESOP immediately prior to the Effective Time shall become fully vested as of
the Effective Time. As soon as practicable after the date hereof, Pioneer Bank
shall file or cause to be filed all necessary documents with the Internal
Revenue Service for a determination that the termination of the ESOP will not
affect its qualified status as of the Effective Time. As soon as practicable
after the later of the Effective Time or the receipt of a favorable
determination letter for termination from the IRS, the account balances in the
ESOP shall be distributed to participants and beneficiaries or transferred to an
eligible individual retirement account or tax qualified plan as a participant or
beneficiary may direct. For the period prior to the Effective Time,
contributions to the ESOP, payments on the ESOP loan and additional allocations
to the accounts of participants in the ESOP shall be made consistent with past
practices on the regularly scheduled payment dates.
(d) Prior to the Effective Time, the Boards of
Directors of Oregon Trail and Pioneer Bank shall take all necessary action to
cause the Pioneer Bank 401(k) Profit Sharing Plan (the "401(k) Plan") to be
terminated as of the Effective Time. As soon as practicable after the date
hereof, Pioneer Bank shall file or cause to be filed all necessary documents
with the Internal Revenue Service for a determination that the termination of
the 401(k) Plan will not affect its qualified status as of the Effective Time.
As soon as practicable after receipt of the favorable determination letter for
termination from the Internal Revenue Service, the account balances in the
401(k) Plan shall be distributed to participants and beneficiaries in accordance
with applicable law and the 401(k) Plan documents. From
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the date hereof through the Closing Date, Pioneer Bank shall be permitted to
make contributions to the 401(k) Plan on a periodic monthly basis, consistent
with past practices. Participants in the 401(k) Plan who become employees of
FirstBank will be permitted, subject to the terms of the FirstBank 401(k) Plan,
to transfer such distributions to the FirstBank 401(k) Plan, and if necessary,
the FirstBank 401(k) Plan shall be amended to so provide.
(e) FirstBank agrees to honor the terms of the
Oregon Trail severance, employment and deferred compensation agreements set
forth in Oregon Trail Disclosure Schedule 4.28(d) (collectively referred to as
the "Post-Termination Payments"). FirstBank further agrees that Messrs. Berniel
Maughan, Zane Lockwood and Jonathan McCreary shall be deemed to have experienced
an "Involuntary Termination" upon a "Change in Control," as such terms are
defined in their Employment Agreements, and as of the Effective Time will be
entitled to the payments referenced in Sections 7(a) and 7(c) of such
agreements, as amended (the "Payments"), and as described in Oregon Trail
Disclosure Schedule 4.28(d). Based on the assumptions and as described in Oregon
Trail Disclosure Schedule 4.28, no Post-Termination Payment will be
nondeductible under Section 280G of the Internal Revenue Code or result in any
excise tax payment liability under Section 4999 of the Internal Revenue Code.
(f) FirstBank agrees to honor the terms and
payouts owed pursuant to the Pioneer Bank Employee Severance Compensation Plan
as set forth in Oregon Trail Disclosure Schedule 4.28(d).
(g) FirstBank agrees not to change the interest
rate which is in effect at the Effective Time with respect to loans outstanding
from Pioneer Bank to directors or employees of Oregon Trail and Pioneer Bank,
provided such loans continue to perform in accordance with their terms.
5.6 Reasonable Efforts to Close. Subject to the terms and
conditions of this Merger Agreement, FirstBank agrees to use all its best
efforts and to take, or to cause to be taken, all actions, and to do, or to
cause to be done, all things necessary, proper, or advisable under applicable
laws and regulations to consummate and make effective, with reasonable
promptness after the date of this Merger Agreement, the transactions
contemplated by this Merger Agreement, including, without limitation, using
reasonable efforts to lift or rescind any injunction or restraining or other
order adversely affecting the ability of the Parties to consummate the
transaction contemplated by this Merger Agreement; provided, however, that such
efforts do not impose unreasonable expense or obligations on FirstBank.
FirstBank shall use, and shall cause each of its Subsidiaries to use, its best
efforts to obtain consents of all third parties and Regulatory Authorities
necessary or desirable for the consummation of each of the transactions
contemplated by this Merger Agreement.
5.7 Addition to Board of Directors. As promptly as
practicable following the Effective Time, FirstBank shall take such action as
may be necessary to cause the size of FirstBank's and FirstBank Northwest's
respective Board of Directors to be increased by one person and to cause the
appointment of a director of Oregon Trail to the Board of Directors of FirstBank
and FirstBank Northwest.
5.8 Indemnification and Insurance.
(a) After the Effective Time, FirstBank (and any
successor) agrees to indemnify, defend and hold harmless each present and former
director and Officer of Oregon Trail or any Oregon Trail Subsidiary and each
Officer or employee of Oregon Trail and the Oregon Trail Subsidiaries that is
serving or has served as a director or trustee of another entity expressly at
Oregon Trail's request or direction (each, an "Indemnified Party"), against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
amounts paid in settlement, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time (including the transactions contemplated by this Merger
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, and to advance any such Costs to each Indemnified Party as they are from
time to time incurred, in each case to the fullest extent such Indemnified Party
would have been permitted to be indemnified as a director, Officer or employee
of Oregon Trail or any other Oregon Trail Subsidiary under the Articles of
Incorporation, Charter or Bylaws of Oregon Trail or any Oregon Trail Subsidiary,
as the case may be, and the OBCA (as in effect on
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the Effective Date of the Corporate Merger). Without limiting the foregoing,
FirstBank also agrees that the limitations on liability existing in favor of the
Indemnified Parties as provided in the Articles of Incorporation, Bylaws or
similar governing documents of Oregon Trail or any Oregon Trail Subsidiary as in
effect on the date hereof with respect to acts or omissions prior to the
Effective Time shall survive the Corporate Merger and the Bank Merger and shall
continue in full force and effect from and after the Effective Time.
(b) Any Indemnified Party wishing to claim
indemnification under this Section 5.8, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify FirstBank thereof, but
the failure to so notify shall not relieve FirstBank of any liability it may
have hereunder to such Indemnified Party if such failure does not materially and
substantially prejudice FirstBank. In the event of any such claim, action, suit,
proceeding or investigation: (i) FirstBank shall have the right to assume the
defense thereof with counsel reasonably acceptable to the Indemnified Party and
FirstBank shall not be liable to such Indemnified Party for any legal expenses
of other counsel subsequently incurred by such Indemnified Party in connection
with the defense thereof, except that if FirstBank does not elect to assume such
defense within a reasonable time or counsel for the Indemnified Party at any
time advises in good faith that there are issues which raise conflicts of
interest between FirstBank and the Indemnified Party, the Indemnified Party may
retain counsel satisfactory to such Indemnified Party, and FirstBank shall
remain responsible for the reasonable fees and expenses of such counsel as set
forth above, to be paid promptly as statements therefor are received; provided,
however, that FirstBank shall be obligated pursuant to this Section 5.8(b) to
pay for only one firm of counsel for all Indemnified Parties in any one
jurisdiction with respect to any given claim, action, suit, proceeding or
investigation unless the use of one counsel for such Indemnified Parties would
present such counsel with a conflict of interest; (ii) the Indemnified Party
will reasonably cooperate in the defense of any such matter; and (iii) FirstBank
shall not be liable for any settlement effected by an Indemnified Party without
its prior written consent, which consent may not be withheld unless such
settlement is unreasonable in light of such claims, actions, suits, proceedings
or investigations against, or defenses available to, such Indemnified Party.
(c) FirstBank shall pay all reasonable Costs,
including attorneys' fees, that may be incurred by any Indemnified Party in
successfully enforcing the indemnity and other obligations provided for in this
Section 5.8 to the fullest extent permitted by law. The rights of each
Indemnified Party hereunder shall be in addition to any other rights such
Indemnified Party may have under applicable law.
(d) FirstBank, or Oregon Trail with the consent
of FirstBank, shall use its best efforts to cause the persons serving as
Officers and directors of Oregon Trail and Pioneer Bank immediately prior to the
Closing Date to be covered for a period of three (3) years after the Closing
Date by an extended reporting period endorsement under the current policies of
directors' and officers' liability insurance maintained by Oregon Trail with
respect to acts or omissions occurring prior to the Closing Date which were
committed to such Officers and directors in their capacity as such (provided
that FirstBank may substitute therefor policies of at least the same coverage
and amounts containing the terms and conditions which are no less advantageous
to such Officers and directors); provided, however, that FirstBank shall not be
obligated to make a premium payment for such insurance to the extent such
premiums exceed 150% of the premiums paid by Oregon Trail for such insurance in
the twelve (12) months prior to closing (the "Insurance Amount"); provided
further, however, that if FirstBank is unable to obtain or maintain the
continuing insurance coverage called for in this Section 5.8(d) as a resulting
of the preceding proviso, FirstBank shall use its reasonable best efforts to
obtain as much comparable insurance as is available for the Insurance Amount
with respect to acts or omissions occurring prior to the Effective Time by such
directors and Officers in their capacities as such.
(e) In the event FirstBank or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each such
case, to the extent necessary, proper provision shall be made so that the
successors and assigns of FirstBank assume the obligations set forth in this
Section 5.8.
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(f) The provisions of this Section 5.8 are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party and his or her representatives.
5.9 Access. Upon notice of at least 48 hours, FirstBank
shall afford Oregon Trail and its representatives reasonable access, during
normal business hours throughout the period up to the Effective Date of the
Corporate Merger, to all of the properties, books and records, provided that no
investigation pursuant to this Section 5.9 shall affect or be deemed to modify
or waive any representation or warranty made by FirstBank in this Merger
Agreement or the conditions to the obligations of FirstBank to consummate the
transactions contemplated by this Merger Agreement.
5.10 Nasdaq. FirstBank shall use its best efforts to have
the shares of FirstBank Common Stock which are to be issued in exchange for the
Stock Election Shares approved for listing on the Nasdaq.
5.11 Updating of Representations. At all times to and
including, and as of, the Closing, FirstBank shall inform Oregon Trail in
writing of any and all facts necessary to amend or supplement the
representations and warranties made herein and the FirstBank Disclosure
Schedules attached hereto as necessary so that the representations and
warranties and information provided in the FirstBank Disclosure Schedules remain
true and correct in all respects; provided, however, that any such updates to
the FirstBank Disclosure Schedules shall be required prior to the Closing only
with respect to matters which represent material changes to the FirstBank
Disclosure Schedules and the information contained therein; and provided
further, that before such amendment, supplement or update may be deemed to be a
part of this Merger Agreement, Oregon Trail shall have agreed in writing to each
amendment, supplement or update to the FirstBank Disclosure Schedules made
subsequent to the date of this Merger Agreement as an amendment to this Merger
Agreement.
ARTICLE 6
COVENANTS OF OREGON TRAIL
6.1 Shareholders' Meeting. Oregon Trail shall call a
special meeting of the Oregon Trail Shareholders to be held as soon as
practicable for purposes of voting upon the transactions contemplated hereby and
Oregon Trail shall use its best efforts to solicit and obtain the votes of the
Oregon Trail Shareholders in favor of the transactions contemplated hereby and,
subject to the exercise of its fiduciary duties, the Board of Directors of
Oregon Trail shall recommend approval of such transactions by such holders. In
connection with the Oregon Trail Shareholders' Meeting, FirstBank and Oregon
Trail shall cooperate in the preparation of the Proxy Statement/Prospectus and,
with the approval of each of FirstBank and Oregon Trail, which approvals will
not be unreasonably withheld, the Proxy Statement/Prospectus will be mailed to
the Oregon Trail Shareholders.
6.2 Conduct of Business -- Affirmative Covenants. Unless
the prior written consent of FirstBank shall have been obtained, and, except as
otherwise contemplated herein:
(a) Oregon Trail and each Oregon Trail
Subsidiary shall:
(i) Operate its business only in the
usual, regular, and ordinary course;
(ii) Use its best efforts to preserve
intact its business organizations and assets and to maintain its rights
and franchises;
(iii) Take no action, unless otherwise
required by law, rules or regulation, that would (A) materially
adversely affect the ability of any of them or FirstBank to obtain any
necessary approvals of Regulatory Authorities required to consummate
the transactions contemplated by this Merger Agreement, or (B)
adversely affect the ability of such Party to perform its covenants and
agreements under this Merger Agreement;
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(iv) Except as they may terminate in
accordance with their terms, keep in full force and effect, and not
default in any of their obligations under, all material contracts;
(v) Keep in full force and effect
insurance coverage with responsible insurance carriers which is
reasonably adequate in coverage and amount for companies the size of
the Oregon Trail, or any Oregon Trail Subsidiary and for the businesses
and properties owned by each and in which each is engaged, to the
extent that such insurance is reasonably available;
(vi) Use its reasonable best efforts to
retain Pioneer Bank's present customer base and to facilitate the
retention of such customers after the Effective Time; and
(vii) Maintain, renew, keep in full force
and effect, and preserve its business organization and material rights
and franchises, permits and licenses, and to use its best efforts to
maintain positive relations with its present employees so that such
employees will continue to perform effectively and will be available to
Oregon Trail's and the Oregon Trail Subsidiaries or FirstBank and the
FirstBank Subsidiaries at and after the Effective Time, and to use its
best efforts to maintain its existing, or substantially equivalent,
credit arrangements with banks and other financial institutions and to
assure the continuance of Pioneer Bank's customer relationships.
(b) Oregon Trail agrees to use its reasonable
best efforts to assist FirstBank in obtaining the Government Approvals necessary
to complete the transactions contemplated hereby, and Oregon Trail shall provide
to FirstBank or to the appropriate governmental authorities all information
reasonably required to be submitted in connection with obtaining such approvals;
(c) Oregon Trail and the Oregon Trail
Subsidiaries, at its own cost and expense, shall use its reasonable best efforts
to secure all consents and releases, if any, of third parties necessary or
desirable with respect to Oregon Trail for the consummation of the transactions
contemplated by this Merger Agreement and shall comply with all applicable laws,
regulations and rulings in connection with this Merger Agreement and the
consummation of the transactions contemplated hereby;
(d) At all times to and including, and as of,
the Closing, Oregon Trail shall inform FirstBank in writing of any and all facts
necessary to amend or supplement the representations and warranties made herein
and the Oregon Trail Disclosure Schedules attached hereto as necessary so that
the representations and warranties and information provided in the schedules
remain true and correct in all respects; provided, however, that any such
updates to the Oregon Trail Disclosure Schedules shall be required prior to the
Closing only with respect to matters which represent material changes to the
Oregon Trail Disclosure Schedules and the information contained therein; and
provided further, that before such amendment, supplement or update may be deemed
to be a part of this Merger Agreement, FirstBank shall have agreed in writing to
each amendment, supplement or update to the Oregon Trail Disclosure Schedules
made subsequent to the date of this Merger Agreement as an amendment to this
Merger Agreement;
(e) At all times to and including, and as of,
the Closing, Oregon Trail shall give such further assistance to FirstBank and
shall execute, acknowledge and deliver all such documents and instruments as
FirstBank may reasonably request and take such further action as may be
reasonably necessary or appropriate effectively to consummate the transactions
contemplated by this Merger Agreement;
(f) Between the date of this Merger Agreement
and the Closing Date, (i) Oregon Trail shall afford FirstBank and its authorized
agents and representatives reasonable access during normal business hours to the
properties, operations, books, records, contracts, documents, loan files and
other information of, or relating to Oregon Trail and the Oregon Trail
Subsidiaries. Oregon Trail shall provide reasonable assistance to FirstBank in
its investigation of matters relating to Oregon Trail and the Oregon Trail
Subsidiaries; and (ii) subject to the provisions of applicable law and
regulation, Oregon Trail shall furnish promptly to FirstBank (i) a copy of each
material report,
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schedule and other document filed by Oregon Trail and the Oregon Trail
Subsidiaries with any Regulatory Authority and (ii) all other information
concerning the business, interest rate risk, properties and personnel of Oregon
Trail and the Oregon Trail Subsidiaries as FirstBank may reasonably request
(other than documents or other materials relating to the transaction
contemplated herein), provided that no investigation pursuant to this Section
6.2 shall affect or be deemed to modify or waive any representation or warranty
made by Oregon Trail in this Merger Agreement or the conditions to the
obligations of Oregon Trail to consummate the transactions contemplated by this
Merger Agreement;
(g) Oregon Trail has taken or will take all
steps necessary to exempt the transactions contemplated by this Merger Agreement
from any applicable state takeover or similar law or takeover or similar
provision in the charter documents or bylaws of Oregon Trail and the Oregon
Trail Subsidiaries, including without limitation any provisions of the Articles
of Incorporation of Oregon Trail restricting the ownership or acquisition of
Oregon Trail's capital stock or imposing any "fair price" or supermajority
director or stockholder vote requirements;
(h) Oregon Trail will use its best efforts to
have Joseph Stilwell execute and maintain in full force and effect the
Standstill Agreement in the form of Exhibit E hereto;
(i) Subject to the terms and conditions of this
Merger Agreement, Oregon Trail agrees to use all reasonable efforts and to take,
or to cause to be taken, all actions, and to do, or to cause to be done, all
things necessary, proper, or advisable under applicable laws and regulations to
consummate and make effective, with reasonable promptness after the date of this
Merger Agreement, the transactions contemplated by this Merger Agreement,
including, without limitation, using reasonable efforts to lift or rescind any
injunction or restraining or other order adversely affecting the ability of the
Parties to consummate the transaction contemplated by this Merger Agreement;
provided, however, that such efforts do not impose unreasonable expense or
obligations on Oregon Trail and the Oregon Trail Subsidiaries.
(j) Oregon Trail shall provide to FirstBank,
within ten (10) days after the date hereof, all environmental reports in its
possession relating to Property owned by Oregon Trail. Oregon Trail, as soon as
reasonably practical, but not later than forty-five (45) days after the date
hereof, shall complete FirstBank's Environmental Transaction Screen
Questionnaire ("Questionnaire") on all Property owned (including, without
limitation, "real estate owned"), leased or operated by Oregon Trail as of the
date hereof and within ten (10) days after the acquisition or lease of any
Property acquired, leased or operated by Oregon Trail after the date hereof. If
required by the Questionnaire in FirstBank's reasonable opinion, FirstBank shall
have the right to obtain a report of a phase one and, if necessary, a phase two
environmental site assessment on Properties reasonably requiring such additional
study. The scope of work required by any environmental site assessment shall be
subject to the reasonable approval of Oregon Trail, and FirstBank agrees to
maintain the findings of all environmental studies confidential.
6.3 Conduct of Business -- Negative Covenants. From the
date of this Merger Agreement until the earlier of the Effective Time or the
termination of this Merger Agreement, Oregon Trail covenants and agrees it will
neither do, nor agree or commit to do, nor permit any Oregon Trail Subsidiary to
do or commit or agree to do, any of the following without the prior written
consent of the chief executive officer, president, or chief financial officer of
FirstBank:
(a) Except as expressly contemplated by this
Merger Agreement or the Plans of Merger, amend its Articles of Incorporation or
Bylaws; or
(b) Impose, or suffer the imposition, on any
share of capital stock held by it or by any of the Oregon Trail Subsidiaries of
any lien, charge, or encumbrance, or permit any such lien, charge, or
encumbrance to exist; or
(c) (i) Repurchase, redeem, or otherwise acquire
or exchange, directly or indirectly, any shares of its capital stock or other
equity securities or any securities or instruments convertible into any shares
of its capital stock, or any rights or options to acquire any shares of its
capital stock or other equity securities except as
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expressly permitted by this Merger Agreement or the Plans of Merger; or (ii)
split or otherwise subdivide its capital stock; or (iii) recapitalize in any
way; or (iv) declare a stock dividend on the Oregon Trail Common Stock; or (v)
pay or declare a cash dividend or make or declare any other type of distribution
on the Oregon Trail Common Stock (except that Oregon Trail may pay the regular
quarterly cash dividend in an amount consistent with past practice and not
exceeding $0.11 per share); or
(d) Except as expressly permitted by this Merger
Agreement, acquire direct or indirect control over any corporation, association,
firm, organization or other entity, other than in connection with (i) mergers,
acquisitions, or other transactions approved in writing by FirstBank, (ii)
internal reorganizations or consolidations involving existing Oregon Trail
Subsidiaries, (iii) foreclosures in the ordinary course of business and not
knowingly exposing it to liability by reason of Hazardous Substances, (iv)
acquisitions of control in its fiduciary capacity, or (v) the creation of new
subsidiaries organized to conduct or continue activities otherwise permitted by
this Merger Agreement; or
(e) Except in connection with the existing stock
benefit plans of Oregon Trail as described on Oregon Trail Disclosure Schedule
4.20 or as expressly permitted by this Merger Agreement or the Plans of Merger,
(i) issue, sell, agree to sell, or otherwise dispose of or otherwise permit to
become outstanding any additional shares of Oregon Trail Common Stock or any
other capital stock of Oregon Trail or of any Oregon Trail Subsidiary, or any
stock appreciation rights, or any option, warrant, conversion, call, scrip, or
other right to acquire any such stock, or any security convertible into any such
stock, or (ii) sell, agree to sell, or otherwise dispose of any substantial part
of the assets or earning power of Oregon Trail or of any Oregon Trail
Subsidiary; or (iii) sell, agree to sell, or otherwise dispose of any asset of
Oregon Trail or any Oregon Trail Subsidiary other than in the ordinary course of
business for reasonable and adequate consideration; or (iv) buy, agree to buy or
otherwise acquire a substantial part of the assets or earning power of any other
Person or entity; or
(f) Incur, or permit any Oregon Trail Subsidiary
to incur, any additional debt obligation or other obligation for borrowed money
except in the ordinary course of the business of Oregon Trail or such Oregon
Trail Subsidiary consistent with past practices; or
(g) Except as described in Oregon Trail
Disclosure Schedule 6.3(g); grant any increase in compensation or benefits to
any of its employees or Officers except for routine annual salary increases not
in excess of 5%; and except for amounts provided in Oregon Trail Disclosure
Schedule 6.3(g), pay any bonus; enter into any severance agreements with any of
its Officers or employees; grant any increase in fees or other increases in
compensation or other benefits to any director of Oregon Trail or of any Oregon
Trail Subsidiary; or effect any change in retirement benefits for any class of
its employees or Officers, unless such change is required by applicable law; or
(h) Hire a new employee with an annual
compensation in excess of Thirty-Five Thousand Dollars ($35,000), amend any
existing employment contract between it and any person (unless such amendment is
required by law); enter into or amend any indemnification agreement with any
person; or enter into any new employment contract with any person that Oregon
Trail or any Oregon Trail Subsidiary (or its successors) does not have the
unconditional right to terminate without liability (other than liability for
services already rendered), at any time on or after the Effective Time; or
(i) Adopt any new employee benefit plan or
terminate or make any material change in or to any existing employee benefit
plan other than any change that is required by law or that, in the opinion of
counsel, is necessary or advisable to maintain the tax-qualified status of any
such plan (except for a termination resulting from FirstBank's decision not to
continue any such plan); or
(j) Enter into any new service contracts with an
annual expense in excess of Fifteen Thousand Dollars ($15,000), purchase or sale
agreements or lease agreements that are material to Oregon Trail or any Oregon
Trail Subsidiary; or
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(k) Make any capital expenditure except for
ordinary purchases, repairs, renewals or replacements in an amount less than
Thirty Thousand Dollars ($30,000) per individual expenditure; or
(l) Other than in the ordinary course of
business consistent with past practice, sell, transfer, mortgage, encumber or
otherwise dispose of any of its properties, leases or assets to any person, or
cancel, release or assign any indebtedness of any person, except pursuant to
contracts or agreements in force at the date of this Merger Agreement; or
(m) Other than as contemplated by this Merger
Agreement, enter into, renew or terminate any material contract or agreement or
make any change in or renew any of its material leases or contracts; or
(n) Settle any claim, action or proceeding
involving any liability of Oregon Trail or any Oregon Trail Subsidiaries for
money damages in excess of Twenty-Five Thousand Dollars ($25,000) or agree in
connection with any such settlement to material restrictions upon the operations
of Oregon Trail or any Oregon Trail Subsidiaries; or
(o) Change its method of accounting in effect at
March 31, 2002, except as required by changes in GAAP as concurred in by Oregon
Trail's independent auditors or as required by regulatory accounting principles
or regulatory requirements; or
(p) Enter into any new activities or lines of
business, or cease to conduct any material activities or lines of business that
it conducts on the date hereof, or conduct any material business activity not
consistent with past practice; or
(q) Make, renegotiate, renew, increase, extend
or purchase any loan, lease (credit equivalent), advance, credit enhancement or
other extension of credit, or make any commitment in respect of any of the
foregoing, except in the ordinary course of business consistent with past
practices, and in individual loan amounts of less than Five Hundred Thousand
Dollars ($500,000) or aggregate amounts of less than One Million Dollars
($1,000,000), as determined under applicable regulatory loan to one borrower
requirements; or
(r) Enter into, renew or purchase any
investments in Derivatives Contracts; or engage in any forward commitment,
futures transaction, financial option transaction, hedging or arbitrage
transaction or covered asset trading activities; or
(s) Purchase any investment securities or make
any deposits other than in the ordinary course of business consistent with past
practices; or
(t) Enter into any material transactions other
than in the ordinary course of business; or
(u) Grant or commit to grant any new extension
of credit to any Officer, director or holder of two percent (2%) or more of the
outstanding Oregon Trail Common Stock, or to any corporation, partnership, trust
or other entity controlled by any such person, if such extension of credit,
together with all other credits then outstanding to the same borrower and all
affiliated persons of such borrower, would exceed two percent (2%) of the
capital of Pioneer Bank or amend the terms of any such credit outstanding on the
date hereof; or grant or commit to grant any new extension of credit to any
employee at below market interest rates; or
(v) Sell, purchase, enter into a material lease,
relocate, open or close any office, or file an application pertaining to such
action with any government entity; or
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(w) Settle or compromise any material tax
liability or agree to an extension of the statute of limitations with respect to
the assessment or determination of any taxes, except in the ordinary course of
business, consistent with past practice; or
(x) Agree in writing or otherwise to take any of
the foregoing actions or engage in any activity, enter into any transaction or
take or omit to take any other act which would make any of the representations
and warranties in Article 4 of this Merger Agreement untrue or incorrect in any
material respect if made anew after engaging in such activity, entering into
such transaction, or taking or omitting such other act.
(y) Increase the aggregate balance of indirect
automobile loans more than 10% from the amount set forth in Oregon Trail
Disclosure Schedule 4.35.
6.4 Conduct of Business -- Certain Actions. Oregon Trail
and the Oregon Trail Subsidiaries shall not, and shall use their best efforts to
ensure that their directors, Officers, employees, and advisors do not, directly
or indirectly, institute, solicit, or knowingly encourage (including by way of
furnishing any information not legally required to be furnished) any inquiry,
discussion, or proposal, or participate in any discussions or negotiations with,
or, except for actions reasonably considered by the Boards of Directors of
Oregon Trail and the Oregon Trail Subsidiaries based upon the advice of outside
legal counsel to be required in order to fulfill its fiduciary obligations,
participate in any discussions or negotiations with, or, provide any
confidential or non-public information to or negotiate with, any corporation,
partnership, person or other entity or group (other than to FirstBank)
concerning any "Acquisition Proposal" (as defined below). Oregon Trail shall
notify FirstBank immediately if any Acquisition Proposal has been or should
hereafter be received by Oregon Trail or any of the Oregon Trail Subsidiaries,
such notice to contain, at a minimum, the identity of such persons, and, subject
to disclosure being consistent with the fiduciary obligations of Oregon Trail's
Board of Directors, a copy of any written inquiry, the terms of any proposal or
inquiry, any information requested or discussions sought to be initiated, and
the status of any reports, negotiations or expressions of interest. For purposes
hereof, "Acquisition Proposal" means any tender offer, agreement, understanding
or other proposal of any nature pursuant to which any corporation, partnership,
person or other entity or group, other than FirstBank, or of its Subsidiaries,
would directly or indirectly engage in an Acquisition Transaction.
6.5 Accruals and Reserves. At the request of FirstBank,
Oregon Trail shall establish such additional accruals and reserves as may be
necessary to conform Oregon Trail's accounting and credit loss reserve practices
and methods to those of FirstBank; provided, however, that Oregon Trail shall
not be required to take such action prior to the receipt of all Government
Approvals as contemplated by Section 7.3(b); provided further, however, that no
such additional accruals and reserves will be required to be made more than two
(2) business days prior to the Closing Date. No such additional accruals or
reserves made by Oregon Trail pursuant to this Section 6.5 shall constitute or
be deemed to be a breach, violation of or failure to satisfy any representation,
warranty, covenant, agreement, condition or other provision of this Merger
Agreement or otherwise be considered in determining whether any such breach,
violation or failure to satisfy shall have occurred. The recording of any such
adjustments shall not be deemed to imply any misstatement of previously
furnished financial statements or information and shall not be construed as
concurrence of Oregon Trail or its management with any such adjustments.
6.6 Affiliate Agreements. Oregon Trail will use its best
efforts to cause each person who is an Affiliate of Oregon Trail for purposes of
Rule 145 under the 1933 Act to execute and deliver to FirstBank on or before the
mailing of the Proxy Statement/Prospectus for the FirstBank Shareholders'
Meeting an agreement in the form attached hereto as Exhibit D restricting the
disposition of the shares of FirstBank Common Stock to be received by such
person in exchange for such person's shares of Oregon Trail Common Stock. Oregon
Trail Disclosure Schedule 6.6 hereto lists the Affiliates of Oregon Trail as of
the date hereof.
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ARTICLE 7
CONDITIONS TO CLOSING
7.1 Conditions to the Obligations of Oregon Trail. Unless
waived in writing by Oregon Trail, the obligations of Oregon Trail to consummate
the transaction contemplated by this Merger Agreement are subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and
undertakings of FirstBank and the FirstBank Subsidiaries to be performed at or
prior to the Closing Date pursuant to this Merger Agreement shall have been duly
performed;
(b) Representations and Warranties. The
representations and warranties of FirstBank contained in Article 3 of this
Merger Agreement shall be true and correct, in all material respects, on and as
of the Effective Time with the same effect as though made on and as of the
Effective Time;
(c) Documents. In addition to the other
deliveries of FirstBank and the FirstBank Subsidiaries described elsewhere in
this Merger Agreement, Oregon Trail shall have received the following documents
and instruments:
(i) a certificate signed by the
Secretary or an assistant secretary of FirstBank dated as of the
Closing Date certifying that:
(A) FirstBank's Board of
Directors have duly adopted resolutions (copies of which shall
be attached to such certificate) approving the substantive
terms of this Merger Agreement (including the Corporate Plan
of Merger) and authorizing the consummation of the
transactions contemplated by this Merger Agreement and
certifying that such resolutions have not been amended or
modified and remain in full force and effect;
(B) each person executing this
Merger Agreement on behalf of FirstBank is an officer of
FirstBank holding the office or offices specified therein,
with full power and authority to execute this Merger Agreement
and any and all other documents in connection with the
Corporate Merger, and that the signature of each person set
forth on such certificate is his or her genuine signature; and
(C) the charter documents of
FirstBank attached to such certificate remain in full force
and effect.
(ii) a certificate signed by a duly
authorized officer of FirstBank stating that the conditions set forth
in Section 7.1(a) and Section 7.1(b) of this Merger Agreement have been
fulfilled;
(d) Opinion of FirstBank's Counsel. Oregon Trail
shall have been furnished with an opinion of counsel to FirstBank, dated as of
the Closing Date, addressed to and in form and substance satisfactory to Oregon
Trail, to the effect that:
(i) FirstBank is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Washington.
(ii) FirstBank Northwest is a savings
bank duly organized, validly existing and in good standing under the
laws of the State of Washington.
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(iii) The execution and delivery of the
Merger Agreement by FirstBank, and the consummation by FirstBank and
the FirstBank Subsidiaries of the transactions provided for therein,
have been duly authorized by all requisite corporate action on the part
of FirstBank and the FirstBank Subsidiaries.
(iv) The Merger Agreement has been duly
executed and delivered by FirstBank and is a valid and binding
obligation of FirstBank enforceable in accordance with its terms,
except as the enforceability thereof may be limited by (1) bankruptcy,
insolvency, moratorium, reorganization, receivership, conservatorship
or similar laws relating to or affecting the enforcement of creditors'
rights generally and (2) general principles of equity, whether applied
by a court of law or equity.
(v) Except for the filing of Articles
of Merger with the Secretary of State for the State of Oregon and
Articles of Merger with the Secretary of State for the State of
Washington, no consent or approval under any statutory law or
regulation applicable to FirstBank, other than such consents and
approvals as have been obtained, is required for FirstBank to
consummate the transactions provided for in the Merger Agreement.
(vi) The Registration Statement has
become effective under the 1933 Act, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated by the SEC
or any state securities or other regulatory authority.
(vii) The shares of FirstBank Common
Stock to be issued in exchange for shares of Oregon Trail Common Stock
in connection with the consummation of the transactions contemplated in
the Merger Agreement have been duly authorized and, when issued in
accordance with the terms of the Merger Agreement will be validly
issued, fully paid and non-assessable, and conform as to legal matters
in all material respects to the description of such shares contained in
the Registration Statement.
Such opinion may (i) expressly rely as to matters of fact upon
certificates furnished by appropriate officers of FirstBank or appropriate
government officials; (ii) in the case of matters of law governed by the laws of
the states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
Federal Law and the law of the State of Washington; and (iii) incorporate, be
guided by, and be interpreted in accordance with, the Legal Opinion Accord of
the ABA Section of Business Law (1991); and
7.2 Conditions to the Obligations of FirstBank. Unless
waived in writing by FirstBank, the obligation of FirstBank to consummate the
transactions contemplated by this Merger Agreement is subject to the
satisfaction at or prior to the Closing Date of the following conditions:
(a) Performance. Each of the material acts and
undertakings of Oregon Trail and the Oregon Trail Subsidiaries to be performed
at or before the Closing Date pursuant to this Merger Agreement shall have been
duly performed;
(b) Representations and Warranties. The
representations and warranties of Oregon Trail contained in Article 4 of this
Merger Agreement shall be true and correct, in all material respects, on and as
of the Closing Date with the same effect as though made on and as of the Closing
Date;
(c) Documents. In addition to the documents
described elsewhere in this Merger Agreement, FirstBank shall have received the
following documents and instruments:
(i) a certificate signed by the
Secretary or an assistant secretary of Oregon Trail dated as of the
Closing Date certifying that:
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(A) Oregon Trail's Board of
Directors and the Oregon Trail Shareholders have duly adopted
resolutions (copies of which shall be attached to such
certificate) approving the substantive terms of this Merger
Agreement (including the Corporate Plan of Merger) and
authorizing the consummation of the transactions contemplated
by this Merger Agreement and certifying that such resolutions
have not been amended or modified and remain in full force and
effect;
(B) each person executing this
Merger Agreement on behalf of Oregon Trail is an Officer of
Oregon Trail, as the case may be, holding the office or
offices specified therein, with full power and authority to
execute this Merger Agreement and any and all other documents
in connection with the Corporate Merger, and that the
signature of each person set forth on such certificate is his
or her genuine signature; and
(C) the charter documents of
Oregon Trail attached to such certificate remain in full force
and effect; and
(ii) a certificate signed by the
President, Chief Executive Officer or an Executive Vice President of
Oregon Trail stating that the conditions set forth in Sections 7.2(a),
7.2(b), (e) and (f) of this Merger Agreement have been satisfied.
(d) Opinion of Oregon Trail's Counsel. FirstBank
shall have been furnished with an opinion of legal counsel to Oregon Trail,
dated the Closing Date, addressed to and in form and substance satisfactory to
FirstBank and FirstBank Northwest, to the effect that:
(i) Oregon Trail is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Oregon.
(ii) Oregon Trail is a unitary savings
and loan holding company, and is registered as such under the HOLA.
(iii) Pioneer Bank is a savings bank duly
organized, validly existing and in good standing under the laws of the
United States.
(iv) Each of the Oregon Trail
Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation or
organization.
(v) Pioneer Bank is an "insured
depository institution" as defined in the Federal Deposit Insurance Act
and applicable regulations thereunder.
(vi) The execution and delivery of the
Merger Agreement by Oregon Trail, and the consummation by Oregon Trail
and the Oregon Trail Subsidiaries of the transactions provided for
therein, have been duly authorized by all requisite corporate action on
the part of Oregon Trail and the Oregon Trail Subsidiaries.
(vii) The Merger Agreement has been duly
executed and delivered by Oregon Trail and is a valid and binding
obligation of Oregon Trail enforceable in accordance with its terms,
except as the enforceability thereof may be limited by (1) bankruptcy,
insolvency, moratorium, reorganization, receivership, conservatorship
or similar laws relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of depository institutions
whose accounts are insured by the FDIC and (2) general principles of
equity, whether applied by a court of law or equity.
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(viii) The Corporate Merger has been duly
approved by the Oregon Trail Shareholders.
Such opinion may (i) expressly rely as to matters of fact upon
certificates furnished by appropriate Officers of Oregon Trail or appropriate
government officials; (ii) in the case of matters of law governed by the laws of
the states in which they are not licensed, reasonably rely upon the opinions of
legal counsel duly licensed in such states and may be limited, in any event, to
Federal Law and the OBCA and (iii) incorporate, be guided by, and be interpreted
in accordance with, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
(e) Other Business Combinations, Etc. Other than
as permitted hereunder, subsequent to the date of this Merger Agreement, neither
Oregon Trail nor the Oregon Trail Subsidiaries shall have entered into any
agreement, letter of intent, understanding or other arrangement pursuant to
which Oregon Trail or any of the Oregon Trail Subsidiaries would merge;
consolidate with; effect a business combination with; sell any substantial part
of Oregon Trail's or any of the Oregon Trail Subsidiaries' assets; acquire a
significant part of the shares or assets of any other Person or entity
(financial or otherwise); adopt any "poison pill" or other type of anti-takeover
arrangement, any shareholder rights provision, any "golden parachute" or similar
program which would have the effect of materially decreasing the value of Oregon
Trail or the benefits of acquiring the Oregon Trail Common Stock;
(f) Accruals and Reserves. Oregon Trail shall
have established any accruals and reserves described in Section 6.5;
(g) Receipt of Affiliate Agreements. FirstBank
shall have received from each Affiliate of Oregon Trail the agreements referred
to in Section 6.6;
(h) Voting Agreements. Simultaneous with the
execution and delivery of this Merger Agreement, each of the directors of Oregon
Trail and Pioneer Bank shall have executed and delivered to FirstBank a Voting
Agreement in the form attached hereto as Exhibit C; and
(i) Standstill Agreement. Prior to the execution
and delivery of this Merger Agreement, Joseph Stilwell and his Affiliates shall
have executed and delivered to FirstBank a Standstill Agreement in the form
attached hereto as Exhibit E, the terms of which remain in full force and effect
as of the Closing Date.
7.3 Conditions to Obligations of All Parties. The
obligation of each party to effect the transactions contemplated hereby shall be
subject to the fulfillment, at or prior to the Closing, of the following
conditions:
(a) No Pending or Threatened Claims. That no
claim, action, suit, investigation or other proceeding shall be pending or
threatened before any court or governmental agency which presents a substantial
risk of the restraint or prohibition of the transactions contemplated by this
Merger Agreement or the obtaining of material damages or other relief in
connection therewith;
(b) Government Approvals and Acquiescence
Obtained. The Parties hereto shall have received all applicable Government
Approvals for the consummation of the transactions contemplated herein and all
waiting periods incidental to such approvals or notices given shall have
expired;
(c) Effective Registration Statement. The
Registration Statement shall have become effective and no stop order or other
order suspending the Registration Statement shall have been issued and no
proceedings for that purpose shall have been initiated or threatened by the SEC
or any other Regulatory Authority;
(d) Tax Opinion. FirstBank and Oregon Trail
shall have received an opinion from Silver, Freedman & Taff, L.L.P. in form
reasonably acceptable to both FirstBank and Oregon Trail to the effect that (i)
the Corporate Merger constitutes a reorganization under Section 368 of the
Internal Revenue Code, (ii) neither FirstBank
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nor Oregon Trail will recognize any gain or loss as a result of the Corporate
Merger, and (iii) no gain or loss will be recognized by Oregon Trail
Shareholders who are United States Citizens or residents (as defined in the
opinion) to the extent they receive shares of FirstBank Common Stock in exchange
for their shares of Oregon Trail Common Stock, provided, however, that in the
event such counsel declines to issue such an opinion, FirstBank shall have the
right but not the obligation to increase the number of shares as necessary to
cause the transaction to qualify for such tax treatment. In rendering their
opinion, Silver, Freedman & Taff, L.L.P. may require and rely upon
representations contained in certificates of officers of FirstBank, Oregon Trail
and others; and
(e) Shareholder Vote. The Oregon Trail
Shareholders and FirstBank Shareholders shall have approved of the transactions
contemplated hereby by the applicable requisite vote.
ARTICLE 8
TERMINATION
8.1 Termination. This Merger Agreement and the Plans of
Merger may be terminated at any time prior to the Closing, as follows:
(a) By mutual consent in writing of the Parties;
(b) By FirstBank, should Oregon Trail or any
Oregon Trail Subsidiary fail to conduct its business pursuant to the covenants
made in Article 6 if such failure cannot be or has not been cured within thirty
(30) days after the giving of written notice to Oregon Trail by FirstBank of
such failure;
(c) By FirstBank or Oregon Trail in the event
the Closing shall not have occurred by October 31, 2003, unless the failure of
the Closing to occur shall be due to the failure of the Party seeking to
terminate this Merger Agreement to perform its obligations hereunder in a timely
manner. If FirstBank and FirstBank Northwest shall have filed any and all
applications to obtain the requisite Government Approvals within ninety (90)
days of the date hereof, and if the Closing shall not have occurred solely
because of a delay caused by a government regulatory agency or authority in its
review of the application before it, then Oregon Trail shall, upon FirstBank's
written request, agree to extend the date referenced in the first sentence of
this Section 8.1(c) to December 31, 2003;
(d) By either FirstBank or Oregon Trail, upon
written notice to the other Party, upon denial of any Governmental Approval
necessary for the consummation of the Corporate Merger or the Bank Merger (or
should such approval be conditioned upon a substantial deviation from the
transactions contemplated); provided, however, that either FirstBank or Oregon
Trail may, upon written notice to the other, extend the term of this Merger
Agreement for only one sixty (60) day period to prosecute diligently and
overturn such denial or condition(s), provided that such denial or condition(s)
has been appealed within ten (10) business days of the receipt thereof;
(e) By FirstBank in the event the conditions set
forth in Section 7.2 or Section 7.3 are not satisfied in all material respects
as of the Closing Date, or by Oregon Trail if the conditions set forth in
Section 7.1 or Section 7.3 are not satisfied in all material respects as of the
Closing Date, and such failure has not been waived prior to the Closing;
(f) By FirstBank in the event that there shall
have been a Material Adverse Change in Oregon Trail;
(g) By FirstBank or Oregon Trail in the event
that there shall have been a material breach of any representation and warranty
or covenant or other obligation of the other Party hereunder and such breach
shall not have been remedied within thirty (30) days after receipt by the
breaching Party of written notice from the other Party specifying the nature of
such breach and requesting that it be remedied;
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(h) By Oregon Trail or FirstBank if the Oregon
Trail Board of Directors determines by vote of a majority of the members of its
entire Board, for the sole purpose of permitting Oregon Trail to enter into an
agreement in respect of an Acquisition Transaction which provides more favorable
consideration to the Oregon Trail Shareholders from a financial point of view
than the consideration to be received by such shareholders in the Corporate
Merger; provided however, Oregon Trail's right of termination hereon shall only
apply if:
(i) it and the Oregon Trail Board have
complied with the obligations set forth in Sections 6.1 and 6.4 of this
Merger Agreement, and
(ii) only after the fifth business day
following FirstBank's receipt of written notice from Oregon Trail
advising FirstBank that Oregon Trail is prepared to enter in an
Acquisition Transaction and only if during such five (5) day period,
FirstBank, in its sole discretion, does not make an offer to Oregon
Trail that Oregon Trail determines in good faith, after consultation
with its legal and financial advisors, is at least as favorable as the
proposed Acquisition Transaction.
(i) By FirstBank or Oregon Trail if the Oregon
Trail or FirstBank Shareholders fail to approve this Merger Agreement at the
Shareholders Meetings; or
(j) By FirstBank in the event that there is any
breach in the provisions of the terms, covenants and conditions of the
Standstill Agreement.
If a Party should elect to terminate this Merger Agreement pursuant to
subsections (b), (c), (d), (e), (f), (g), (h), or (i) of this Section 8.1, it
shall give notice to the other Party, in writing, of its election in the manner
prescribed in Section 9.1 ("Notices") of this Merger Agreement.
8.2 Effect of Termination. In the event that this Merger
Agreement should be terminated pursuant to Section 8.1 hereof, all further
obligations of the Parties under this Merger Agreement, other than the
provisions of Section 8.3, shall terminate without further liability of any
Party to another; provided, however, that a termination under Section 8.1 hereof
shall not relieve any Party of any liability for a breach of this Merger
Agreement or for any misstatement or misrepresentation made hereunder prior to
such termination, or be deemed to constitute a waiver of any available remedy
for any such breach, misstatement or misrepresentation.
8.3 FirstBank Fee.
(a) Oregon Trail shall pay FirstBank, and
FirstBank shall be entitled to payment of, a fee (the "Fee") upon the occurrence
of a Purchase Event (as defined herein) so long as the Purchase Event occurs
prior to a Fee Termination Event (as defined herein). Such payment shall be made
to FirstBank in immediately available funds within five (5) business days after
the occurrence of a Purchase Event. The Fee shall be equal to Three Million Five
Hundred Thousand Dollars ($3,500,000). A Fee Termination Event shall be the
first to occur of the following: (i) the Effective Time, (ii) termination of
this Merger Agreement in accordance with the terms hereof prior to the
occurrence of a Purchase Event (other than a termination of this Merger
Agreement by FirstBank pursuant to Sections 8.1(b) or (g) hereof as a result of
a willful breach of any representation, warranty, covenant or agreement of
Oregon Trail or any Oregon Trail Subsidiary or pursuant to Section 8.1(h) as a
result of a Purchase Event) or (iii) twelve (12) months following a termination
of this Merger Agreement by FirstBank pursuant to Sections 8.1(b) or (g) hereof
unless a Purchase Event shall have occurred prior thereto.
(b) The term "Purchase Event" shall mean any of
the following events or transactions occurring after the date hereof:
(i) Oregon Trail or Pioneer Bank,
without having received FirstBank is prior written consent, shall have
entered into an agreement to engage in an Acquisition Transaction (as
defined below) with any person (the term "person" for purposes of this
Merger Agreement having the meaning assigned
A-50
thereto in Sections 3(a)(9) and 13(d)(3) of the Exchange Act and the
rules and regulations thereunder) other than FirstBank or any Affiliate
of FirstBank or the Board of Directors of Oregon Trail shall have
recommended that the Oregon Trail Shareholders approve or accept any
Acquisition Transaction with any person other than FirstBank or any
Affiliate of FirstBank. For purposes of this Merger Agreement,
"Acquisition Transaction" shall mean (x) a merger or consolidation, or
any similar transaction, involving Oregon Trail or Pioneer Bank, (y) a
purchase, lease or other acquisition of all or substantially all of the
assets of Oregon Trail or Pioneer Bank, or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange
or otherwise) of securities representing 25% or more of the voting
power of Oregon Trail or Pioneer Bank; provided that the term
"Acquisition Transaction" does not include any internal merger or
consolidation involving only Oregon Trail and/or any Oregon Trail
Subsidiary including Pioneer Bank; or
(ii) After a bona fide Acquisition
Proposal is made to Oregon Trail or the Oregon Trail Shareholders to
engage in an Acquisition Transaction, (A) Oregon Trail or Pioneer Bank
shall have willfully breached any covenant or obligation contained in
this Merger Agreement and such breach would entitle FirstBank to
terminate this Merger Agreement, or (B) the Oregon Trail Shareholders
shall not have approved this Merger Agreement at the Oregon Trail
Shareholders' Meeting, or (C) the Oregon Trail Shareholders' Meeting
shall not have been held or shall have been canceled prior to
termination of this Merger Agreement; or
(iii) The Board of Directors of Oregon
Trail shall fail to favorably recommend or have withdrawn or modified
such favorable recommendation in a manner adverse to FirstBank the
recommendation of the Board of Directors of Oregon Trail to the Oregon
Trail Shareholders with respect to this Merger Agreement.
(c) If more than one of the transactions giving
rise to a Purchase Event under this Section 8.3 is undertaken or effected, then
all such transactions shall give rise to only one Purchase Event.
(d) Oregon Trail shall give written notice to
FirstBank within twenty-four (24) hours of the occurrence of a Purchase Event
known to Oregon Trail; however, the giving of such notice by Oregon Trail shall
not be a condition to the right of FirstBank to obtain the Fee.
ARTICLE 9
GENERAL PROVISIONS
9.1 Notices. Any notice, request, demand and other
communication which either Party hereto may desire or may be required hereunder
to give shall be in writing and shall be deemed to be duly given if delivered
personally or mailed by certified or registered mail (postage prepaid, return
receipt requested), air courier or facsimile transmission, addressed or
transmitted to such other Party as follows:
If to Oregon Trail: Oregon Trail Financial Corp.
2055 First Street
Baker City, Oregon 97814
Fax: (541) 523-6029
Attn: Berniel L. Maughan, President and
Chief Executive Officer
A-51
With a copy to: Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
Fax: (202) 347-2172
Attn: John P. Soukenik, Jr., Esq.
If to FirstBank: FirstBank NW Corp.
920 Main Street
Lewiston, Idaho 83501
Fax: (208) 750-7129
Attn: Clyde E. Conklin, President and
Chief Executive Officer
With a copy to: Breyer & Associates PC
8180 Greensboro Drive
Suite 785
McLean, Virginia 22102
Fax: (703) 883-2511
Attn: John F. Breyer, Jr., Esq.
or to such other address as any Party hereto may hereafter designate to the
other Parties in writing. Notice shall be deemed to have been given on the date
reflected in the proof or evidence of delivery, or if none, on the date actually
received.
9.2 Assignability and Parties in Interest. This Merger
Agreement shall not be assignable by any of the Parties hereto; provided,
however, that FirstBank may assign, set over and transfer all, or any part of
its rights and obligations under this Merger Agreement to any one or more of its
present or future Affiliates. This Merger Agreement shall inure to the benefit
of, and be binding only upon the Parties hereto and their respective successors
and permitted assigns and no other Persons; provided, however that the
provisions of Section 5.5(e) (including Oregon Trail Disclosure Schedule 4.29)
and Section 5.8 shall insure to the benefit of and be enforceable by the persons
referenced therein.
9.3 Governing Law. This Merger Agreement shall be
governed by, and construed and enforced in accordance with, the internal laws,
and not the laws pertaining to choice or conflicts of laws, of the State of
Washington, unless and to the extent that federal law controls. Any dispute
arising between the Parties in connection with the transactions which are the
subject of this Merger Agreement shall be heard in a court of competent
jurisdiction located in Asotin County, Washington.
9.4 Counterparts. This Merger Agreement may be executed
simultaneously in one or more counterparts (any of which may be facsimile
copies), each of which shall be deemed an original, but all of which shall
constitute but one and the same instrument.
9.5 Publicity. The Parties agree that press releases and
other public announcements to be made by any of them with respect to the
transactions contemplated hereby shall be subject to mutual agreement.
9.6 Entire Agreement. This Merger Agreement, together
with the Corporate Plan of Merger and the Bank Plan of Merger, the schedules,
exhibits and certificates required to be delivered hereunder and any amendments
or addenda hereafter executed and delivered in accordance with Section 9.8
hereof constitute the entire agreement of the Parties hereto pertaining to the
transaction contemplated hereby and supersede all prior written and oral (and
all contemporaneous oral) agreements and understandings of the Parties hereto
concerning the subject matter hereof. The schedules, annexes, exhibits and
certificates attached hereto or furnished pursuant to this Merger Agreement are
hereby
A-52
incorporated as integral parts of this Merger Agreement. Except as provided
herein, by specific language and not by mere implication, this Merger Agreement
is not intended to confer upon any other person not a Party to this Merger
Agreement any rights or remedies hereunder.
9.7 Severability. If any portion or provision of this
Merger Agreement should be determined by a court of competent jurisdiction to be
invalid, illegal or unenforceable in any jurisdiction, such portion or provision
shall be ineffective as to that jurisdiction to the extent of such invalidity,
illegality or unenforceability, without affecting in any way the validity or
enforceability of the remaining portions or provisions hereof in such
jurisdiction or rendering that or any other portions or provisions of this
Merger Agreement invalid, illegal or unenforceable in any other jurisdiction.
9.8 Modifications, Amendments and Waivers. At any time
prior to the Closing or termination of this Merger Agreement, the Parties may,
solely by written agreement executed by their duly authorized officers:
(a) extend the time for the performance of any
of the obligations or other acts of the other Party hereto;
(b) waive any inaccuracies in the
representations and warranties made by the other Party contained in this Merger
Agreement or in the schedules or exhibits hereto or any other document delivered
pursuant to this Merger Agreement;
(c) waive compliance with any of the covenants
or agreements of the other Party contained in this Merger Agreement; and
(d) amend or add to any provision of this Merger
Agreement or the Plans of Merger; provided, however, that no provision of this
Merger Agreement may be amended or added to except by an agreement in writing
signed by the Parties hereto or their respective successors in interest and
expressly stating that it is an amendment to this Merger Agreement.
9.9 Interpretation. The headings contained in this Merger
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Merger Agreement.
9.10 Payment of Expenses. Except as set forth herein,
FirstBank and Oregon Trail shall each pay its own fees and expenses (including,
without limitation, legal fees and expenses) incurred by it in connection with
the transactions contemplated hereunder.
9.11 Equitable Remedies. The Parties hereto agree that, in
the event of a breach of this Merger Agreement by a Party hereto, the other
Party will be without an adequate remedy at law by reason of the unique nature
of the transactions contemplated by this Merger Agreement. In recognition
thereof, in addition to (and not in lieu of) any remedies at law which may be
available to it, each party shall be entitled to obtain equitable relief,
including the remedies of specific performance and injunction, in the event of a
breach of this Merger Agreement by the other Party. Notwithstanding the
foregoing, FirstBank may, in its sole discretion, if applicable, elect to
receive the payment described in Section 8.3 hereof rather than any of its
equitable remedies. The Parties hereto covenant that they shall not contend in
any such proceeding that the other Party are not entitled to a decree of
specific performance by reason of having an adequate remedy at law.
Notwithstanding the foregoing, if Oregon Trail accept an Acquisition Proposal
from a third party and FirstBank receive an opinion of counsel from Oregon Trail
that the failure of the Board of Directors of Oregon Trail to accept such
Acquisition Proposal would constitute a breach of such directors' fiduciary duty
to the Oregon Trail Shareholders, FirstBank shall not be entitled to the
equitable remedy of specific performance. No attempt on the part of FirstBank to
obtain such equitable relief shall be deemed to constitute an election of
remedies by FirstBank which would preclude FirstBank from obtaining any remedies
at law to which they would otherwise be entitled.
9.12 Attorneys' Fees. If any Party hereto shall bring an
action at law or in equity to enforce its rights under this Merger Agreement
(including an action based upon a misrepresentation or the breach of any
warranty,
A-53
covenant, agreement or obligation contained herein), the prevailing Party in
such action shall be entitled to recover from the other Party its reasonable
costs and expenses necessarily incurred in connection with such action
(including fees, disbursements and expenses of attorneys and costs of
investigation).
9.13 No Waiver. No failure, delay or omission of or by any
Party in exercising any right, power or remedy upon any breach or default of any
other Party shall impair any such rights, powers or remedies of the Party not in
breach or default, nor shall it be construed to be a waiver of any such right,
power or remedy, or an acquiescence in any similar breach or default; nor shall
any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Merger Agreement must be in writing and must be executed by
the Parties to this Merger Agreement and shall be effective only to the extent
specifically set forth in such writing.
9.14 Remedies Cumulative. All remedies provided in this
Merger Agreement, by law, equity or otherwise, shall be cumulative and not
alternative.
9.15 Non-Survival of Representations and Warranties. No
representations and warranties made by the Parties hereto or in any instrument
or document furnished in connection herewith shall survive the Closing. This
Section 9.15 shall not apply to covenants and agreements which by their terms
are intended to be performed after the Closing or the termination of this Merger
Agreement. Nothing in this Section 9.15 shall limit Oregon Trail's or
FirstBank's rights or remedies for misrepresentations, breaches of this Merger
Agreement or any other improper action or inaction by the other Party hereto
prior to its termination.
9.16 Standard of Breach. None of the representations or
warranties contained in Article 3 or Article 4 shall be deemed untrue or
incorrect, and each of Oregon Trail on the one hand and FirstBank on the other
hand shall not be deemed to have breached its representations or warranties
herein as a consequence of the existence of any fact, circumstance or event,
which would not, either individually or taken together with all other facts,
circumstances or events, have a Material Averse Effect on it.
* * * * *
A-54
IN WITNESS WHEREOF, each of the Parties hereto has duly executed and
delivered this Merger Agreement or has caused this Merger Agreement to be
executed and delivered in its name and on its behalf by its representative
thereunto duly authorized, all as of the date first written above.
OREGON TRAIL FINANCIAL CORP.
By: /s/ BERNIEL L. MAUGHAN
-------------------------------------
Berniel L. Maughan
Its: President and Chief Executive Officer
ATTEST:
/s/ ZANE F. LOCKWOOD
- -------------------------------------
Zane F. Lockwood, Secretary
FIRSTBANK NW CORP.
By: /s/ CLYDE E. CONKLIN
-------------------------------------
Clyde E. Conklin
Its: President and Chief Executive Officer
ATTEST:
/s/ LARRY K. MOXLEY
- -------------------------------------
Larry K. Moxley, Secretary
A-55
APPENDIX B
Fairness Opinion of Keefe, Bruyette & Woods, Inc.
February 24, 2003
Board of Directors
Oregon Trail Financial Corp.
2055 First Street
Baker City, OR 97814
Dear Board Members:
You have requested our opinion as an independent investment banking firm
regarding the fairness, from a financial point of view, to the stockholders of
Oregon Trail Financial Corp. ("OTFC"), of the consideration to be received by
OTFC in the merger (the "Merger") between OTFC and FirstBank Northwest Corp.
("FBNW"). We have not been requested to opine as to, and our opinion does not in
any manner address, OTFC's underlying business decision to proceed with or
effect the Merger.
Pursuant to the Merger Agreement, dated as of February 24, 2003, by and among
OTFC and FBNW (the "Agreement"), at the effective time of the Merger, FBNW will
acquire all of OTFC's issued and outstanding shares of common stock. OTFC
shareholders will receive a cash amount equal to $22.00 per share for each of
1,659,091 issued and outstanding shares of OTFC common stock or a number of
shares of FBNW Common Stock which is equal to the quotient determined by
dividing 1,480,064 by the number of shares of OTFC Common Stock issued and
outstanding minus 1,659,091, subject to proration (the "Consideration"). In
addition, the holders of OTFC stock options will have the right to convert their
options to FBNW stock options as provided in the Agreement. The complete terms
of the proposed transaction are described in the Agreement, and this summary is
qualified in its entirety by reference thereto.
Keefe, Bruyette & Woods, Inc., as part of its investment banking business, is
regularly engaged in the evaluation of businesses and securities in connection
with mergers and acquisitions, negotiated underwritings, and distributions of
listed and unlisted securities. We are familiar with the market for common
stocks of publicly traded banks, savings institutions and bank and savings
institution holding companies.
In connection with this opinion we reviewed certain financial and other business
data supplied to us by FBNW including (i) the Agreement (ii) Annual Report,
Proxy Statement and Form 10-K for the years ended March 31, 2002, 2001 and 2000
(iii) and other information we deemed relevant. We discussed with senior
management of FBNW, the current position and prospective outlook for FBNW. We
considered historical returns and the prices of recorded transactions in FBNW's
common stock. We reviewed financial and stock market data of other savings
institutions of similar size, particularly in the Western region of the United
States, and the financial and structural terms of several other recent
transactions involving mergers and acquisitions of savings institutions or
proposed changes of control of comparably situated companies.
B-1
For OTFC, we reviewed the audited financial statements, 10-K's, and Proxy
Statements for the years ended March 31, 2000, 2001 and 2002, and certain other
information deemed relevant. We also discussed with senior management of OTFC,
the current position and prospective outlook for OTFC.
For purposes of this opinion we have relied, without independent verification,
on the accuracy and completeness of the material furnished to us by OTFC and
FBNW and the material otherwise made available to us, including information from
published sources, and we have not made any independent effort to verify such
data. With respect to the financial information, including forecasts and asset
valuations we received from FBNW, we assumed (with your consent) that they had
been reasonably prepared reflecting the best currently available estimates and
judgment of FBNW's management. In addition, we have not made or obtained any
independent appraisals or evaluations of the assets or liabilities, and
potential and/or contingent liabilities of FBNW or OTFC. We have further relied
on the assurances of management of FBNW and OTFC that they are not aware of any
facts that would make such information inaccurate or misleading. We express no
opinion on matters of a legal, regulatory, tax or accounting nature or the
ability of the Merger, as set forth in the Agreement, to be consummated.
In rendering our opinion, we have assumed that in the course of obtaining the
necessary approvals for the Merger, no restrictions or conditions will be
imposed that would have a material adverse effect on the contemplated benefits
of the Merger to FBNW or the ability to consummate the Merger. Our opinion is
based on the market, economic and other relevant considerations as they exist
and can be evaluated on the date hereof.
Consistent with the engagement letter with you, we have acted as financial
advisor to OTFC in connection with the Merger and will receive a fee for such
services. In addition, OTFC has agreed to indemnify us for certain liabilities
arising out of our engagement by OTFC in connection with the Merger.
Based upon and subject to the foregoing, as outlined in the foregoing paragraphs
and based on such other matters as we considered relevant, it is our opinion
that as of the date hereof, the consideration to be paid by FBNW in the Merger
is fair, from a financial point of view, to the stockholders of OTFC.
This opinion may not, however, be summarized, excerpted from or otherwise
publicly referred to without our prior written consent, although this opinion
may be included in its entirety in the proxy statement of OTFC used to solicit
stockholder approval of the Merger. It is understood that this letter is
directed to the Board of Directors of OTFC in its consideration of the
Agreement, and is not intended to be and does not constitute a recommendation to
any stockholder as to how such stockholder should vote with respect to the
Merger.
Very truly yours,
/s/ Keefe, Bruyette, & Woods, Inc.
Keefe, Bruyette, & Woods, Inc.
B-2
APPENDIX C
Fairness Opinion of Sandler O'Neill & Partners, L.P.
July 24, 2003
Board of Directors
FirstBank NW Corp.
920 Main Street
Lewiston, Idaho 83501
Ladies and Gentlemen:
FirstBank NW Corp. ("FirstBank") and Oregon Trail Financial Corp. ("Oregon
Trail") have entered into a Merger Agreement, dated as of February 24, 2003 (the
"Agreement"), pursuant to which Oregon Trail will merge with and into FirstBank
(the "Merger"). Under the terms of the Agreement, upon consummation of the
Merger, all of the shares of Oregon Trail's common stock, par value $.01 per
share, issued and outstanding immediately prior to the Merger, other than
certain shares specified in the Agreement, will be converted into (x) 1,480,064
shares of common stock, par value $.01 per share, of FirstBank, plus (y) $36.5
million in cash (the "Merger Consideration"). The terms and conditions of the
Merger are more fully set forth in the Agreement. You have requested our opinion
as to the fairness, from a financial point of view, of the Merger Consideration
to FirstBank.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and certain related documents; (ii) certain publicly
available financial statements and other historical financial information of
FirstBank that we deemed relevant; (iii) certain publicly available financial
statements and other historical financial information of Oregon Trail that we
deemed relevant; (iv) financial projections for FirstBank for the fiscal years
ending March 31, 2003 and 2004 reviewed with management of FirstBank; (v)
financial projections for Oregon Trail for the fiscal year ending March 31, 2003
furnished by Oregon Trail and reviewed with managements of FirstBank and Oregon
Trail, respectively; (vi) the pro forma financial impact of the Merger on
FirstBank, based on assumptions relating to transaction expenses, purchase
accounting adjustments and cost savings determined by senior managements of
FirstBank and Oregon Trail; (vii) the publicly reported historical price and
trading activity for FirstBank's and Oregon Trail's common stock, including a
comparison of certain financial and stock market information for FirstBank and
Oregon Trail with similar publicly available information for certain other
companies the securities of which are publicly traded; (viii) the financial
terms of certain recent business combinations in the savings institutions
industry, to the extent publicly available; (ix) the current market environment
generally and the banking environment in particular; and (x) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as we considered relevant. We also discussed with
certain members of
Board of Directors
FirstBank NW Corp.
July 24, 2003
Page 2
senior management of FirstBank the business, financial condition, results of
operations and prospects of FirstBank and Oregon Trail and held similar
discussions with certain members of senior management of Oregon Trail regarding
the business, financial condition, results of operations and prospects of Oregon
Trail.
In performing our review, we have relied upon the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by FirstBank or Oregon Trail or
their respective representatives or that was otherwise reviewed by us and have
assumed such accuracy and completeness for purposes of rendering this opinion.
We have further relied on the assurances of management of FirstBank and Oregon
Trail that they are not aware of any facts or circumstances that would make any
of such information inaccurate or misleading. We have not been asked to and have
not undertaken an independent verification of any of such information and we do
not assume any responsibility or liability for the accuracy or completeness
thereof. We did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities (contingent or
otherwise) of FirstBank or Oregon Trail or any of their subsidiaries, or the
collectibility of any such assets, nor have we been furnished with any such
evaluations or appraisals. We did not make an independent evaluation of the
adequacy of the allowance for loan losses of FirstBank or Oregon Trail nor have
we reviewed any individual credit files relating to FirstBank or Oregon Trail.
We have assumed, with your consent, that the respective allowances for loan
losses for both FirstBank and Oregon Trail are adequate to cover such losses and
will be adequate on a pro forma basis for the combined entity. With respect to
the financial projections for FirstBank and Oregon Trail and all projections of
transaction costs, purchase accounting adjustments and expected cost savings
prepared by and/or reviewed with FirstBank's management and used by Sandler
O'Neill in its analyses, Sandler O'Neill assumed, with your consent, that they
reflected the best currently available estimates and judgments of the respective
managements of the respective future financial performances of FirstBank and
Oregon Trail and that such performances will be achieved. We express no opinion
as to such estimates or projections or the assumptions on which they are based.
We have also assumed that there has been no material change in FirstBank's or
Oregon Trail's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that FirstBank
and Oregon Trail will remain as going concerns for all periods relevant to our
analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that the conditions precedent in the Agreement
are not waived and that the Merger will qualify as a tax-free reorganization for
federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect this
opinion. We have not undertaken to update, revise, reaffirm or
Board of Directors
FirstBank NW Corp.
July 24, 2003
Page 3
withdraw this opinion or otherwise comment upon events occurring after the date
hereof. We are expressing no opinion herein as to what the value of FirstBank's
common stock will be when issued to Oregon Trail's shareholders pursuant to the
Agreement or the prices at which FirstBank's or Oregon Trail's common stock may
trade at any time.
We have acted as FirstBank's financial advisor in connection with the
Merger and will receive a fee for our services, a substantial portion of which
is contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services to FirstBank. In the ordinary course of our business
as a broker-dealer, we may purchase securities from and sell securities to
FirstBank and Oregon Trail or their affiliates. We may also actively trade the
securities of FirstBank and Oregon Trail or their affiliates for our own account
and for the accounts of our customers and, accordingly, may at any time hold a
long or short position in such securities.
Our opinion is directed to the Board of Directors of FirstBank in
connection with its consideration of the Merger. Our opinion is directed only to
the fairness of the Merger Consideration to FirstBank from a financial point of
view and does not address the underlying business decision of FirstBank to
engage in the Merger, the relative merits of the Merger as compared to any other
alternative business strategies that might exist for FirstBank or the effect of
any other transaction in which FirstBank might engage. Our opinion is not to be
quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as an
annex to the Joint Proxy Statement/Prospectus of FirstBank and Oregon Trail
relating to the merger and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Merger Consideration is fair to FirstBank from a financial
point of view.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
APPENDIX D
Oregon Trail Financial Corp. 2003 Annual Report to Shareholders
[Cover]
2003 Annual Report
INDEX
Letter to Shareholders 1
Business of the Company 2
Selected Consolidated Financial
and Other Data 3
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 5
Independent Auditors' Report 15
Consolidated Financial Statements 16
Notes to Consolidated Financial Statements 24
Corporate Information 48
Investor Information 48
Board of Directors 48
Stock Listing 48
Offices 49
To Our Shareholders
Oregon Trail Financial Corp. has made significant progress over the past few
years by enhancing value and rewarding shareholders for their investment in
the Company. In fiscal 2001 we took steps to transform Oregon Trail into a
company that has continuously improved earnings while enhancing its ability to
meet the financial needs of Eastern Oregon.
In 2002 the Company realized the financial benefits of our strategic
redirection, resulting in record earnings per share and return on
shareholders' equity. Our continued focus in 2003 has resulted in the Company
reporting higher levels of net income, earnings per share, return on equity,
return on assets, net interest margin, and in addition, improved efficiency
ratio.
Looking ahead to fiscal 2004, the Company has engaged in merger plans to
combine our strengths with that of FirstBank NW Corp. and create a larger more
profitable company. As communicated in the proxy statement-prospectus under
"Background and Reasons for the Merger," this partnership will enhance our
ability to meet the high expectations of our shareholders while continuing to
meet the growing needs of our customer base.
The capital markets have embraced our improved financial results and future
plans by rewarding our shareholders with exceptional stock price performance.
Oregon Trail Financial Corp. stock has steadily increased in each of the past
three years; 64.2% in fiscal 2001, 35.6% in fiscal 2002; and 26.1% in fiscal
2003, for a total three year appreciation of 180.8% from March 31, 2000,
through March 31, 2003.
We appreciate the broad acceptance and support for the strategic direction of
Oregon Trail. Our employees continue to support and implement the changes
necessary to maintain strong customer relationships, while improving financial
performance and strengthening the confidence of our shareholders.
We look forward to the future as we strive to continually improve upon our
ability to meet the needs of all the people whose lives we affect; employee,
customer, and shareholder. Thank you for the confidence and support you
provide as we continue to serve you.
Sincerely,
/s/Berniel L. Maughan /s/Stephen R.Whittemore
Berniel L. Maughan Stephen R.Whittemore
President and Chief Executive Officer Chairman of the Board
D-1
BUSINESS OF THE COMPANY
Oregon Trail Financial Corp. ("Company"), an Oregon corporation, was
organized on June 9, 1997 for the purpose of becoming the holding company for
Pioneer Bank, A Federal Savings Bank ("Bank") upon the Bank's conversion from
a federal mutual to a federal stock savings bank ("Conversion"). The
Conversion was completed on October 3, 1997. At March 31, 2003, the Company
had total assets of $377.5 million, total deposits of $249.1 million and
shareholders' equity of $60.1 million. All references to the Company herein
include the Bank where applicable.
The Bank was organized in 1901. The Bank is regulated by the Office of
Thrift Supervision ("OTS") and its deposits are insured up to applicable
limits under the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). The Bank also is a member of the
Federal Home Loan Bank ("FHLB") System.
The Bank is a community oriented financial institution whose principal
business is attracting retail deposits from the general public and using these
funds to originate one- to- four family residential mortgage loans and
consumer loans within its primary market area, which encompasses those regions
surrounding its offices in Baker, Grant, Harney, Malheur, Union, Wallowa,
Wheeler and Umatilla Counties in Oregon and Payette and Washington Counties in
Idaho. The Bank also actively originates home equity and second mortgage
loans. Beginning in 1996, the Bank began supplementing its traditional
lending activities with commercial business loans, agricultural loans, and the
purchase of dealer-originated automobile contracts.
D-2
Oregon Trail Financial Corp. And Subsidiary
Selected Consolidated Financial and Other Data
At March 31,
-------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands)
FINANCIAL CONDITION DATA:
Total assets............... $377,485 $398,366 $388,881 $370,612 $313,473
Loans receivable, net...... 228,227 265,863 250,897 220,591 185,747
Stock in FHLB.............. 6,727 6,315 4,651 3,897 3,221
Investment securities
available for sale....... 44,319 18,306 26,914 37,436 37,965
Mortgage-backed and
related securities
available for sale....... 63,616 74,113 70,010 84,615 60,371
Mortgage-backed and
related securities
held to maturity......... -- -- -- -- 9,338
Cash and cash equivalents.. 9,114 7,795 10,581 9,261 6,276
Deposits................... 249,126 256,078 253,777 237,735 199,589
Advances from FHLB......... 64,500 87,100 73,125 76,750 50,250
Total shareholders' equity. 60,107 52,823 57,806 53,104 60,083
Year Ended March 31,
-------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands, except per share amounts)
OPERATING DATA:
Interest income............ $ 24,832 $ 27,861 $ 28,279 $ 24,548 $ 20,582
Interest expense........... 9,174 12,739 15,392 11,776 8,064
Net interest income........ 15,658 15,122 12,887 12,772 12,518
Provision for loan losses.. 321 481 794 178 483
Net interest income after
provision for loan
losses................... 15,337 14,641 12,093 12,594 12,035
Gains (losses) from sale of
securities............... -- 314 (953) -- --
Noninterest income......... 3,451 3,165 2,155 1,602 1,098
Noninterest expense........ 11,263 11,283 10,951 10,115 8,182
Income before income taxes. 7,525 6,837 2,344 4,081 4,951
Provision for income taxes. 2,371 1,922 650 1,472 1,797
Net income................. $ 5,154 $ 4,915 $ 1,694 $ 2,609 $ 3,154
Basic earnings per share... $ 1.78 $ 1.58 $ 0.51 $ 0.74 $ 0.78
At March 31,
-------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
(In thousands)
Weighted average common
shares outstanding....... 2,903 3,104 3,331 3,547 4,065
Diluted earnings per share. $ 1.67 $ 1.52 $ 0.50 $ 0.70 $ 0.76
Weighted average common
dilutive shares.......... 3,082 3,229 3,367 3,724 4,160
D-3
At March 31,
-------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
OTHER DATA:
Number of:
Real estate loans
outstanding............ 1,792 2,188 2,182 2,298 2,346
Deposit accounts......... 29,797 31,573 32,306 31,384 28,820
Full-service offices..... 9 9 9 8 7
At or For Year Ended March 31,
-------------------------------------------
2003 2002 2001 2000 1999
---- ---- ---- ---- ----
SELECTED FINANCIAL RATIOS
Performance Ratios:
Return on average
assets (1)............... 1.32% 1.24% 0.44% 0.76% 1.14%
Return on average
equity (2)............... 9.07 8.77 3.09 4.60 4.90
Interest rate spread (3)... 3.85 3.58 3.18 3.10 3.85
Net interest margin (4).... 4.33 4.11 3.51 3.89 4.70
Average interest-earning
assets to average
interest-bearing
liabilities.............. 118.75 115.11 118.71 122.02 128.10
Noninterest expense as a
percent of average
total assets............. 2.89 2.86 2.85 2.95 2.96
Efficiency ratio (5)....... 58.94 60.66 79.14 70.37 60.09
Dividend payout ratio (6).. 23.60 24.68 64.00 42.14 28.95
Asset Quality Ratios:
Nonaccrual and 90 days or
more past due loans
as a percent of total
loans, net............... 0.22 0.12 0.02 0.07 0.07
Nonperforming assets as a
percent of total assets.. 0.22 0.10 0.03 0.04 0.01
Allowance for losses as a
percent of gross loans
receivable............... 0.96 0.85 0.82 0.63 0.66
Allowance for losses as
a percent of non-
performing loans......... 432.94 678.56 3814.55 900.65 889.86
Net charge-offs to average
outstanding loans........ 0.15 0.11 0.04 -- 0.06
Capital Ratios:
Total equity-to-assets
ratio.................... 15.92 13.26 14.86 14.33 19.17
Average equity to average
assets (7)............... 14.59 14.13 14.28 16.55 23.27
- ------------
(1) Net earnings divided by average total assets.
(2) Net earnings divided by average equity.
(3) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Non-interest expense divided by the sum of net interest income and other
income.
(6) Dividends declared per share divided by net income per share.
(7) Average total equity divided by average total assets.
D-4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
Management's Discussion and Analysis and other portions of the report
contain certain "forward-looking statements" of Financial Condition and
Results of Operations concerning the expected future operations of Oregon
Trail Financial Corp. (the "Company"). Management wishes to take advantage of
the "safe harbor" provisions of the Private Securities Litigation Reform Act
of 1995 and is including this statement for the express purpose of availing
the Company of the protections of such safe harbor with respect to all
"forward-looking statements" contained in this Form 10-K. "Forward-looking
statements" are used to describe future plans and strategies, including
expectations of the Company's future financial results. Management's ability
to predict results or the effect of future plans or strategies is inherently
uncertain. Factors which could cause actual results to differ materially
include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgages and other
loans, real estate values, competition, loan delinquency rates, changes in
accounting principles, practices, policies or guidelines, changes in
legislation or regulation, and other economic, competitive governmental,
regulatory and technological factors effecting operations, pricing, products
and services. Accordingly, these factors should be considered in evaluating
the forward-looking statements, and undue reliance should not be placed on
such statements.
Critical Accounting Policies
The Company has established various accounting policies that govern the
application of accounting principles generally accepted in the United States
of America in the preparation of the Company's Consolidated Financial
Statements. The preparation of these financial statements requires management
to use assumptions, judgement and estimates. Management evaluates its use of
these assumptions, judgments and estimates on an ongoing basis. Estimates are
based on current economic and business conditions in our market area.
Management believes that the judgments, estimates and assumptions used in the
preparation of the Company's Consolidated Financial Statements are appropriate
given the factual circumstances at the time of preparation. However, the use
of judgments, estimates and assumptions could result in material differences
in our results of operation and financial condition. The Company has
determined that its most critical accounting policy is the determination of
its provision for loan losses. See additional discussion under "Comparison of
Operating Results for the Years Ended March 31, 2003 and 2002 -- Provision for
Loan Losses" in this section.
General
Management's Discussion and Analysis of Financial Condition and Results
of Operations is intended to assist in understanding the financial condition
and results of operations of the Company. The information contained in this
section should be read in conjunction with the Consolidated Financial
Statements and accompanying Notes thereto contained in this report.
The Company, an Oregon Corporation, became the unitary savings and loan
holding company of Pioneer Bank, a Federal Savings Bank (the "Bank") upon the
Bank's conversion from a federally chartered mutual to a federally chartered
stock savings bank (the "Conversion") on October 3, 1997. Accordingly, the
Company is primarily engaged in the business of planning, directing and
coordinating the business activities of the Bank, the deposits of which are
insured by the Federal Deposit Insurance Corporation ("FDIC") under the
Savings Association Insurance Fund ("SAIF"). The Bank conducts business from
its main office in Baker City, Oregon and its nine branch offices located in
Eastern Oregon.
The Bank operates as a community oriented financial institution devoted
to serving the needs of its customers. The Bank's business consists generally
of attracting retail deposits from the general public and using those funds to
originate one-to-four family residential loans, consumer loans and commercial
loans in its market area. To a lesser extent the Bank also purchases loans in
or near its market area and utilizes wholesale funding from the Federal Home
Loan Bank of Seattle ("FHLB").
D-5
The Bank's results of operations depend primarily on its net interest
income, which is the difference between the income earned on its
interest-earning assets, such as loans and investments, and the cost of its
interest-bearing liabilities, consisting of deposits and FHLB borrowings. The
Bank's net income is also affected by, among other things, fee income,
provisions for loan losses, operating expenses and income tax provisions. The
Bank's results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation and policies concerning monetary and fiscal
affairs, housing and financial institutions and the attendant actions of the
regulatory authorities.
Comparison of Financial Condition at March 31, 2003 and March 31, 2002
Total assets at March 31, 2003 decreased $20.9 million to $377.5 million
compared to $398.4 million, or 5.2%, at March 31, 2002. The decrease in
assets is principally attributable to a $37.6 million, or 14.2%, decrease in
net loans receivable partially offset by a $15.5 million, or 16.8% increase in
securities. The decrease in loans receivable was primarily caused by a $28.5
million, or 23.2%, decrease in residential real estate loans, an $8.1 million,
or 29.2%, decrease in a commercial real estate loan pool purchased in fiscal
year end 2002. The decrease in residential real estate loans is reflective of
the Company's strategy to decrease interest rate risk by selling newly
originated fixed rate real estate loans. Total liabilities at March 31, 2003
decreased $28.2 million, or 8.2%, to $317.4 million compared to $345.5 million
at March 31, 2002. Borrowings decreased $22.6 million, or 25.9% to $64.5
million at March 31, 2003 compared to $87.1 million at March 31, 2002. The
Company paid off borrowings during fiscal year 2003 with the proceeds from
loan repayments. Deposits decreased $7.0 million, or 2.7%, to $249.1 million
at March 31, 2003 compared to deposits of $256.1 million at March 31, 2002.
The decrease in deposits reflects the mature market in which the Company
conducts business as well as an emphasis on disciplined product pricing.
Demand and savings accounts at March 31, 2003 increased by a total of $9.6
million, or 7.0%, to $146.4 million compared to $136.7 million at March 31,
2002. Certificates of deposits decreased by $16.6 million, or 13.9%,
offsetting the growth in core deposits. Total shareholders' equity increased
$7.3 million, or 13.8%, to $60.1 million at March 31, 2003 compared to total
shareholders' equity of $52.8 million at March 31, 2002. The increase in
shareholders' equity was largely attributable to annual net income of $5.2
million, a $1.5 million increase in other comprehensive income partially
offset by the Company paying $1.2 million in dividends throughout fiscal 2003.
Comparison of Operating Results for the Years Ended March 31, 2003 and 2002
General. Net income for the year ended March 31, 2003 was $5.2 million
or $1.67 per diluted share compared to net income of $4.9 million or $1.52 per
share for the year ended March 31, 2002, an increase of $239,000. The
increase in net income was primarily due a $696,000 increase in net interest
income after provision for loan losses partially offset by a $449,000 increase
in the provision for income taxes. The increase in net interest income after
provision for loan losses was generally due to wider interest rate spreads in
the most recent year as well as a $160,000 decrease in the provision for loan
losses. The increase in the provision for income taxes was generally due to
higher pre-tax earnings and a higher effective tax rate.
Interest Income. Interest income for the year ended March 31, 2003 was
$24.8 million compared to $27.9 million for the year ended March 31, 2002, a
decrease of $3.1 million, or 11.1%. The decrease in interest income was
primarily a result of a 70 basis point decrease in the yield on average
interest earning assets to 6.86% for the year ended March 31, 2003 compared to
7.56% for the year ended March 31, 2002. Average interest earning assets
decreased by $6.3 million to $362.0 million from $368.3 million during the
year ended March 31, 2003, contributing to a reduction in interest income.
The decrease in the yield on average interest earning assets is a result of a
decreasing rate environment in 2003 as well as an increase in the ratio of
average security balances relative to average interest earning assets. The
average yield on interest earning asset groups for the year ended March 31,
2003 compared to the year ended March 31, 2002 were as follows: loans
receivable: 7.62% versus 8.05%, mortgage-backed securities: 5.85% versus
6.65%, investment securities: 3.99% versus 6.14%, FHLB stock: 6.38% versus
6.74%, cash and overnight investments: 1.50% versus 0.16%, respectively. The
average balance of interest earning asset groups for the year ended March 31,
2003 compared to the year ended March 31, 2002 were as follows: loans
receivable: $248.7 million versus $282.3 million, mortgage-backed securities:
$75.5 million versus $52.0 million, investment securities: $23.0 million
D-6
versus $20.9 million, FHLB stock: $6.5 million versus $5.9 million, cash and
overnight investments: $8.3 million versus $7.3 million, respectively.
Interest Expense. Interest expense for the year ended March 31, 2003 was
$9.2 million compared to $12.7 million for the year ended March 31, 2002, a
decrease of $3.5 million, or 27.6%. The decrease in interest expense was the
result of a 97 basis point reduction in the average cost of interest bearing
liabilities for the year ended March 31, 2003 to 3.01% from 3.98% during the
year ended March 31, 2002. The decrease in the average cost of liabilities
was augmented by a $15.1 million, or 4.7%, decrease in average interest
bearing liabilities to $304.9 million for the year ended March 31, 2003 versus
$320.0 million for the year ended March 31, 2002. The average costs of
interest bearing liabilities for the year ended March 31, 2003 compared to the
year ended March 31, 2002 were as follows: interest checking: 0.42% versus
0.86%, savings: 1.09% versus 1.81%, money market: 1.60% versus 2.48%,
certificates of deposit 3.49% versus 5.04% respectively. The average balance
of interest bearing liabilities for the year ended March 31, 2003 compared to
the year ended March 31, 2002 were as follows: interest checking: $37.0
million versus $36.7 million, savings: $19.6 million versus $17.2 million,
money market: $63.5 million versus $60.6 million, certificates of deposit
$121.2 million versus $120.6 million respectively.
Provision and Allowance for Loan Losses. The provision for loan losses
are charges to earnings to bring the total allowance for loan losses to levels
considered by management as adequate to provide for known and inherent risks
in the loan portfolio, including management's continuing analysis of factors
underlying the quality of the loan portfolio. These factors include changes
in portfolio size and composition, actual loan loss experience, current and
anticipated economic conditions, detailed analysis of individual loans for
which full collectibility may not be assured, and determination of the
existence and realizable value of the collateral and guarantees securing the
loans. See Note 1 of Notes to the Consolidated Financial Statements.
The provision for loan losses for the year ended March 31, 2003 was
$321,000 compared to $481,000 for the year ended March 31, 2002, a decrease of
$160,000. The lower provision for loan losses in fiscal 2003 reflects the
reduction in loans that occurred during the year versus an increase in loans
during fiscal 2002. During the year ended March 31, 2003 loan balances
decreased by $37.7 million, or 14.1%, to $230.4 million. During the year ended
March 31, 2002 loan balances increased by $15.1 million, or 6.0% to $268.1
million. Net charge offs for the year ended March 31, 2003 were $380,000
compared to $299,000 for the fiscal year ended March 31, 2002. The increase
in charge offs for the year ended March 31, 2003 was generally attributable to
the weakening economy and its impact of the Bank's dealer loan portfolio. At
March 31, 2003 the allowance for loan losses was .96% of total loans compared
to .85% at March 31, 2002. The allowance for loan losses was 432.9% of
non-performing loans at March 31, 2003 compared to 678.2% at March 31, 2002,
which management believes is adequate to absorb potential losses in the loan
portfolio.
The Company's methodology for calculating the necessary allowance for
loan losses requires the Company to reserve specific percentages of
outstanding loan balances with the percentages varying based upon the
perceived risk of the different loan types and loan classification within
specific loan types. For unclassified loans the Company reserves .25% of
outstanding balances for single family real estate loans, .50% for commercial
real estate loans, 1.00% for consumer loans, 2.00% for dealer auto loans,
7.00% for credit card balances, and 1.50% for commercial and agricultural
loans. For classified loans the Company reserves from 2.00% to 100.00% of
outstanding balances depending upon the loan type and classification. During
the year ended March 31, 2003 loan balances decreased by $37.7 million, or
14.1% to $230.4 million from $268.1 million at March 31, 2002. Generally, the
decrease in loan balances during the year caused the required allowance for
loan losses to decrease by $59,000 to $2.2 million.
Non-Interest Income. Non-interest income for the year ended March 31,
2003 was $3.5 million and was also $3.5 million for the year ended March 31,
2002. However, non-interest income for the year ended March 31, 2003 included
no gain on sale of securities compared to a $314,000 gain on securities for
the year ended March 31, 2002. During the year ended March 31, 2003 deposit
service charges increased $88,000, or 4.9%, check card fees increased by
$30,000, or 22.8%, loan fees on conventional loans sold increased $159,000, or
82.2%, and gain on sale of real estate increased $32,000, or 266.4% partially
offsetting the decrease in gain on sale of securities.
D-7
Non-Interest Expense. Non-interest expense for the year ended March 31,
2003 decreased by $20,000, or 0.2%, to $11.3 million from $11.3 million for
the year ended March 31, 2002. The primary factors affecting the decrease in
non-interest expense were a $652,000 decrease in legal services, a $83,000
decrease in deposit product expenses, a $52,000 decrease in telephone expense,
and a $73,000 decrease in furniture and equipment depreciation which were
partially offset by a $495,000 increase in compensation and benefits, a
$117,000 increase in other professional services, a $64,000 increase in audit
expenses, a $53,000 increase in advertising and promotions and a $45,000
increase in other employee expense. The reduction in legal expenses are a
result of settled lawsuits referenced in the Company's March 31, 2002 Form
10-K and March 14, 2002 Form 8-K. The increase in compensation and benefits
expense is due to normal annual increases in individual employee compensation
as well as an increase in the cost of stock-based compensation due to a higher
company stock price.
Income Taxes. Income tax expense was $2.4 million for the year ended
March 31, 2003 compared to $1.9 million for the prior year. The Company's
effective tax rate for the years ended March 31, 2003 and 2002 were 31.5% and
28.1%, respectively. The Company's effective tax rate has increased in the
year ended March 31, 2003 due to increased earnings, and a $168,000 tax
benefit related to the Company's employee stock ownership plan taken in fiscal
2002 that related to a prior year.
Comparison of Financial Condition at March 31, 2002 and March 31, 2001
Total assets at March 31, 2002 increased $9.5 million to $398.4 million
compared to $388.9 million at March 31, 2001. The growth in assets was
primarily attributable to a $15.0 million increase in net loans receivable
partially offset by a $4.5 million dollar decrease in securities. The
increase in loans receivable was caused by a $26.5 million increase in
commercial real estate loans, a $1.9 million increase in commercial and
agricultural loans and a $1.5 million increase in consumer loans partially
offset by a $14.4 million decrease in residential real estate loans. The
decrease in residential real estate loans reflects the Company's strategy to
decrease interest rate risk by selling newly originated fixed rate real estate
loans. The net loan growth was funded by $14 .0 million increase in
borrowings and $2.3 million increase in deposits offset by a $5.0 million
decrease in shareholders' equity. The increase in deposits reflects the
Company's emphasis on core deposit growth. Demand and savings accounts at
March 31, 2002 increased by a total of $10.9 million, or 8.6%, to $136.7
million compared to $125.9 million at March 31, 2001. Certificates of
deposits decreased by $8.6 million, or 6.7%, partially offsetting the growth
in core deposits. The decrease in shareholders' equity was largely caused by
the Company purchasing $9.7 million of its common stock, paying $1.3 million
of dividends, and partially offset by earnings of $4.9 million. Generally,
the Company purchases its outstanding shares through formal share repurchase
programs, when purchases are thought to be accretive to earnings per share and
the Company has excess capital available for such purchases.
Comparison of Operating Results for the Years Ended March 31, 2002 and 2001
General. Net income for the year ended March 31, 2002 was $4.9 million
or $1.58 per basic share compared to net income of $1.7 million or $0.51 per
share for the year ended March 31, 2001. The increase in net income was
attributable to a $2.2 million increase in net interest income, a $1.3 million
increase in non-interest income, and a $600,000 decrease in non-interest
expense. The decrease in non-interest expense for the year ended March 31,
2002 was largely a result of one-time restructuring expenses incurred in the
year ended March 31, 2001 including a $303,000 reduction-in-force charge and
a $953,000 loss on sale of low yielding securities. The substantial increase
in earnings per share are a result of a favorable interest rate environment as
well as the successful execution of the Company's strategic plan which
required the development of sustainable earnings per share growth as its
primary objective. Related objectives included, but were not limited to,
reduction of interest rate sensitive assets, non-interest income growth, non-
interest expense control, core deposit growth and a Company-wide emphasis of
customer service combined with a de-emphasis of "best price."
Interest Income. Interest income for the year ended March 31, 2002 was
$27.9 million compared to $28.3 million for the year ended March 31, 2001, a
decrease of $400,000, or 1.4%. The decrease in interest income was a result
of a 14 basis point decrease in the yield on average interest earning assets
to 7.56% for the year ended March 31, 2002 compared to 7.70% for the year
ended March 31, 2001. Average interest earning assets increased by $849,000
D-8
to $368.3 million during the year ended March 31, 2002, partially offsetting
the reduction in yield on those assets. The decrease in the yield on average
interest earning assets was a result of a decreasing rate environment in 2002
as well as increases in adjustable rate loans and a decrease in fixed rate
real estate loans. The average yield on interest earning asset groups for the
year ended March 31, 2002 compared to the year ended March 31, 2001 were as
follows: loans receivable: 8.05% versus 8.31%, mortgage-backed securities:
6.65% versus 7.10%, investment securities: 6.14% versus 6.44%, FHLB stock:
6.74% versus 6.48%, and cash and overnight investments: 0.16% versus 1.59%,
respectively. The average balance of interest earning assets for the year
ended March 31, 2002 compared to the year ended March 31, 2001 were as
follows: loans receivable: $282.3 million versus $242.7 million,
mortgage-backed securities: $52.0 million versus $77.4 million, investment
securities: $20.9 million versus $34.2 million, FHLB stock: $5.9 million
versus $4.4 million, and cash and overnight investments: $7.3 million versus
$8.8 million, respectively.
Interest Expense. Interest expense for the year ended March 31, 2002
was $12.7 million compared to $15.4 million for the year ended March 31, 2001,
a decrease of $2.7 million, or 17.5%. The decrease in interest expense was
due to a 74 basis point reduction in the average cost of interest bearing
liabilities for the year ended March 31, 2002 to 3.98% from 4.92% during the
year ended March 31, 2001. The decrease in the average cost of liabilities
was partially offset by a $10.4 million, or 3.4% increase in average interest
bearing liabilities to $320.0 million for the year ended March 31, 2002 versus
$309.6 million for the year ended March 31, 2001. The average cost of
interest bearing liabilities for the year ended March 31, 2002 compared to the
year ended March 31, 2001 were as follows: interest checking: 0.86% versus
1.25%, savings: 1.81% versus 2.34%, money market: 2.48% versus 4.11%,
certificates of deposit 5.04% versus 5.97%, respectively. The average balance
of interest bearing liabilities for the year ended March 31, 2002 compared to
the year ended March 31, 2001 were as follows: interest checking: $36.7
million versus $37.1 million, savings: $17.2 million versus $17.0 million,
money market: $60.6 million versus $53.9 million, certificates of deposit
$120.6 million versus $125.8 million, respectively.
Provision and Allowance for Loan Losses. The provision for loan losses
are charges to earnings to bring the total allowance for loan losses to levels
considered by management as adequate to provide for known and inherent risks
in the loan portfolio, including management's continuing analysis of factors
underlying the quality of the loan portfolio. These factors include changes
in portfolio size and composition, actual loan loss experience, current and
anticipated economic conditions, detailed analysis of individual loans for
which full collectibility may not be assured, and determination of the
existence and realizable value of the collateral and guarantees securing the
loans. See Note 1 of Notes to the Consolidated Financial Statements.
The provision for loan losses for the year ended March 31, 2002 was
$481,000 compared to $794,000 for the year ended March 31, 2001, a decrease of
$313,000. The lower provision for loan losses is fiscal 2002 reflects the
significant one time increase to the allowance for loan losses that occurred
in fiscal 2001 as a result of changing the methodology for determining the
allowance for loan losses. Net charge offs for the year ended March 31, 2002
were $299,000 compared to $92,000 for the fiscal year ended March 31, 2001.
At March 2002 the allowance for loans losses was 0.85% of total loans compared
to 0.84% at March 31, 2001. The allowance for loan losses was 678.6% of non-
performing loans at March 31, 2002 compared to 3,814.6% at March 31, 2001.
Non-Interest Income. Non-interest income for the year ended March 31,
2002 increased by 58%, or $1.3 million, to $3.5 million when compared to the
year ended March 31, 2001. The increase in non-interest income was
principally due to a $627,000 increase in income from bank owned life
insurance, a $314,000 net increase in gain on sale of securities and a
$193,000 gain on sale of loans.
Non-Interest Expense. Non-interest expense for the year ended March 31,
2002 decreased by $621,000, or 5%, to $11.3 million from $11.9 million for the
year ended March 31, 2001. The primary factors affecting the decrease in
non-interest expense were $953,000 of losses on sales of securities in the
year ended March 31, 2001 compared to no net losses for the year ended March
31, 2002, $1.1 million of legal expenses in fiscal 2002 versus $307,000 of
legal expenses in fiscal 2001, and $6.2 million of compensation and benefits
in fiscal 2002 compared to $6.6 million of compensation and benefits in fiscal
2001.
D-9
Income Taxes. Income tax expense was $1.9 million for the year ended
March 31, 2002 compared to $650,000 for the prior year. The Company's
effective tax rate for the years ended March 31, 2002 and 2001 were 28.1% and
27.7%, respectively. The Company's effective tax rate has benefitted from
increased levels of tax advantaged assets. In the year ended March 31, 2002,
the Company realized a $168,000 tax benefit related to the Company's employee
stock ownership plan from a prior year.
Average Balances, Interest and Average Yields/Costs
The following table sets forth certain information for the periods indicated regarding average balances
of assets and liabilities as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing income or expense by the
average balances of assets or liabilities, respectively, for the periods presented. Average balances are
derived from daily balances for the years ended March 31, 2003, 2002 and 2001.
Year Ended March 31,
----------------------------------------------------------------------------------
2003 2002 2001
------------------------- ------------------------- -------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Interest-earning
assets:
Loans receivable,
net (1)............. $248,748 $18,964 7.62% $282,267 $22,710 8.05% $242,662 $20,155 8.31%
Mortgage-backed
securities.......... 75,508 4,414 5.85 51,950 3,456 6.65 77,413 5,496 7.10
Investment
securities.......... 23,020 918 3.99 20,944 1,286 6.14 34,164 2,201 6.44
FHLB stock........... 6,463 412 6.37 5,891 397 6.74 4,411 286 6.48
Federal funds sold
and overnight
interest-bearing
deposits............ 8,278 124 1.50 7,294 12 0.16 8,847 141 1.59
-------- ------- -------- ------- -------- -------
Total interest-
earning assets.... 362,017 24,832 6.86 368,346 27,861 7.56 367,497 28,279 7.70
-------- ------- -------- ------- -------- -------
Non-interest-
earning assets...... 27,451 27,955 16,512
-------- -------- --------
Total assets....... $389,468 $396,301 $384,009
======== ======== ========
Interest-bearing
liabilities:
Passbook accounts.... $ 19,560 213 1.09 $ 17,175 311 1.81 $ 16,983 397 2.34
Money market
accounts............ 63,495 1,018 1.60 60,575 1,505 2.48 53,852 2,213 4.11
NOW accounts......... 36,968 155 0.42 36,680 315 0.86 37,122 463 1.25
Certificates of
deposit............. 112,161 3,916 3.49 120,577 6,075 5.04 125,756 7,502 5.97
-------- ------- -------- ------- -------- -------
Total interest-
bearing deposits.. 232,184 5,302 2.28 235,007 8,206 3.49 233,713 10,575 4.52
-------- ------- -------- ------- -------- -------
Securities sold under
agreements to
repurchase.......... -- -- NA -- -- NA -- -- NA
FHLB advances........ 72,681 3,872 5.33 84,989 4,533 5.33 75,871 4,817 6.35
-------- ------- -------- ------- -------- -------
Total interest-
bearing
liabilities....... 304,865 9,174 3.01 319,996 12,739 3.98 309,584 15,392 4.72
-------- ------- -------- ------- -------- -------
Non-interest-
bearing
liabilities....... 27,799 20,291 19,607
-------- -------- --------
Total liabilities.. 332,664 340,287 329,191
-------- -------- --------
Shareholders' equity. 56,804 56,014 54,818
-------- -------- --------
Total liabilities
and shareholders'
equity............ $389,468 $396,301 $384,009
======== ======== ========
Net interest income.. $15,658 $15,122 $12,887
======= ======= =======
Interest rate spread. 3.85% 3.58% 3.18%
D-10
Year Ended March 31,
----------------------------------------------------------------------------------
2003 2002 2001
------------------------- ------------------------- -------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ---- ------- --------- ---- ------- --------- ----
(Dollars in thousands)
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
Net interest margin.. 4.33% 4.11% 3.51%
Ratio of average
interest-earning
assets to average
interest-bearing
liabilities......... 118.75% 115.11% 118.71%
- ------------------
(1) Does not include interest on loans 90 days or more past due.
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on net interest income of the
Bank. Information is provided with respect to (i) effects on interest income attributable to changes in
rate (changes in rate multiplied by prior volume); (ii) effects on interest income attributable to changes
in volume (changes in volume multiplied by prior rate); (iii) the net change attributable to the combined
impact of volume and rate; and (iv) the total change (the sum of the prior columns).
Year Ended March 31, Year Ended March 31,
2003 Compared to Year 2002 Compared to Year
Ended March 31, 2002 Ended March 31, 2001
Increase (Decrease) Increase (Decrease)
Due to Due to
----------------------------------- ---------------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
---- ------ ------ ----- ---- ------ ------ -----
(In thousands)
<s> <c> <c> <c> <c> <c> <c> <c> <c>
Interest-earning assets:
Loans receivable (1).........$(1,214) $(2,698) $ 166 $(3,746) $ (631) $ 3,291 $(105) $ 2,555
Mortgage-backed and related
securities.................. (416) 1,567 (193) 958 (348) (1,808) 116 (2,040)
Investment securities........ (450) 127 (45) (368) (102) (851) 38 (915)
FHLB stock................... (22) 39 (2) 15 11 96 4 111
Federal funds sold and over-
night interest-bearing
deposits.................... 98 2 12 112 (127) (25) 23 (129)
------- ------ ------ ------- ------- ------ ----- ------
Total net change in
income on interest-
earning assets............ (2,004) (963) (62) (3,029) (1,197) 703 76 (418)
------- ------ ------ ------- ------- ------ ----- ------
Interest-bearing liabilities:
Passbook accounts............ (124) 43 (17) (98) (90) 4 -- (86)
Money market accounts........ (533) 72 (26) (487) (878) 276 (106) (708)
NOW accounts................. (161) 2 (1) (160) (145) (6) 3 (148)
Certificate accounts......... (1,869) (424) 134 (2,159) (1,170) (309) 52 (1,427)
Securities sold under
agreements to repurchase.... -- -- -- -- -- -- -- --
FHLB advances................ -- (656) (5) (661) (774) 579 (89) (284)
------- ------ ------ ------- ------- ------ ----- ------
Total net change in expense
on interest-bearing
liabilities................ (2,687) (963) 85 (3,565) (3,057) 544 (140) (2,653)
------- ------ ------ ------- ------- ------ ----- ------
Net change in net interest
income.......................$ 683 $ -- $ (147) $ 536 $ 1,860 $ 159 $ 216 $2,235
======= ====== ====== ======= ======= ====== ===== ======
- --------------
(1) Does not include interest on loans 90 days or more past due.
D-11
Market Risk and Asset and Liability Management
Market risk is the risk of loss from adverse changes in market prices and
rates. The Bank's market risk arises principally from interest rate risk
inherent in its lending, investment, deposit and borrowing activities.
Management actively monitors and manages its interest rate risk exposure.
Although the Bank manages other risks, such as credit quality and liquidity
risk, in the normal course of business, management considers interest rate
risk to be its most significant market risk that could potentially have the
largest material effect on the Bank's financial condition and results of
operations. Other types of market risks, such as foreign currency exchange
rate risk and commodity price risk, do not arise in the normal course of the
Bank's business activities.
The Bank's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating market interest
rates. The Bank has sought to reduce the exposure of its earnings to changes
in market interest rates by attempting to manage the mismatch between asset
and liability maturities and interest rates. The principal element in
achieving this objective is to increase the interest-rate sensitivity of the
Bank's interest-earning assets by originating for its portfolio an increasing
proportion of loans with interest rates subject to periodic adjustment to
market conditions (including commercial business, agricultural and consumer
loans). The Bank relies on retail deposits as its primary source of funds.
Management believes retail deposits and in particular core deposits (checking
and passbook savings accounts), compared to brokered deposits, reduce the
effects of interest rate risk. Management's efforts at lowering the Bank's
interest rate risk have proven successful. The Bank was examined by the OTS
and received a "satisfactory" rating.
The Bank's primary monitoring tool for assessing interest rate risk is
asset/liability simulation modeling, which is performed for the Bank by the
OTS. The modeling process is designed to capture the dynamics of balance
sheet, interest rate and spread movements and to quantify variations in net
interest income resulting from those movements under different rate
environments. The interest rate sensitivity analysis performed by the OTS for
the Bank incorporates end of period rate, balance and maturity data compiled
by the Bank's management using various levels of aggregation of that data.
The following table is provided by the OTS and sets forth the change in
the Bank's net portfolio value ("NPV") at March 31, 2003, based on OTS
assumptions, that would occur in the event of an immediate change in interest
rates, with no effect given to any steps that management might take to
counteract that change. NPV is defined as the present value of expected net
cash flows from existing assets minus the present value of expected net cash
flows from existing liabilities plus the present values of net expected cash
inflows from existing off-balance sheet contracts.
Basis Points ("bp") Estimated Change in
Change in Interest Rates Net Portfolio Value
------------------------ ----------------------------------------
2003 2002
------------------ -------------------
(Dollars in Thousands)
300(bp) $(12,053) (22.0)% $(21,412) (45.1)%
200 (6,776) (12.0) (14,430) (29.6)
100 (2,320) (4.0) (7,156) (14.3)
0 0 0 0 0
100 337 1.0 4,202 0.8
200 N/A N/A N/A N/A
300 N/A N/A N/A N/A
The above table illustrates, for example, that an instantaneous 200 basis
point increase in market interest rates at March 31, 2003 would reduce the
Bank's NPV by approximately $6.8 million, or 12.0% at that date. This
compares to a reduction in the Bank's NPV by approximately $14.4 million, or
29.6% at March 31, 2002.
D-12
Certain assumptions utilized by the OTS in assessing the interest rate
risk of savings associations within its region were utilized in preparing the
preceding table. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. In
the event of a change in interest rates, expected rates of prepayments on
loans and early withdrawals from certificates could deviate significantly from
those assumed in calculating the table. The model assumes a parallel change in
rates, whereas actual market interest rates would not necessarily react in a
parallel manner. Further, call provisions of certain securities, which
shorten the actual term to maturity if exercised, are not taken into account
in the model.
The following table presents the Bank's financial instruments that are
sensitive to changes in interest rates, categorized by expected maturity, and
the instruments' fair value at March 31, 2003. Market risk sensitive
instruments are generally defined as on- and off-balance sheet derivatives and
other financial instruments.
One Year After
Average Within to Three 3 Years to Beyond Fair
Rate One Year Years 5 Years 5 Years Total Value
---- -------- ----- ------- ------- ----- -----
(Dollars in thousands)
<s> <c> <c> <c> <c> <c> <c> <c>
Interest Sensitive Assets:
Loans receivable............ 7.42% $133,981 $56,607 $26,672 $14,553 $231,813 $239,393
Mortgage-backed securities.. 5.82 15,403 15,945 9,292 12,254 52,894 52,894
Tax free municipal bonds.... 4.49 -- -- -- 7,394 7,394 7,394
Investments and other
interest-earning assets... 3.25 27,229 -- -- 18,408 47,647 47,647
FHLB stock.................. 6.75 -- -- -- 6,727 6,727 6,727
Interest Sensitive Liabilities:
NOW checking................ 0.25 11,591 13,793 6,759 6,494 38,637 38,637
Passbook savings............ 0.83 6,052 7,201 3,529 3,389 20,171 20,171
Money market deposits....... 1.13 55,242 13,258 530 22 69,052 69,052
Time certificates........... 3.05 64,294 25,875 12,602 -- 102,771 102,771
Off-balance Sheet Items:
Commitments to extend
credit.................... 7.20 14,121 -- -- -- 14,121 14,121
Liquidity and Capital Resources
The Bank's primary sources of funds are customer deposits, proceeds from
principal and interest payments on loans, maturing securities and FHLB
advances. While maturities and scheduled amortization of loans are a
predictable source of funds, deposit flows, mortgage prepayments and maturing
securities, cash flows and anticipated maturities of mortgage-backed bonds and
agency securities are greatly influenced by general interest rates, economic
conditions and competition.
The Bank must maintain an adequate level of liquidity to ensure
sufficient funds to fund loan originations and deposit withdrawals, to satisfy
other financial commitments and to take advantage of investment opportunities.
The Bank generally maintains sufficient cash and short-term investments to
meet short-term liquidity needs. At March 31, 2003 cash and cash equivalents
totaled $9.1 million or 2.4% of total assets. The Bank also maintained an
uncommitted credit facility with the FHLB which provided for immediately
available advances up to an aggregate amount of $113.2 million, under which
$64.5 million in advances were outstanding at March 31, 2003. In addition to
the FHLB credit facility, at March 31, 2003 the Bank had a $50.0 million
reverse repurchase line of credit available with Merrill Lynch and a $21.0
million overnight line of credit with Key Bank.
D-13
The Bank's primary investing activity is the origination of one-to-four
family mortgage loans within its primary market area. During the years ended
March 31, 2003, 2002 and 2001 the Bank originated $27.7 million, $26.4 million
and $22.3 million of such loans, respectively. At March 31, 2003, the Bank
had commitments to extend credit totaling $42.5 million. The Bank anticipates
that it will have sufficient funds available to meet current loan commitments.
Certificates of deposit that are scheduled to mature in less than one year
from March 31, 2003 totaled $64.3 million. Historically, the Bank has been
able to retain a significant amount of its deposits as they mature.
OTS regulations require the Bank to maintain specific amounts of
regulatory capital. As of March 31, 2003, the Bank complied with all
regulatory capital requirements as of that date with tangible, core and total
capital ratios of 12.4%, 12.4% and 20.7%, respectively. See Note 15 of Notes
to Consolidated Financial Statements contained herein.
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the
change in the relative purchasing power of money over time due to inflation.
The primary impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike most industrial companies, virtually all the assets
and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
D-14
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Oregon Trail Financial Corp.
Baker City, Oregon
We have audited the accompanying consolidated balance sheets of Oregon Trail
Financial Corp. and Subsidiary (the "Company) as of March 31, 2003 and 2002,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended March 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Oregon Trail Financial Corp. and
Subsidiary as of March 31, 2003 and 2002, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
2003, in conformity with accounting principles generally accepted in the
United States of America.
/s/Deloitte & Touche LLP
Portland, Oregon
May 2, 2003
D-15
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND 2002
(In thousands)
- -----------------------------------------------------------------------------
ASSETS 2003 2002
Cash and due from banks $ 1,860 $ 1,725
Interest-bearing deposits 7,254 6,070
-------- --------
Total cash and cash equivalents 9,114 7,795
Securities:
Investment securities available for sale, at fair
value (amortized cost of $43,726 and $18,552) 44,319 18,319
Mortgage-backed and related securities available
for sale, at fair value (amortized cost of
$61,205 and $74,252) 63,616 74,100
Loans:
Loans held for sale 1,134 -
Loans receivable 229,314 268,143
Allowance for loan losses (2,221) (2,280)
-------- --------
Total loans, net 228,227 265,863
Accrued interest receivable 1,906 2,308
Premises and equipment, net 8,719 9,466
Stock in FHLB, at cost 6,727 6,315
Real estate owned and other repossessed assets 302 58
Other assets 14,555 14,142
-------- --------
TOTAL ASSETS $377,485 $398,366
======== ========
(Continued)
D-16
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2003 AND 2002
(In thousands, except share data)
- -----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY 2003 2002
LIABILITIES:
Deposits:
Interest-bearing $120,792 $114,859
Noninterest-bearing 25,563 21,878
Time certificates 102,771 119,341
-------- --------
Total deposits 249,126 256,078
Accrued expenses and other liabilities 2,483 2,052
Advances from FHLB 64,500 87,100
Net deferred tax liability 1,231 276
Advances from borrowers for taxes and insurance 38 37
-------- --------
Total liabilities 317,378 345,543
-------- --------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued or outstanding - -
Common stock, $.01 par value; 8,000,000 shares
authorized; March 3l, 2003, 4,694,875 issued,
2,954,938 outstanding; March 31, 2002, 4,694,875
issued 2,854,548 outstanding 29 31
Additional paid-in capital 23,815 22,965
Retained earnings (substantially restricted) 36,098 32,042
Unearned shares issued to the ESOP (805) (1,341)
Unearned shares issued to the MRDP (881) (1,253)
Accumulated other comprehensive income 1,851 379
-------- --------
Total shareholders' equity 60,107 52,823
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $377,485 $398,366
======== ========
See notes to consolidate financial statements (Concluded)
D-17
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands)
- -----------------------------------------------------------------------------
2003 2002 2001
INTEREST INCOME:
Interest and fees on loans receivable $18,964 $22,710 $20,155
Securities:
Mortgage-backed and related securities 4,414 3,456 5,496
U.S. government and government agencies
and other 1,042 1,298 2,342
FHLB dividends 412 397 286
------- ------- -------
Total interest income 24,832 27,861 28,279
------- ------- -------
INTEREST EXPENSE:
Deposits 5,302 8,206 10,575
FHLB advances 3,872 4,533 4,817
------- ------- -------
Total interest expense 9,174 12,739 15,392
------- ------- -------
Net interest income 15,658 15,122 12,887
PROVISION FOR LOAN LOSSES 321 481 794
------- ------- -------
Net interest income after
provision for loan losses 15,337 14,641 12,093
------- ------- -------
NONINTEREST INCOME:
Service charges on deposit accounts 1,881 1,793 1,728
Loan servicing fees 459 437 391
Gain on sale of loans 352 193 -
Realized gain on sale of securities - 314 -
Income from Bank Owned Life Insurance 668 685 58
Other income 91 57 (22)
------- ------- -------
Total noninterest income 3,451 3,479 2,155
------- ------- -------
(Continued)
D-18
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands, except share data)
- -----------------------------------------------------------------------------
2003 2002 2001
NONINTEREST EXPENSES:
Employee compensation and benefits $ 6,722 $ 6,227 $ 6,601
Supplies, postage, and telephone 880 895 860
Depreciation 783 852 895
Occupancy and equipment 733 730 705
Customer accounts 462 515 550
Advertising 375 322 314
Professional fees 961 1,472 606
FDIC insurance premium 44 48 49
Realized loss on sale of securities - - 953
Other 303 222 371
---------- ---------- ----------
Total noninterest expenses 11,263 11,283 11,904
---------- ---------- ----------
Income before income taxes 7,525 6,837 2,344
PROVISION FOR INCOME TAXES 2,371 1,922 650
---------- ---------- ----------
NET INCOME $ 5,154 $ 4,915 $ 1,694
========== ========== ==========
Basic earnings per share $ 1.78 $ 1.58 $ 0.51
Diluted earnings per share $ 1.67 $ 1.52 $ 0.50
Weighted average common shares outstanding:
Basic 2,902,501 3,104,121 3,331,002
Diluted 3,081,535 3,229,081 3,367,210
See notes to consolidated financial statements.
(Concluded)
D-19
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------
Unearned Unearned
Shares Shares Accumulated
Issued to Issued to Other
Employee Management Compre- Compre-
Common Stock Additional Stock Recognition hensive hensive
-------------- Paid-in Retained Ownership and Develop- Income Income
Shares Amount Capital Earnings Trust ment Plan (Loss) (Loss) Total
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
BALANCE, APRIL
1, 2000 3,317,006 $36 $31,743 $27,759 $(2,415) $ (740) $(3,279) $53,104
Net income - - - 1,694 - - $1,694 - 1,694
Cash dividends
paid - - - (1,079) - - - - (1,079)
Stock repurchased
and retired (76,308) (1) (945) - - - - - (946)
Earned ESOP
shares 53,656 - 70 - 537 - - - 607
New MRDP shares
granted - - 42 - - (42) - -
Earned MRDP
shares 25,811 - - - - 267 - - 267
Exercise of
stock options 5,592 1 62 63
Net unrealized loss
on securities
available for sale
of $5,584 (net of
tax expense of
$3,319) less re-
classification
adjustment for net
losses included
in net income of
$1,488(net of tax
benefit of $766) - - - - - - 4,096 4,096 4,096
------
- - - - - - 5,790 - -
--------- --- ------- ------- ------- ------- ====== ------- -------
BALANCE, MARCH
31, 2001 3,325,757 36 30,972 28,374 (1,878) (515) 817 57,806
Net income - - - 4,915 - - $4,915 - 4,915
Cash dividends
paid - - - (1,247) - - - - (1,247)
Stock repurchased
and retired (574,587) (6) (9,672) - - - - - (9,678)
Earned ESOP
shares 53,656 - 339 - 537 - - - 876
New MRDP shares
granted - - 1,056 - - (1,056) - - -
Earned MRDP
shares 29,380 - - - - 318 - - 318
Exercise of
stock options 20,342 1 270 - - - - - 271
Net unrealized
loss on
securities
available for
sale of $236
(net of tax
benefit of $148)
less reclassifi-
cation adjustment
for net gains
included in net
income of $202
(net of tax
expense of $126) - - - - - - (438) (438) (438)
------
Comprehensive
income - - - - - - $4,477 - -
--------- --- ------- ------- ------- ------- ====== ------- -------
BALANCE, MARCH
31, 2002 2,854,548 $31 $22,965 $32,042 $(1,341) $(1,253) $ 379 $52,823
D-20
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands, except share data)
- -----------------------------------------------------------------------------------------------------------
Unearned Unearned
Shares Shares Accumulated
Issued to Issued to Other
Employee Management Compre- Compre-
Common Stock Additional Stock Recognition hensive hensive
-------------- Paid-in Retained Ownership and Develop- Income Income
Shares Amount Capital Earnings Trust ment Plan (Loss) (Loss) Total
<s> <c> <c> <c> <c> <c> <c> <c> <c> <c>
BALANCE, MARCH
31,2002 2,854,548 $31 $22,965 $32,042 $(1,341) $(1,253) $ - $ 379 $52,823
Net income - - - 5,154 - - 5,154 - 5,154
Cash dividends
paid - - - (1,246) - - - - (1,246)
Stock repurchased
and retired (6,239) (2) (38) - - - - - (40)
Earned ESOP
shares 53,656 - 558 - 536 - - - 1,094
Earned MRDP
shares 31,215 - - - - 372 - - 372
Exercise of
stock options 21,758 330 - - - - - 330
Tax benefit of
SOP 148 148
Net unrealized
gain on
securities
available for
sale of $2,388
(net of tax
expense of $916) - - - - - - 1,472 1,472 1,472
Comprehensive
income - - - - - $6,626 - -
--------- --- ------- ------- ----- ----- ====== ------- -------
BALANCE, MARCH
31, 2003 2,954,938 $29 $23,815 $36,098 $(805) $(881) $ 1,851 $60,107
========= === ======= ======= ===== ===== ======= =======
D-21
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands)
- -----------------------------------------------------------------------------
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,154 $ 4,915 $ 1,694
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation 783 852 895
Compensation expense related to ESOP 1,094 876 607
Compensation expense related to MRDP 372 318 267
Amortization of deferred loan fees (285) (215) (71)
Provision for loan losses 321 481 794
Deferred income taxes 579 97 (267)
Amortization and accretion of premiums and
discounts on investments and loans purchased 416 355 361
FHLB dividends (412) (397) (286)
Gain on sale of loans (352) (193) -
(Gain) loss on sale of premises and equipment 10 (1) 5
Change in assets and liabilities:
Accrued interest receivable 402 64 80
Other assets (657) (880) 131
Accrued expenses and other liabilities 39 (1,646) 1,042
--------- --------- ---------
Net cash provided by (used in) operating
activities 7,464 4,626 5,252
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan originations (121,171) (122,107) (103,783)
Loan principal repayments 151,138 149,358 92,291
Loans purchased (14,359) (55,992) (19,774)
Loans sold 22,002 13,086 -
Proceeds from maturity of securities
available for sale 2,274 - -
Principal repayments of securities
available for sale 38,386 19,672 10,808
Purchase of securities available for sale (62,162) (44,368) (17,000)
Proceeds from sale of securities available
for sale 8,300 28,746 37,841
Purchases of stock in FHLB - (1,267) (468)
Purchase of Bank Owned Life Insurance - - (12,500)
Purchase of premises and equipment (46) (293) (1,137)
Proceeds from sale of premises and equipment - 111 3
--------- --------- ---------
Net cash provided by(used in)
investing activities 24,362 (13,054) (13,719)
--------- --------- ---------
(Continued)
D-22
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
(In thousands)
- -----------------------------------------------------------------------------
2003 2002 2001
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in deposits, net of withdrawals $ (6,952) $ 2,301 $ 16,042
Change in advances from borrowers for
taxes and insurance 1 15 (668)
Proceeds from FHLB advances 308,275 803,885 1,080,422
Repayment of FHLB advances (330,875) (789,910) (1,084,047)
Payment of cash dividends (1,246) (1,247) (1,079)
Stock options exercised 330 270 63
Stock repurchased and retired (40) (9,672) (946)
--------- --------- -----------
Net cash provided by(used in)
financing activities (30,507) 5,642 9,787
--------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,319 (2,786) 1,320
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,795 10,581 9,261
--------- --------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 9,114 $ 7,795 $ 10,581
========= ========= ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits and other
borrowings $ 8,791 $ 12,564 $ 14,691
Income taxes 1,893 2,745 435
Noncash investing activities:
Transfer of loans to real estate owned 217 - 41
Unrealized gain (loss) on securities
available for sale, net of tax 1,472 (438) 4,096
See notes to consolidated financial statements.
(Concluded)
D-23
OREGON TRAIL FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 2003, 2002, AND 2001
- -----------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements include
the accounts of Oregon Trail Financial Corp. and its wholly-owned subsidiary,
Pioneer Bank, a Federal Savings Bank (the "Bank"), collectively (the
"Company"). Oregon Trail Financial Corp. became the holding company of the
Bank upon conversion of the Bank from a federally-chartered mutual savings and
loan association to a federally-chartered capital stock savings and loan
association on October 3, 1997. All intercompany accounts and transactions
have been eliminated in consolidation.
Nature of Operations - The Company is engaged in the business of accepting
savings and demand deposits and providing mortgage, consumer, and commercial
loans, and to a lesser extent, agricultural loans, to its customers in eastern
Oregon.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make assumptions. These assumptions result in estimates
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Actual results could differ from those estimates.
Cash and Cash Equivalents - The Company considers all cash on hand and due
from banks, all interest-bearing deposits held at domestic banks, and
investment securities with a maturity of three months or less at date of
acquisition to be cash equivalents.
Securities - The Company accounts for securities in accordance with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Securities
are classified as held to maturity where the Company has the ability and
positive intent to hold them to maturity. Securities held to maturity are
carried at cost, adjusted for amortization of premiums and accretion of
discounts to maturity. Securities bought and held principally for the purpose
of sale in the near term are classified as trading securities and are carried
at fair value. There were no trading securities or held to maturity securities
at March 31, 2003 and 2002. Securities not classified as trading, or as held
to maturity, are classified as available for sale. Unrealized holding gains
and losses on securities available for sale are excluded from earnings and are
reported net of tax as a separate component of equity until realized.
Unrealized losses on securities resulting from an other than temporary decline
in fair value are recognized in earnings when incurred. Realized and
unrealized gains and losses are determined using the specific identification
method.
Federal Home Loan Bank Stock - The Company's investment in Federal Home Loan
Bank of Seattle ("FHLB") stock is carried at cost, which approximates its fair
value. As a member
D-24
of the FHLB system, the Company is required to maintain a minimum level of
investment in FHLB stock based on specified percentages of its outstanding
mortgages, total assets or FHLB advances. The Company's minimum investment
requirement was approximately $3,502,000, and $4,355,000 at March 31, 2003 and
2002, respectively. The Company may request redemption at par value of any
stock in excess of the amount the Company is required to hold. Stock
redemptions are granted at the discretion of the FHLB.
Loans Receivable - Loans are stated at unpaid principal less net deferred loan
origination fees. Interest income on loans is recognized based on the
principal and the stated interest rates and includes the amortization of net
deferred loan origination fees based on the level yield method over the
contractual life of the loans adjusted on a prospective basis for prepayments
and delinquencies. Net deferred loan origination fees on loans held for sale
are recognized in earnings when sold. Recognition of interest income is
discontinued and accrued interest is reversed when a loan is placed on
nonaccrual status. A loan is generally placed on nonaccrual status when the
loan becomes contractually past due more than 90 days. Delinquent interest on
loans past due 90 days or more is charged off or an allowance is established
by a charge to income equal to all interest previously accrued. Interest
payments received on nonaccrual loans are applied to principal if collection
of principal is doubtful. Loans are removed from nonaccrual status only when
the loan is deemed current and collectibility of principal and interest is no
longer doubtful.
Loans Held for Sale - To mitigate interest rate sensitivity, from time to time
certain fixed rate loans are identified as held for sale in the secondary
market. Accordingly, such loans are classified as held for sale in the
consolidated balance sheets and are carried at the lower of aggregate cost or
net realizable value. At March 31, 2003 loans held for sale totaled $1.1
million. At March 31, 2002 there were no loans held for sale.
Allowance for Loan Losses - Allowances for losses on specific problem loans
and real estate owned are charged to earnings when it is determined that the
value of these loans and properties, in the judgment of management, is
impaired. In addition to specific reserves, the Company also maintains a
general allowance for loan losses based on evaluating known and inherent risks
in the loan portfolio, including management's continuing analysis of the
factors underlying the quality of the loan portfolio. These factors include
changes in the size and composition of the loan portfolio, actual loan loss
experience, current and anticipated economic conditions, detailed analysis of
individual loans for which full collectibility may not be assured, and
determination of the existence and realizable value of the collateral and
guarantees securing the loans. The reserve is an estimate based upon factors
and trends identified by management at the time financial statements are
prepared.
The Company accounts for impaired loans in accordance with SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures. These statements address the disclosure requirements and
allocations of the allowance for loan losses for certain impaired loans. A
loan within the scope of these statements is considered impaired when, based
on current information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the
loan agreement, including scheduled interest payments. Smaller balance
homogeneous loans, including single family residential and consumer loans, are
excluded from the scope of this statement.
D-25
When a loan has been identified as being impaired, the amount of the
impairment is measured by using discounted cash flows, except when it is
determined that the sole source of repayment for the loan is the operation or
liquidation of the underlying collateral. In such case, impairment is measured
at current fair value of the collateral, reduced by estimated selling costs.
When the measurement of the impaired loan is less than the recorded investment
in the loan (including accrued interest, net deferred loan fees or costs, and
premium or discount), loan impairment is recognized by establishing or
adjusting an allocation of the allowance for loan losses. The Company
generally considers those loans on a nonaccrual status to be impaired. SFAS
No. 114, as amended, does not change the timing of charge-offs of loans to
reflect the amount ultimately expected to be collected.
Real Estate Owned - Real estate acquired through foreclosure is stated at the
lower of cost (principal balance of the former mortgage loan plus costs of
obtaining title and possession) or estimated fair value at the time of
foreclosure less estimated selling costs. Costs of development and improvement
of property are capitalized, and holding costs and market adjustments are
charged to expense as incurred.
Premises and Equipment - Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is recognized on the straight-line
method over the estimated useful lives of the assets as follows:
Software 3 years
Furniture and Equipment 5 to 7 years
Buildings and Improvements 15 to 39 years
Major renewals and betterments are capitalized and repairs are expensed. Gains
or losses from disposals of premises and equipment are reflected in other
noninterest expenses.
Income Taxes - The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, Accounting For Income Taxes, which requires the
use of the asset and liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Employee Stock Ownership Plan - The Company sponsors an Employee Stock
Ownership Plan ("ESOP"). The ESOP is accounted for in accordance with the
American Institute of Certified Public Accountants Statement of Position 93-6,
Employer's Accounting for Employee Stock Ownership Plans. Accordingly, the
shares held by the ESOP are reported as unearned shares issued to the employee
stock ownership plan in the balance sheet. As shares are committed to be
released, compensation expense is recorded equal to the then current market
price of the shares, and the shares become outstanding for earnings per share
calculations. The Company is allocating the shares ratably over a seven-year
period beginning with the first allocation on December 31, 1997.
D-26
Management Recognition and Development Plan - The Company sponsors a
Management Recognition and Development Plan ("MRDP"). The MRDP is accounted
for in accordance with SFAS No. 123, Accounting for Stock-Based Compensation.
The plan authorizes the grant of common stock shares to certain officers and
directors, which vest over a two to six year period in equal installments. The
Company recognizes compensation expense based on the fair value of the common
stock at the grant date. Granted MRDP shares that have not yet vested are
considered to be contingently issuable shares and are only included in diluted
earnings per share. When the MRDP shares vest, they are included in basic
earnings per share.
Stock-Based Compensation - The Company accounts for stock compensation using
the intrinsic value method as prescribed in Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Under the intrinsic value based method, compensation cost
for stock options is measured as the excess, if any, of the quoted market
price of stock at grant date over the amount an employee must pay to acquire
the stock. Stock options granted by the Company have no intrinsic value at the
grant date and, under APB No. 25, there is no compensation expense to be
recorded.
SFAS No. 123 encourages, but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value.
The fair value approach measures compensation costs based on factors such as
the term of the option, the market price at grant date, and the option
exercise price, with expense recognized over the vesting period. See Note 14
for further discussion.
Had compensation cost for these awards been determined in accordance with SFAS
No. 123, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts for the years ended March 31, 2003,
2002, and 2001 (dollars in thousands):
2003 2002 2001
Net income:
As reported $5,154 $4,915 $1,694
Pro forma 5,129 4,644 1,612
Earnings per common share - basic:
As reported $ 1.78 $ 1.58 $ 0.51
Pro forma 1.77 1.50 0.48
Earnings per common share - diluted:
As reported $ 1.67 $ 1.52 $ 0.50
Pro forma 1.66 1.44 0.48
Recently Issued Accounting Pronouncements-In July 2002, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities." This Statement requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. Examples of costs
covered by the standard include lease termination costs and certain
D-27
employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
Management does not believe that the adoption of this Statement will have a
material effect on the Company's consolidated financial statements.
In October 2002, FASB issued SFAS No. 147, "Acquisitions of Certain Financial
Institutions." This Statement provides guidance on the accounting for the
acquisition of a financial institution, and applies to all acquisitions except
those between two or more mutual enterprises. The provisions of this
statement provide that the excess of the fair value of liabilities assumed
over the fair value of tangible and identifiable intangible assets acquired in
a business combination represents goodwill that should be accounted for under
SFAS No. 142, "Goodwill and Other Intangible Assets." Financial institutions
meeting conditions outlined in SFAS No. 147 will be required to restate
previously issued financial statements. The Company currently has no goodwill
that will be impacted by SFAS No. 147.
In November 2002, the FASB issued FASB Interpretation No. 45 ("FIN No. 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN No. 45 is an
interpretation of FASB Statements No. 5, 57, and 107 and rescinds FIN No. 35.
This Interpretation elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its obligations under
certain guarantees that it has issued. The disclosure requirements in this
Interpretation are effective for financial statements of interim or annual
periods ending after December 15, 2002. The Company has adopted the
provisions of FIN No. 45.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for an entity that voluntarily changes to the fair value based
method of accounting for stock-based employee compensation. This statement is
effective for fiscal years ending after December 15, 2002. The provisions of
SFAS No. 148 do not have a material impact on the results of operations or
financial condition of the Company.
2. SECURITIES
The amortized cost, gross unrealized gains and losses, and estimated fair
value of securities classified as available for sale at March 31, 2003 and
2002 are summarized as follows (in thousands):
D-28
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 2003
Available for sale:
U.S. government and government
agency obligations $ 9,158 $ 256 $ - $ 9,414
Trust preferred securities 6,833 464 (129) 7,168
Other Securities 27,735 11 (9) 27,737
Mortgage-backed and related
securities 50,582 2,312 - 52,894
Collateralized mortgage
obligations 10,623 99 - 10,722
-------- ------ ----- --------
Total available for sale $104,931 $3,142 $(138) $107,935
======== ====== ===== ========
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
March 31, 2002
Available for sale:
U.S. government and government
agency obligations $11,161 $ 234 $(423) $10,972
Trust preferred securities 6,881 87 (131) 6,837
Other Securities 510 - - 510
Mortgage-backed and related
securities 58,433 1,171 (248) 59,356
Collateralized mortgage
obligations 14,819 4 (79) 14,744
------- ------ ----- -------
Total available for sale $91,804 $1,496 $(881) $92,419
======= ====== ===== =======
The carrying value and fair value of available for sale debt securities at
March 31, 2003 with contractual maturity dates are as follows (in thousands):
Amortized Cost Fair Value
Due in five years or less $ 2,003 $ 2,021
Due after five years through ten years 5,457 5,580
Due after ten years 69,736 72,597
No contractural maturity 27,735 27,737
-------- --------
Total $104,931 $107,935
======== ========
Expected maturities of mortgage-backed and related securities will differ from
contractual maturities because borrowers may have the right to prepay
obligations with or without prepayment penalties.
Investments and mortgage-backed and related securities totaling $35,774,000
and $41,357,000 were pledged against public funds and other deposits at March
31, 2003 and 2002, respectively.
D-29
3. LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
March 31,
---------------------
2003 2002
Mortgage loans:
One-to-four family $ 94,456 $122,950
Multi-family 7,724 10,799
Commercial 30,874 36,397
Agricultural 3,952 3,505
Construction 676 1,255
Land 23 34
-------- --------
Total mortgage loans 137,705 174,940
-------- --------
Consumer loans:
Unsecured $ 6,357 $ 6,066
Home equity and second mortgage 12,313 14,039
Auto loans 27,058 28,147
Credit card 1,354 1,174
Loans secured by savings deposits 288 502
Other secured 4,174 4,443
-------- --------
Total consumer loans 51,544 54,371
-------- --------
Commercial loans:
Business 26,270 24,152
Agricultural 16,294 16,185
-------- --------
Total commercial loans 42,564 40,337
-------- --------
Total loans 231,813 269,648
Less:
Net deferred loan fees 1,365 1,505
Allowance for loan losses 2,221 2,280
-------- --------
Total loans receivable, net $228,227 $265,863
======== ========
The weighted average interest rate on loans at March 31, 2003 and 2002 was
7.42% and 7.77%, respectively.
Allowance for loan loss activity is summarized as follows for the years ended
March 31, 2003, 2002, and 2001 (in thousands):
D-30
2003 2002 2001
Balance, beginning of year $2,280 $2,098 $1,396
Provision for loan losses 321 481 794
Charge-offs (427) (341) (111)
Recoveries 47 42 19
------ ------ ------
$2,221 $2,280 $2,098
====== ====== ======
At March 31, 2003 and 2002, the Company's recorded investment in loans for
which an impairment has been recognized under the guidance of SFAS No. 114 and
SFAS No. 118 was $513,000 and $336,000, respectively. The allowance for loan
losses in excess of specific reserves is available to absorb losses from all
loans, although allocations have been made for certain loan categories as part
of management's analysis of the allowance. The average investment in impaired
loans was approximately $391,000, $381,000 and $111,000 during the years ended
March 31, 2003, 2002, and 2001, respectively.
4. TRANSACTIONS WITH AFFILIATES
Loans - Certain directors and executive officers of the Company are customers
of, and have had transactions with, the Bank in the ordinary course of
business. An analysis of activity with respect to loans receivable from
directors and executive officers of the Company for the years ended March 31,
2003, 2002, and 2001 is summarized as follows (in thousands):
2003 2002 2001
Beginning balance $1,599 $1,245 $1,216
Additions 10 734 238
Reductions (70) (380) (209)
------ ------ ------
Ending balance $1,539 $1,599 $1,245
====== ====== ======
At March 31, 2003, all loans to directors and executive officers of the
Company were current.
5. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows (in thousands):
March 31,
------------------
2003 2002
Loans receivable $1,413 $1,698
Mortgage-backed and related securities 301 394
U.S. government and government agencies 192 216
------ ------
$1,906 $2,308
====== ======
D-31
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (in thousands):
March 31,
-----------------
2003 2002
Land $1,226 $1,226
Buildings and improvements 8,758 8,751
Furniture, fixtures and equipment 4,108 4,137
Construction in process - 3
------- -------
14,092 14,117
Less accumulated depreciation 5,373 4,651
------- -------
$ 8,719 $ 9,466
======= =======
7. DEPOSITS
Savings deposits at March 31 are summarized as follows (dollars in thousands):
2003 2002
----------------- ------------------
Weighted Weighted
Average Average
Interest Interest
Rate Balance Rate Balance
Non-interest bearing - % $ 25,563 - % $ 21,878
NOW checking 0.25 38,637 0.50 35,803
Passbook savings accounts 0.83 20,171 1.41 18,371
Money market deposit 1.13 61,984 1.75 60,685
Time certificates 3.05 102,771 3.96 119,341
---- -------- ---- --------
1.65% $249,126 2.43% $256,078
==== ======== ==== ========
At March 31, 2003, time certificate maturities are as follows (dollars in
thousands):
Within one year $ 64,294
One year to two years 16,007
Two years to three years 9,867
Three years to four years 6,422
Four years to five years 5,853
Thereafter 328
--------
$102,771
========
The aggregate amount of time certificates with a minimum denomination of
$100,000 was $27.4 million and $32.9 million at March 31, 2003 and 2002,
respectively. Deposit accounts in excess of $100,000 are not insured by the
Federal Deposit Insurance Corporation ("FDIC").
D-32
Interest expense on deposits is summarized as follows for the years ended
March 31, 2003, 2002, and 2001 (dollars in thousands):
2003 2002 2001
NOW checking $ 155 $ 314 $ 462
Passbook savings accounts 213 311 398
Money market deposit 1,018 1,504 2,213
Time certificates 3,916 6,077 7,502
------ ------ -------
$5,302 $8,206 $10,575
====== ====== =======
8. BORROWINGS
The Bank has entered into borrowing arrangements with the FHLB to borrow funds
under a short-term cash management advance program and long-term loan
agreements. All borrowings are secured by stock of, and cash deposits in, the
FHLB. Additionally, mortgage loans receivable and securities issued, insured,
or guaranteed by the U.S. Government or agencies thereof are pledged as
security for the loans.
At March 31, 2003, FHLB advances were scheduled to mature as follows (dollars
in thousands):
Adjustable Rate Fixed Rate Total
Advances Advances Advances
---------------------------------- ----------------
Rate* Amount Rate* Amount Rate* Amount
Due in less than
one year N/A $ - 5.98% $32,500 5.98% $32,500
One to two years N/A - 2.32 10,000 2.32 10,000
Three to four years N/A - 7.01 7,000 7.01 7,000
Greater than four
years N/A - 7.08 15,000 7.08 15,000
----- ---- ---- ------- ---- -------
N/A $ - 5.78% $64,500 5.78% $64,500
===== ==== ==== ======= ==== =======
* Weighted average interest rate
The maximum and average outstanding balances and average interest rates on
advances from the FHLB were as follows for the years ended March 31, 2003,
2002, and 2001 (dollars in thousands):
2003 2002 2001
Maximum outstanding at any month end $82,725 $109,600 $87,300
Daily average outstanding 72,681 84,989 75,871
Weighted average interest rates:
Annual 5.30% 5.33% 6.34%
End of year 5.78% 4.75% 6.10%
Interest expense during the year $ 3,872 $ 4,533 $ 4,817
The Bank has a $21.0 million overnight line of credit with Key Bank and a
$50.0 million reverse repurchase agreement with Merrill Lynch. At March 31,
2003, there were no outstanding balances in either account.
D-33
9. INCOME TAXES
A reconciliation between federal income taxes computed at the statutory rate
and the effective tax rate for the years ended March 31 is as follows:
2003 2002 2001
------ ------ ------
Federal income taxes at statutory rate 34.0% 34.0% 34.0%
State income taxes at statutory rate, net
of related federal tax effect 4.2 3.5 4.4
Officers life insurance (3.0) (3.4) -
Tax exempt interest (1.3) (1.4) (6.8)
Tax credit for qualified loans (0.9) (1.1) (5.3)
Other, net (1.5) (3.5) 1.6
---- ---- ----
31.5% 28.1% 27.9%
==== ==== ====
Provision (benefit) for income taxes for the years ended March 31, 2003, 2002,
and 2001 is summarized as follows (in thousands):
2003 2002 2001
------ ------ -----
Current:
Federal $1,422 $1,473 $ 711
State 370 352 206
------ ------ -----
Total current 1,792 1,825 917
------ ------ -----
Deferred:
Federal 476 83 (221)
State 103 14 (46)
------ ------ -----
Total deferred 579 97 (267)
------ ------ -----
Total provision for income taxes $2,371 $1,922 $ 650
====== ====== =====
D-34
The components of net deferred tax assets and liabilities at March 31, 2003
and 2002 are summarized as follows (in thousands):
2003 2002
Deferred tax assets:
Deferred loan fees $ - $ 323
Allowance for loan losses 768 792
Vacation accrual 158 137
Other 162 122
------- -------
Total gross deferred tax assets 1,088 1,374
------- -------
Deferred tax liabilities:
Unrealized gains on securities available
for sale (626) (250)
FHLB stock dividends (1,490) (1,322)
Accumulated depreciation (46) (76)
Deferred loan fees (155) -
Other (2) (2)
------- -------
Total gross deferred tax liabilities (2,319) (1,650)
------- -------
Net deferred tax liability $(1,231) $ (276)
======= =======
As a result of the bad debt deductions taken in years prior to 1988, retained
earnings include accumulated earnings of approximately $2,500,000, on which
federal income taxes have not been provided. If, in the future, this portion
of retained earnings is used for any purpose other than to absorb losses on
loans or on property acquired through foreclosure, federal income taxes may be
imposed at the then prevailing corporate tax rates. The Company does not
contemplate that such amounts will be used for any purpose which would create
a federal income tax liability; therefore, no provision has been made.
10. SHAREHOLDERS' EQUITY
Oregon Trail Financial Corp. ("OTFC") was incorporated under Oregon law in
June 1997 to acquire and hold all of the outstanding capital stock of the
Bank, as part of the Bank's conversion from a federally chartered mutual
savings and loan association. In connection with the conversion, which was
consummated on October 3, 1997, OTFC issued and sold 4,694,875 shares of
common stock including the shares allocated to the ESOP (par value of $.01 per
share) at a price of $10.00 per share for net total proceeds of $45,729,000,
after conversion expenses of $1,220,000.
At the time of conversion, the Company established a liquidation account in an
amount equal to its retained earnings as of March 31, 1997, the date of the
latest balance sheet used in the final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible withdrawable account
holders who have maintained their deposit accounts in the Bank after
conversion. In the event of a complete liquidation of the Bank (and only in
such event), eligible depositors who have continued to maintain accounts will
be entitled to receive a distribution from the liquidation account before any
liquidation may be made with
D-35
respect to common stock. The Bank may not declare or pay cash dividends if the
effect thereof would reduce its regulatory capital below the amount required
for the liquidation account.
The Company participates in stock repurchase programs in which it actively
repurchases shares of its common stock. The repurchase programs result in a
reduction of shares outstanding and reduce equity. A portion of the shares
repurchased were used to fund the MRDP and the ESOP. These plans were
approved by shareholders in August 1998 and were implemented in October 1998.
Repurchases of the Company's stock which were approved by the Board of
Directors and completed by management are summarized as follows:
Month Completed Shares Price
August 1998 422,539 $15.51
February 1999 213,666 13.14
July 1999 210,299 13.03
October 1999 6,144 11.31
November 1999 199,785 12.03
October 2000 3,508 11.69
December 2000 179,000 10.71
September 2001 332,900 15.77
October 2001 3,233 15.74
November 2001 151,754 17.52
December 2001 98,500 18.24
October 2002 6,239 20.47
Since converting to a stock company, 1,827,567 shares, or 38.9% of shares
initially outstanding, have been repurchased.
11. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
As part of the conversion discussed in Note 10, an ESOP was established for
all employees. The ESOP borrowed $3,756,000 from the Company and used the
funds to purchase 375,590 shares of the common stock of the Company issued in
the conversion. The loan will be repaid by the ESOP Trust over a seven-year
period. The loan had an outstanding balance of $1.0 million and $1.6 million
at March 31, 2003 and 2002, respectively, at an interest rate of 8.5%. The
shares included in the ESOP are held in a suspense account and released to
participants quarterly over a seven-year period. Compensation expense is
recognized to the extent of the fair value of shares committed to be released.
The Company recorded compensation expense related to the ESOP of $1,094,000,
$876,000, and $607,000 during the years ended March 31, 2003, 2002, and 2001,
respectively.
D-36
ESOP share activity is summarized as follows:
Committed to
Unreleased be Released
ESOP Shares Shares
Balance, March 31, 2000 241,450 131,907
2001 release (53,656) 53,656
-------
2001 Distributions (7,388)
-------
Balance, March 31, 2001 187,794 178,175
2002 release (53,656) 53,656
-------
2002 Distributions (7,384)
-------
Balance, March 31, 2002 134,138 224,447
2003 release (53,654) 53,654
-------
2003 Distributions (6,941)
-------
Balance, March 31, 2003 80,484 271,160
======= =======
At March 31, 2003, there were 351,644 shares remaining in the ESOP.
12. MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN ("MRDP")
In May 1998, the Board of Directors approved an MRDP for the benefit of
officers and non-employee directors which authorized the grant of 187,795
common stock shares. Shareholders approved the plan in July 1998. Those
eligible to receive benefits under the MRDP are determined by members of a
committee appointed by the Board of Directors of the Company. MRDP awards vest
ratably over a two- to five-year period beginning on the first anniversary of
the effective date of the MRDP, or upon the participant's death or disability.
The Company recognizes compensation expense based on the fair value of the
common stock on the grant date in accordance with the vesting schedule during
the years in which the shares are payable. Compensation expense for the years
ended March 31, 2003, 2002, and 2001 was $372,000, $318,000, and $267,000,
respectively. MRDP grants were as follows:
Number of Grant
Year Awarded Shares Price
1999 147,322 $11.15
2000 6,350 11.18
2001 7,130 11.72
2002 5,500 15.55
2002 58,362 16.63
2003 - -
At March 31, 2003, awarded but unvested MRDP shares totaled 67,370.
D-37
13. EARNINGS PER SHARE ("EPS")
EPS is computed in accordance with SFAS No. 128, Earnings Per Share. Basic EPS
is computed by dividing income available to common shareholders by the
weighted average number of common shares outstanding during the period,
without considering any dilutive items. Diluted EPS is computed using the
treasury stock method, giving effect to potential additional common shares
that were outstanding during the period. Potential dilutive common shares
include shares awarded but not released under the Company's MRDP Plan and
stock options granted under the stock option plan. Shares held by the
Company's ESOP that are committed for release are included in the basic and
diluted EPS calculations. The following is a summary of the effect of dilutive
securities in weighted average number of shares (denominator) for the basic
and diluted EPS calculations for the years ended March 31, 2003, 2002, and
2001. There are no resulting adjustments to net income:
2003 2002 2001
Weighted average common shares out-
standing - basic 2,902,501 3,104,121 3,331,002
Effect of dilutive securities on number
of shares:
MRDP shares 23,109 23,621 25,723
Stock options 155,925 101,339 10,485
--------- --------- ---------
Total dilutive securities 179,034 124,960 36,208
Weighted average common shares out-
standing - assuming dilution 3,081,535 3,229,081 3,367,210
14. STOCK OPTION PLAN
In May 1998, the Board of Directors approved a stock option plan for officers,
directors, and employees, which authorizes the granting of stock options.
Shareholders approved the plan in July 1998. The maximum number of shares
which may be issued under this plan is 469,488 with a maximum term of ten
years for each option from the date of grant. All awards vest in equal
installments over a three- to five-year period, with the exception of 102,368
shares granted in fiscal 2002 which vested immediately upon grant. Unvested
options become immediately exercisable in the event of death or disability.
D-38
Stock option activity is summarized as follows:
Weighted
Weighted Average
Average Remaining
Number of Exercise Contractual Exercisable
Shares Price Life Options
Outstanding, March 31, 2000 287,742 $11.15 8.5 years 80,119
Granted 66,251 9.70
Canceled (26,287) 11.15
Exercised (5,592) 11.15
------- ------
Outstanding, March 31, 2001 322,114 $10.85 7.9 years 120,823
Granted 120,626 16.46
Canceled (309) 11.15
Exercised (20,342) 11.18
------- ------
Outstanding, March 31, 2002 422,089 $12.44 7.7 years 280,277
======= ======
Granted - -
Canceled - -
Exercised (21,758) $11.76
------- ------
Outstanding, March 31, 2003 400,331 $12.47 6.4 years 339,852
As of March 31, 2003, outstanding stock options consist of the following:
Weighted Weighted Weighted
Average Average Average
Exercise Options Exercise Remaining Exercisable Exercise
Price Range Outstanding Price Life Options Price
$ 9.13 - $11.72 282,458 $10.80 5.4 years 234,152 $10.98
$11.73 - $16.63 117,873 16.48 8.6 years 105,700 16.59
------- ------ --------- ------- ------
Total 400,331 $12.47 6.4 years 339,852 $12.73
======= =======
Additional Stock Plan Information As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value
method in accordance with APB No. 25 and its related interpretations.
Accordingly, no compensation expense has been recognized in the financial
statements for employee stock arrangements.
SFAS No. 123 requires the disclosure of pro forma net income and earnings per
share had the Company adopted the fair value method as of the beginning of
fiscal year 2000. Under
D-39
SFAS No. 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were
developed to estimate fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values.
The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions:
2003 2002 2001
---- ---- ----
Risk-free interest rate N/A 4.49% 4.64%
Expected dividend N/A 2.42% 2.66%
Expected lives, in years N/A 7.9 5.0
Expected volatility N/A 14% 21%
The estimated weighted average grant-date fair value of options granted was
$3.15 and $1.91 per share for the years ended March 31, 2002, and 2001,
respectively. No options were granted in 2003.
15. REGULATORY MATTERS AND CAPITAL REQUIREMENTS
Regulatory Capital - The Bank is subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance sheet
items as calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk weighted assets, of Core capital to total assets, and tangible
capital to tangible assets (set forth in the table below). Management believes
that the Bank meets all capital adequacy requirements to which it is subject
as of March 31, 2003.
As of March 31, 2003, the most recent notification from the Office of Thrift
Supervision ("OTS") categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. To be categorized as "well
capitalized," the Bank must maintain minimum total risk-based and Tier I
risk-based ratios as set forth in the table below. There are no conditions or
events, since the notification, that management believes have changed the
Bank's category.
D-40
The Bank's actual and required capital amounts and ratios are presented in the
table below (dollars in thousands):
Categorized as
"Well Capitalized"
For Under
Capital Adequacy Prompt Corrective
Actual Purposes Action Provision
-------------- -------------- ----------------
As of March 31, 2003 Amount Ratio Amount Ratio Amount Ratio
Total Capital
(To risk weighted
assets) $48,327 20.7% $18,676 8.0% $23,345 10.0%
Tier I Capital
(To risk weighted
assets) $46,106 19.8% N/A N/A $14,007 6.0%
Core Capital
(To total assets) $46,106 12.4% $14,888 4.0% $18,610 5.0%
Tangible Capital
(To tangible assets) $46,106 12.4% $ 5,583 1.5% N/A N/A
As of March 31, 2002
Total Capital
(To risk weighted
assets) $42,583 16.3% $20,939 8.0% $26,174 10.0%
Tier I Capital
(To risk weighted
assets) $40,303 15.4% N/A N/A $15,704 6.0%
Core Capital
(To total assets) $40,303 10.2% $15,823 4.0% $19,778 5.0%
Tangible Capital
(To tangible assets) $40,303 10.2% $ 5,934 1.5% N/A N/A
The following table is a reconciliation of the Bank's capital, calculated
according to generally accepted accounting principles, to regulatory tangible
and risk-based capital at March 31, 2003 (in thousands):
Equity $48,082
Unrealized securities gains (1,745)
Equity of non-includable subsidiaries (161)
Other intangible assets (70)
-------
Tangible capital 46,106
General valuation allowance 2,221
-------
Total capital $48,327
=======
At periodic intervals, the OTS and the FDIC routinely examine the Bank as part
of their legally prescribed oversight of the thrift industry. Based on these
examinations, the regulators can direct that the Bank's financial statements
be adjusted in accordance with their findings. A future examination by the OTS
or the FDIC could include a review of certain transactions or other amounts
reported in the Bank's 2003, 2002, and 2001 financial
D-41
statements. In view of the uncertain regulatory environment in which the Bank
operates, the extent, if any, to which a forthcoming regulatory examination
may ultimately result in adjustments to the accompanying financial statements
cannot presently be determined.
16. EMPLOYEE BENEFIT PLAN
The Company sponsors a contributory defined contribution plan pursuant to
Section 401(k) of the IRC covering substantially all employees. Under the
plan, the Company made contributions limited to 3.33% of participating
employees' salaries for the years ended March 31, 2003, 2002 and 2001.
Contributions and plan administration expenses totaled $124,000, $110,000, and
$101,000 for the years ended March 31, 2003, 2002, and 2001, respectively.
17. COMMITMENTS AND CONTINGENCIES
The Company is a party to certain financial instruments with off-balance sheet
risk to meet the financing needs of customers. Commitments to extend credit
were $42,467,027 at March 31, 2003, which include fixed rate loan commitments
of $4,714,926. The range of interest rates for these loan commitments are
3.25% to 10.00%.
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 fixed expiration dates or other termination clauses
and may require payment of a fee by the customer. 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 Bank evaluates creditworthiness on an individual customer basis. The Bank
originates residential real estate loans and, to a lesser extent, commercial,
agriculture, and consumer loans. Greater than 75% of all loans in the Bank's
portfolio are secured by properties located in communities of eastern Oregon
and western Idaho.
The Company is party to litigation arising in the ordinary course of business.
In the opinion of management, these actions will not have a material adverse
effect, if any, on the Company's financial position, results of operations, or
cash flows.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
A summary of carrying value and estimated fair value of financial instruments
is summarized as follows (in thousands):
D-42
March 31, 2003 March 31, 2002
---------------------- ---------------------
Carrying Carrying
Value Fair Value Value Fair Value
Financial assets:
Cash and cash equivalents $ 9,114 $ 9,114 $ 7,795 $ 7,795
Securities 107,935 107,935 92,419 92,419
Loans receivable, net of
allowance for loan losses 228,227 247,921 265,863 278,536
FHLB stock 6,727 6,727 6,315 6,315
Financial liabilities:
Demand and savings
deposits 146,355 146,355 136,737 136,737
Time certificates of
deposit 102,771 105,323 119,341 120,489
FHLB advances 64,500 70,530 87,100 89,664
Financial assets and liabilities other than investment securities are not
traded in active markets. Estimated fair values require subjective judgments
and are approximate. The above estimates of fair value are not necessarily
representative of amounts that could be realized in actual market
transactions, nor of the underlying value of the Company. Changes in the
following methodologies and assumptions could significantly affect the
estimates.
Financial Assets - The estimated fair value approximates the carrying value of
cash and cash equivalents. For securities, the fair value is based on quoted
market prices. The fair value of loans is estimated by discounting future cash
flows using current rates at which similar loans would be made. The fair value
of FHLB stock approximates the carrying amount.
Financial Liabilities - The estimated fair value of demand and savings
deposits approximates carrying amounts. The fair value of time certificates of
deposit and FHLB advances is estimated by discounting the future cash flows
using current rates offered on similar instruments. The value of long-term
relationships with depositors is not reflected.
Off-Balance Sheet Financial Instruments - Commitments to extend credit
represent all off-balance-sheet financial instruments. The fair value of these
commitments is not significant. See Note 17 to the consolidated financial
statements.
19. DIRECTORS' PENSION PLAN
The Company established a director emeritus plan (the "Plan") effective
February 25, 1997. The purpose of the Plan is to reward and retain directors
of experience and ability in key positions of responsibility by providing such
directors with a benefit upon their retirement from the Board of Directors, as
compensation for their past services to the Bank and as an incentive to
perform such services in the future. The Plan is funded through current
operations and no assets are specifically identified to fund future benefit
payments.
D-43
Following are disclosures related to the Plan (in thousands):
2003 2002 2001
Change in benefit obligation:
Benefit obligation, beginning of year $ 301 $ 299 $ 303
Service cost 8 8 8
Interest cost 23 23 23
Benefits paid (29) (29) (35)
----- ----- -----
Benefit obligation, end of year $ 303 $ 301 $ 299
===== ===== =====
Unrecognized prior service cost $ 215 $ 237 $ 259
===== ===== =====
Weighted average assumption -
discount rate 6.75% 7% 7%
===== ===== =====
Components of net periodic benefit cost:
Service cost $ 8 $ 8 $ 8
Interest cost 23 23 23
Amortization of prior service cost 22 22 22
----- ----- -----
Net periodic benefit cost $ 53 $ 53 $ 53
===== ===== =====
20. PARENT COMPANY FINANCIAL INFORMATION
The Parent company financial information at March 31, 2003 and 2002 is as
follows (in thousands):
2003 2002
Assets:
Cash $ 8,606 $ 7,407
Investment in subsidiary 48,081 40,972
Other assets 3,659 4,520
------- -------
Total $60,346 $52,899
======= =======
Liabilities and Shareholders' Equity:
Other liabilities $ 239 $ 76
Shareholders' equity 60,107 52,823
------- -------
Total $60,346 $52,899
======= =======
D-44
The statements of income for the years ended March 31, 2003, 2002, and 2001
are as follows (in thousands):
2003 2002 2001
Income:
Interest on debt securities $ 214 $ 139 $ -
------ ------ ------
Total income 214 139 -
Expenses:
Interest and other expense 858 1,404 784
------ ------ ------
Total expenses 858 1,404 784
====== ====== ======
Income(loss) before income taxes and
equity in undistributed earnings of
the bank (644) (1,265) (784)
Income tax benefit 247 494 301
------ ------ ------
Net income before equity in undistributed
earnings of the bank (397) (771) (483)
Equity in undistributed earnings of the
bank 5,551 5,686 2,177
------ ------ ------
Net income $5,154 $4,915 $1,694
====== ====== ======
The statements of cash flows for the years ended March 31, 2003, 2002, and
2001 are as follows (in thousands):
2003 2002 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $5,154 $4,915 $1,694
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Equity in undistributed income of
subsidiary (5,551) (5,686) (2,177)
Compensation expense related to MRDP 372 318 267
Compensation expense related to ESOP 1,094 876 607
Change in assets and liabilities:
Decrease in other assets (662) (1,171) (295)
(Increase)decrease in other liabilities (163) (59) 46
------ ------ ------
Net cash provided by (used in)
operating activities 244 (807) 142
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividend received from subsidiary - 14,000 5,548
------ ------ ------
Net cash provided by investing
activities - 14,000 5,548
------ ------ ------
D-45
2003 2002 2001
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock (40) (9,672) (946)
Proceeds from exercise of stock options 330 270 63
Investment in subsidiary 2,111 (97) 409
Payment of cash dividend (1,246) (1,247) (1,079)
------ ------ ------
Net cash provided by(used in)
financing activities 1,155 (10,746) (1,553)
------ ------ ------
Net increase in cash 1,199 2,447 4,137
Cash:
Beginning of year 7,407 4,960 823
------ ------ ------
End of year $8,606 $7,407 $4,960
====== ====== ======
21. PENDING ACQUISITION
On February 24, 2003, the Company entered into a definitive merger agreement
("Agreement") with FirstBank NW Corp., Lewiston, Idaho ("FirstBank") pursuant
to which the Company will be merged into FirstBank NW Corp. The Agreement
also provides for the merger of the Bank with and into FirstBank's subsidiary
financial institution, FirstBank Northwest. Under the terms of the Agreement,
shareholders of the Company may elect to receive either cash or shares of
FirstBank common stock in exchange for their shares of Oregon Trail common
stock. The aggregate purchase price for the transaction is approximately
$74.0 million. Consummation of the merger is subject to approval by
FirstBank's and the Company's shareholders and the receipt of all required
regulatory approvals. It is anticipated that the transaction will be
completed in the fourth quarter of calendar year 2003. The Company incurred
$330,000 in expense related to the proposed merger with FirstBank for the year
ended March 31, 2003.
* * * * * *
D-46
SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
Year ended March 31, 2003 (in thousands, except share data):
June 30 September 30 December 31 March 31
Total interest income $6,515 $6,451 $6,218 $5,648
Total interest expense 2,553 2,405 2,213 2,002
------ ------ ------ ------
Net interest income 3,962 4,046 4,005 3,646
Provision for loan losses 143 105 36 38
------ ------ ------ ------
Net interest income after
provision 3,819 3,941 3,969 3,608
Noninterest income 850 799 858 944
Noninterest expense 2,709 2,795 2,730 3,028
------ ------ ------ ------
Income before income taxes 1,960 1,945 2,097 1,524
Provision for income taxes 633 670 767 301
------ ------ ------ ------
Net income $1,327 $1,275 $1,330 $1,223
====== ====== ====== ======
Basic earnings per share $ 0.46 $ 0.44 $ 0.45 $ 0.42
Diluted earnings per share $ 0.44 $ 0.42 $ 0.42 $ 0.39
Year ended March 31, 2002(in thousands, except share data):
June 30 September 30 December 31 March 31
Total interest income $7,248 $7,322 $6,860 $6,431
Total interest expense 3,785 3,445 2,954 2,555
------ ------ ------ ------
Net interest income 3,463 3,877 3,906 3,876
Provision for loan losses 318 24 (4) 144
------ ------ ------ ------
Net interest income after
provision 3,145 3,853 3,910 3,732
Noninterest income 1,019 723 796 942
Noninterest expense 2,732 2,718 2,973 2,861
------ ------ ------ ------
Income before income taxes 1,432 1,858 1,733 1,813
Provision for income taxes 358 525 513 526
------ ------ ------ ------
Net income $1,074 $1,333 $1,220 $1,287
====== ====== ====== ======
Basic earnings per share $ 0.32 $ 0.40 $ 0.42 $ 0.45
Diluted earnings per share $ 0.31 $ 0.39 $ 0.40 $ 0.43
* * * * * *
D-47
Corporate Information Board of Directors
Corporate Headquarters: Stephen R. Whittemore
2055 First Street Chairman of the Board
P.O. Box 786 Private Investor
Baker City, OR 97814
541.523.6327 John Gentry
President and General Manager,
Subsidiaries Gentry Ford Sales, Inc.
Pioneer Bank, A Federal Savings Bank
Albert H. Durgan
Transfer Agent and Registrar Retired President, Pioneer Bank
Registrar & Transfer Company
10 Commerce Drive Edward H. Elms
Cranford, NJ 07016 Owner, P&E Distributing Company
Special Counsel Charles H. Rouse
Breyer & Associates PC Private Investor and Consultant
8180 Greensboro Drive, Suite 785
McLean, VA 22102 Kevin D. Padrick
Attorney
Annual Meeting of Stockholders
A date for this year's annual Stock Listing
meeting of shareholders has not
been established by the Board of Oregon Trail Financial Corp. common
Directors. stock is traded over-the-counter on
the Nasdaq National Market under the
Executive Officers symbol "OTFC" since October 3, 1997.
Berniel L. Maughan, President and CEO Stockholders of record at March 31,
Zane L. Lockwood, Executive Vice 2003 totaled 726. This total does not
President reflect the number of persons or
Jonathan P. McCreary, Vice President entities who hold stock in nominee or
and CFO "street" name through various
brokerage firms. The following table
Investor Information shows the reported high and low sale
prices of the Company's common stock
A copy of the Form 10-K, including and declared dividends for each
consolidated financial statements, quarter within the two most recent
as filed with the Securities and fiscal years.
Exchange Commission, will be furnished Sale Price
without charge to stockholders as of ---------- Dividends
the record date for voting at the High Low Declared
annual meeting of stockholders upon ---- --- --------
written request to the Secretary,
Oregon Trail Financial Corp., 2055 Fiscal 2003
First Street, PO Box 786, Baker City, First quarter $19.70 $18.45 $0.10
Oregon 97814. Second quarter 21.58 17.45 0.10
Third quarter 21.60 20.20 0.11
Fourth quarter 23.10 20.11 0.11
Fiscal 2002
First quarter 14.99 13.94 0.09
Second quarter 16.10 14.52 0.10
Third quarter 18.63 15.48 0.10
Fourth quarter 18.62 17.51 0.10
D-48
Offices
www.pioneerbankfsb.com
Administrative Office Baker City Branch
2055 First Street 1990 Washington Avenue
Baker City, Oregon Baker City, Oregon
541.523.6327 541.523.5884
La Grande Branch Ontario Branch
1215 Adams Avenue 225 SW Fourth Avenue
La Grande, Oregon Ontario, Oregon
541.963.4126 541.889.3154
John Day Branch Burns Branch
150 West Main Street 524 West Monroe Street
John Day, Oregon Burns, Oregon
541.575.0257 541.573.2121
Enterprise Branch Island City Branch
205 West Main Street 3106 Island Avenue
Enterprise, Oregon La Grande, Oregon
541.426.4529 541.963.2200
Vale Branch Pendleton Branch
150 Longfellow Street North 1701 SW Court Avenue
Vale, Oregon Pendleton, Oregon
541.473.3831 541.276.1000
D-49
APPENDIX E
FirstBank NW Corp. 2003 Annual Report to Shareholders
FIRSTBANK NW CORP.
2003 Annual Report to Stockholders
Index
Letter to Shareholders 1
Business of the Company 3
Selected Consolidated Financial and Other Data 4
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Independent Auditors' Report 17
Consolidated Financial Statements 19
Notes to Consolidated Financial Statements 26
Corporate Information 59
Investor Information 59
Board of Directors 59
Stock Listing 60
Offices 60
FirstBank Letter to Shareholders
As many in the industry close the books on another year of lackluster earnings,
we are pleased and grateful to be able to say that FirstBank has continued its
performance record of growth and increased income. By staying focused on our
strengths and keeping keen our vision for opportunity, we forged our way through
a challenging year of economic hesitancy and declining interest rates and were
able to grow both income and assets, which is consistent with our long-term plan
to increase shareholder value.
As part of our long-term objective to expand our franchise in growth markets, we
opened our Spokane Commercial Loan Production Office in August 2002 contributing
significantly to our commercial loan portfolio. The Residential Loan Production
Office (LPO) we opened in Boise, Idaho in mid-March 2002 has experienced
outstanding loan growth as well and represents over $67 million of our
residential loan production for the fiscal year ending March 31, 2003.
Net income for the year ended March 31, 2003 increased 17% to $2.772 million, as
compared to income for the year ended March 31, 2002. Net interest income
increased by 18% to $10.832 million, a noteworthy performance given the interest
rate environment throughout the year. Non-interest income increased from $4.0
million for the twelve-month period ending March 31, 2002 to $4.4 million for
the same period ending March 31, 2003.
Our earnings per share grew significantly this year, with diluted EPS of $2.07,
a 22% increase over last year. Return on equity increased to 9.49% from 8.47% a
year ago. Strategic balance sheet and income growth efforts, our highest
priority, resulted in total assets at March 31, 2003 of $332.4 million. The loan
portfolio has grown to $257.0 million at March 31, 2003 from $238.1 million at
March 31, 2002; a 7.9% increase. Commercial loans represent 43.4%, agricultural
loans 10.6%, construction loans 17.2%, consumer loans 10.2%, and residential
real estate 18.6%, based on the total portfolio. We continue to make significant
progress towards a balance sheet structure typical to commercial banking. Record
volumes of loans were produced through our commercial and residential loan
centers during fiscal year 2003. Construction lending grew by more than $37
million, boosted by the high volume generated through our new Boise LPO. Our
branches have also been successful by growing deposits, an essential factor in
funding loan growth. Total branch deposits (excluding brokered deposits)
increased 8.0% from $177.1 million at March 31, 2002 to $191.3 million at March
31, 2003. Core checking, money market, and passbook savings accounts grew by
$17.8 million.
We expect to see the economy stabilize and begin to grow during the next fiscal
year. With that in mind, we must continue to focus on balancing growth, interest
rate risk, margin compression, and credit risk in order to meet our profit
objectives. In addition to navigating the changing economic environment, our
superior sales and service skills, competitive products and outstanding
employees will all be put to the test this coming year as we manage the proposed
merger of Pioneer Bank into our family.
We are confident that not only will our people and products lead us through a
successful merger, but that we have enhanced our strengths through the dedicated
staff within the Pioneer Bank franchise. Pioneer's existing customers, as well
as potential new customers in those Oregon markets, will soon see that FirstBank
really is a bank that fits them JustRight. We will continue to diligently
explore all opportunities to grow market share in existing markets and look to
new markets that could benefit from our formula of being the bank that's big
enough to offer customers all the banking services they need, yet small enough
to do it face-to
E-1
face. At FirstBank, we've come to know that people everywhere really do want and
appreciate a bank that fits JustRight.
Sincerely,
/s/ Clyde E. Conklin
Clyde E. Conklin
E-2
BUSINESS OF THE COMPANY
FirstBank NW Corp. (formerly known as FirstBank Corp.) ("Company"), a
Washington corporation, was organized in Delaware in March of 1997 for the
purpose of becoming the holding company for FirstBank Northwest (formerly known
as First Federal Bank of Idaho, a Federal Savings Bank) ("Bank") upon the Bank's
conversion from a federally chartered mutual to a federally chartered stock
savings bank ("Conversion"). The Company completed the Conversion and initial
public offering on July 1, 1997 through the sale of 1,983,750 shares of common
stock at $10.00 per share. On January 30, 1998, the Bank converted to a
Washington chartered savings bank.
The Bank, founded in 1920, is a Washington-chartered state savings bank
located in Lewiston, Idaho. The Bank, which was formed as an Idaho mutual
savings and loan association, converted to a federal mutual savings and loan
association in 1935 and adopted the federal mutual savings bank charter in 1990.
In July 1997, the Bank relocated its main office to Clarkston, Washington and on
January 30, 1998 converted to a Washington-chartered savings bank. The Bank is
currently regulated by the State of Washington, its primary regulator, and the
Federal Deposit Insurance Corporation ("FDIC"), the insurer of its deposits. The
Bank's deposits are insured by the FDIC's Savings Association Insurance Fund
("SAIF") and have been federally insured since 1933. The Bank has been a member
of the Federal Home Loan Bank ("FHLB") System since 1933.
The Bank is a community-oriented financial institution, operating in one
business segment, that engages primarily in the business of attracting deposits
from the general public and using those funds to originate residential mortgage
loans, commercial, and agricultural real estate loans within the Bank's market
area. The Bank also is active in originating construction, and consumer and
other non-real estate loans. The Bank has adopted a mortgage banking strategy
pursuant to which it generally sells a majority of the residential mortgage
loans it originates.
E-3
Selected Financial Data
The following tables set forth certain information concerning the
consolidated financial position and results of operations of the Company at the
dates and for the fiscal years indicated.
At March 31,
------------------------------
FINANCIAL CONDITION DATA: 2003 2002 2001
-------- -------- --------
(In Thousands)
Total assets $332,398 $307,840 $281,062
Loans receivable, net 251,805 234,396 216,685
Loans held for sale 5,214 3,740 2,466
Cash and cash equivalents 24,741 24,012 12,805
Investment securities available-for-sale 16,813 12,524 12,568
Mortgage-backed securities held-to-maturity 1,969 2,140 2,335
Mortgage-backed securities available-for-sale 7,649 9,293 17,704
Deposits and securities sold under agreements to
repurchase 214,340 196,123 157,797
Advances from FHLB 81,816 79,722 90,917
Stockholders' equity 30,064 27,813 27,976
Year Ended March 31,
------------------------------
2003 2002 2001
-------- -------- --------
SELECTED OPERATING DATA: (In Thousands, except per share data)
Interest income $ 20,575 $ 20,248 $ 20,757
Interest expense 8,710 9,992 11,617
-------- -------- --------
Net interest income 11,865 10,256 9,140
Provision for loan losses 1,033 1,064 303
-------- -------- --------
Net interest income after provision for loan losses 10,832 9,192 8,837
Non-interest income 4,692 4,015 2,594
Non-interest expenses 11,699 9,766 8,683
-------- -------- --------
Income before income tax expense 3,825 3,441 2,748
Income tax expense 1,053 1,065 866
-------- -------- --------
Net income $ 2,772 $ 2,376 $ 1,882
======== ======== ========
Per share data:
Basic earnings per share $ 2.15 $ 1.76 $ 1.34
Diluted earnings per share $ 2.07 $ 1.70 $ 1.30
======== ======== ========
Dividends per share $ 0.54 $ 0.44 $ 0.38
======== ======== ========
E-4
At or For the
Year Ended March 31,
--------------------------
2003 2002 2001
------ ------ ------
KEY FINANCIAL RATIOS:
Performance Ratios:
Return on average assets (1) 0.87% 0.82% 0.71%
Return on average equity (2) 9.49 8.47 7.07
Average equity to average assets (3) 9.16 9.73 10.00
Total equity to total assets at end of year 9.04 9.03 9.95
Interest rate spread (4) 3.73 3.44 3.21
Net interest margin (5) 4.16 3.96 3.83
Average interest-earning assets to average interest-bearing
liabilities 114.96 114.05 113.10
Non-interest expense as a percent of average assets 3.67 3.39 3.27
Efficiency ratio (6) 68.04 66.57 71.82
Dividend payout ratio 25.37 25.60 29.19
Equity Ratios:
Tier I capital to average assets 8.40 8.79 9.18
Tier I capital to risk-weighted assets 11.84 12.28 13.52
Total capital to risk-weighted assets 13.09 13.47 14.45
Asset Quality Ratios:
Nonaccrual and 90 days or more past due loans as a percent
of loans receivable, net 0.50 0.25 0.66
Nonperforming assets as a percent of total assets 0.55 0.36 0.53
Allowance for loan losses as a percent of total loans
receivable 1.25 1.06 0.79
Allowance for loan losses as a percent of nonperforming
loans 272.90 433.67 121.83
Net charge-offs to average outstanding loans 0.07 0.12 0.07
Allowance for loan losses as a percent of net charge-offs 18.76 9.90 11.80
(1) Net income divided by average assets.
(2) Net income divided by average equity.
(3) Average equity divided by average assets.
(4) Difference between weighted average yield on interest-earning assets and
weighted average rate on interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Represents the ratio of non-interest expenses divided by the sum of net
interest income and non-interest income.
E-5
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
General
Management's discussion and analysis of financial condition and results
of operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto.
Management's discussion and analysis of financial condition and results
of operations and other portions of this annual report contain certain
"forward-looking statements" concerning the future operations of the Company.
Management desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and is including this statement
for the express purpose of availing the Company of the protections of such safe
harbor with respect to all "forward-looking statements" contained in its Annual
Report. The Bank has used "forward-looking statements" to describe future plans
and strategies, including expectations of the Company's future financial
results. Management's ability to predict results or the effect of future plans
or strategies is inherently uncertain. Factors which could affect the results
include interest rate trends, the general economic climate in the Company's
market area and the country as a whole, the ability of the Company to control
costs and expenses, competition and pricing, loan delinquency rates, and changes
in federal and state regulation. These factors should be considered in
evaluating the "forward-looking statements," and undue reliance should not be
placed on such statements. The Company does not undertake to update any
forward-looking statements.
The profitability of the Company's operations depends primarily on its
net interest income, its non-interest income (principally from mortgage banking
activities) and its non-interest expense. Net interest income is the difference
between the income the Company receives on its loan and investment portfolio and
its cost of funds, which consists of interest paid on deposits and borrowings.
Net interest income is a function of the Company's interest rate spread, which
is the difference between the yield earned on interest-earning assets and the
rate paid on interest-bearing liabilities, as well as a function of the average
balance of interest-earning assets as compared to the average balance of
interest-bearing liabilities. Non-interest income is comprised of income from
mortgage banking activities, gain on the occasional sale of assets and
miscellaneous fees and income. Mortgage banking generates income from the sale
of mortgage loans and from servicing fees on loans serviced for others. The
contribution of mortgage banking activities to the Company's results of
operations is highly dependent on the demand for loans by borrowers and
investors, and therefore the amount of gain on sale of loans may vary
significantly from period to period as a result of changes in market interest
rates and the local and national economy. The Company's profitability is also
affected by the level of non-interest expense. Non-interest expenses include
compensation and benefits, occupancy and maintenance expenses, deposit insurance
premiums, data servicing expenses, advertising expenses, supplies and postage,
and other operating costs. Additional expenses that will be incurred in fiscal
year 2004 include merger expenses related to the acquisition of Oregon Trail
Financial Corporation, establishing a new branch in Hayden, Idaho during the
fourth quarter, data processing conversion to Windows 2000, a new Clarkston,
Washington branch and branch refurbishment in Lewiston and Lewiston Orchards,
Idaho. The Company's results of operations may be adversely affected during
periods of reduced loan demand to the extent that non-interest expenses
associated with mortgage banking activities are not reduced commensurate with
the decrease in loan originations.
On February 24, 2003, the Company executed an Agreement and Plan of
Reorganization proposing the acquisition of Oregon Trail Financial Corp., Baker
City, Oregon ("Oregon Trail"), the unitary savings and loan holding company for
Pioneer Bank, a Federal Savings Bank ("Pioneer"). Pursuant to the terms of the
Agreement, shareholders of Oregon Trail will be entitled to receive for each
share of Oregon Trail common stock either $22.00 in cash or 1.028 shares of the
Company's common stock (subject to election and allocation procedures as
provided for in the Agreement, which are intended to ensure that in the
aggregate, 46% of the Oregon Trail shares will be exchanged for the Company's
common stock). In the merger, the Company is expected to issue 1.48 million
shares of common stock and approximately $36.5 million in cash, for a
transaction value at announcement of approximately $74.0 million. The Agreement
provides for the merger of Oregon Trail into the Company and the subsequent
merger of Pioneer into the Bank. Following the completion of the acquisition,
the Company will be the surviving holding company with 100% ownership of the
Bank and the Bank will be the surviving thrift subsidiary. The merger is subject
to regulatory approval. The Company will be incurring costs associated with this
merger throughout the fiscal year ending 2004.
E-6
Critical Accounting Policies
Various elements of our accounting policies, by their nature, are
inherently subject to estimation techniques, valuation assumptions and other
subjective assessments. In particular, we have identified three policies that,
due to the judgments, estimates and assumptions inherent in those policies, are
critical to an understanding of our financial statements. These policies relate
to the valuation of our mortgage servicing rights, the methodology for the
determination of our allowance for loan losses and the valuation of real estate
held for sale. These policies and the judgments, estimates and assumptions are
described in greater detail in the Consolidated Financial Statements included
herein. In particular, the "Summary of Accounting Policies" in Note 1 of the
Notes to the Consolidated Financial Statements describes generally our
accounting policies. We believe that the judgments, estimates and assumptions
used in the preparation of our Consolidated Financial Statements are appropriate
given the factual circumstances at the time. However, given the sensitivity of
our Consolidated Financial Statements to these critical accounting policies, the
use of other judgments, estimates and assumptions could result in material
differences in our results of operations or financial condition.
Operating Strategy
The Company's primary goal has been to improve the Company's
profitability while maintaining a sound capital position. To accomplish this
goal, the Company has employed an operating strategy that includes: (1)
originating for its portfolio residential mortgage loans, primarily with
adjustable interest rates or with fixed interest rates with terms of 15 years or
less, secured by properties located in its primary market area; (2) enhancing
net income and controlling interest rate risk by originating fixed-rate
residential mortgage loans for sale in the secondary market, as market
conditions permit, as a means of generating current income through the
recognition of cash gains on loan sales and loan servicing fees; (3) increasing
its average yield on interest-earning assets by originating for portfolio
higher-yielding construction, commercial real estate, nonresidential commercial
and agricultural real estate loans; and (4) controlling asset growth to a level
sustainable by the Company's capital position. The Company has adopted a
community banking strategy pursuant to which it will expand the products and
services it offers within its primary market area in order to improve market
share and increase the average yield of its interest-earning assets.
Specifically, the Company intends to continue to expand its agricultural real
estate and commercial real estate lending activities. The Company also intends
to pursue the expansion of its non-mortgage lending activities by increasing its
emphasis on originating agricultural operating loans and commercial business
loans. These loans offer the Company the opportunity to achieve higher interest
rates with shorter terms to maturity than residential mortgage loans but involve
greater credit risk. The commercial banking segment of the Bank continues to
strengthen its presence by adding experienced loan officers in the Moscow, Coeur
d'Alene and Spokane branches. There can be no assurances that the Company will
be successful in its efforts to increase its originations of these types of
loans. Management anticipates that the Company will incur significant other
expenses in connection with the opening of the Hayden, Idaho branch, and as
various programs and services, such as its commercial real estate and business
lending operations, are expanded. These expenses could reduce earnings for a
period of time while income from new programs and services increases to a level
sufficient to cover the additional expenses.
E-7
Comparison of Financial Condition at March 31, 2002 and March 31, 2003
Total assets increased $24.6 million, or 8.0%, from $307.8 million at
March 31, 2002 to $332.4 million at March 31, 2003. The growth in assets was due
to the increase in the loan portfolio and federal funds sold. Net loans
receivable increased from $234.4 million at March 31, 2002 to $251.8 million at
March 31, 2003. The mix of loans has changed reflecting the Company's community
banking strategy. In real estate loans, residential mortgage loans decreased
from 25.9% to 18.6% of total loans, construction loans increased from 4.0% to
17.2%, agricultural loans decreased from 6.7% to 5.8% and commercial real estate
loans increased from 21.7% in fiscal 2002 to 25.0% in fiscal 2003. In non-real
estate loans, home equity lines decreased from 10.3% to 7.3%, agricultural
operating lines decreased from 5.1% to 4.8%, commercial business loans decreased
from 23.0% to 18.5% and other consumer loans decreased from 3.3% to 2.9% between
these periods. Cash and cash equivalents increased from $24.0 million to $24.7
million. This increase was mostly due to a $4.9 million increase in federal
funds sold. Available for sale investment securities increased $4.3 million,
which includes $3.5 million of purchase of investment securities.
Mortgage-backed securities decreased from $11.4 million to $9.6 million. This
$1.8 million decrease was primarily due to redemptions or repayments on
mortgage-backed securities. Premises and equipment increased $1.7 million
primarily due to loan production office additions in Boise, Idaho and Spokane
Washington, expansions in the Lewiston Orchards, and a branch construction in
Clarkston, Washington.
Total liabilities increased from $280.0 million at March 31, 2002 to
$302.3 million at March 31, 2003. The growth in liabilities was due to deposit
growth, which was part of management's focus in fiscal year 2003. Deposits and
securities sold under agreements to repurchase increased $18.2 million from
$196.1 million at March 31, 2002 to $214.3 million at March 31, 2003. This $18.2
million increase consists of increases in brokered certificates of deposits of
$4.0 million, savings accounts of $1.6 million, non-interest bearing checking
accounts of $2.4 million, interest bearing checking accounts of $10.6 million,
and money market accounts of $3.2 million, and a decrease in certificate of
deposit accounts of $3.6 million. FHLB advances increased from $79.7 million at
March 31, 2002 to $81.8 million at March 31, 2003.
Comparison of Operating Results for the Years Ended March 31, 2002 and 2003
General. Net income increased $396,000, from $2.4 million ($1.76 per
share - basic, $1.70 per share - diluted) for the year ended March 31, 2002 to
$2.8 million ($2.15 per share - basic, $2.07 per share - diluted) for the year
ended March 31, 2003. The Company experienced an increase in net interest income
and non-interest income in fiscal 2003 compared to fiscal 2002. The increase in
non-interest income is mostly attributable to increase in gain on sale of loans.
The majority of the non-interest expense increase is due to compensation and
related benefits expense.
Net Interest Income. Net interest income increased $1.6 million, or
15.7%, from $10.3 million for the year ended March 31, 2002 to $11.9 million for
the year ended March 31, 2003. The increase is due to the combination of
increased loan originations and loans receivable with reduced rates on advances
from FHLB and deposits. The yield on interest-earning assets decreased from
7.67% to 7.10% in fiscal years ended March 31, 2002 and 2003. The average
balance on interest-earning assets increased from $269.2 million to $296.9
million in fiscal years ended March 31, 2002 and 2003. The yield on
interest-bearing liabilities decreased from 4.23% to 3.37% in fiscal years ended
March 31, 2002 and 2003, resulting from decreases in rates paid to deposit
holders and advances from FHLB. The average balance on interest-earning
liabilities decreased from $236.1 million to $258.2 million in fiscal years
ended March 31, 2002 and 2003. The Company's interest rate spread between the
yield on interest-earning assets and the rate paid on interest-bearing
liabilities increased from 3.44% for fiscal 2002 to 3.73% for fiscal 2003.
E-8
Total interest income increased $327,000 from $20.2 million for the
year ended March 31, 2002 to $20.6 million for the year ended March 31, 2003.
Interest income on loans receivable and loans held for sale increased $313,000,
or 1.7%, from $17.9 million for fiscal 2002 to $18.2 million for fiscal 2003.
The average balance on loans receivable and loans held for sale increased from
$224.9 million to $249.9 million in fiscal years ended March 31, 2002 and 2003.
The yield on loans receivable and loans held for sale decreased from 7.97% to
7.32% in fiscal years ended March 31, 2002 and 2003. Interest income on
mortgage-backed securities decreased $198,000 from fiscal 2002 to fiscal 2003
primarily as a result from redemptions on mortgage-backed securities in during
the fiscal 2003. The average balance on mortgage-backed securities decreased
from $14.0 million to $10.8 million in fiscal years ended March 31, 2002 and
2003. The yield on mortgage-backed securities increased from 6.6% to 6.73% in
fiscal years ended March 31, 2002 and 2003.
Interest expense decreased by $1.3 million, from $10.0 million for the
year ended March 31, 2002 to $8.7 million for the year ended March 31, 2003.
Interest expense on deposits decreased $1.0 million, or 18.0%, from fiscal 2002
to fiscal 2003. The average balance of deposits increased $23.3 million from
$152.6 million for fiscal 2002 to $175.9 million for fiscal 2003. The average
rate paid on deposits decreased from 3.71% to 2.64% for fiscal years ended March
31, 2002 and 2003. Interest expense on advances from FHLB and other borrowings
decreased $0.2 million from $4.3 million in fiscal 2002 to $4.1 million in
fiscal 2003. The average balance on advances from FHLB and other borrowings
decreased from $83.4 million for fiscal 2002 to $82.3 million for fiscal 2003.
The average yield on advances from FHLB and other borrowings in fiscal year
ended March 31, 2003 was 4.94% and 5.19% in fiscal year ended March 31, 2002.
The net interest margin increased 20 basis points from 3.96% in fiscal
2002 to 4.16% in fiscal 2003. This increase was due to an increase in the
average balance on the commercial, construction, and agricultural loan
portfolio, an increase in the average balance of deposits with a lower yield
than fiscal year 2002, and a lower average balance on advances from FHLB and
other borrowings with a lower yield than fiscal year 2002.
Provision for Loan Losses. The provision for loan losses was $1.1
million for the year ended March 31, 2002 compared to $1.0 million for the year
ended March 31, 2003. The Company's allowance for loan losses was $3.4 million
or 1.25% of total loans receivable, at March 31, 2003, compared to $2.6 million,
or 1.06% of total loans receivable, at March 31, 2002. The allowance for loan
losses increased 33.2% from the prior year, which consists of an increase in
construction, agricultural, and commercial allowance for loan losses of 38.6%
and a decrease in residential, consumer, and other loans allowance for loan
losses of 5.4%. Net loan charge-offs decreased from $259,000 during fiscal 2002
to $182,000 during fiscal 2003, 0.07% of average outstanding loans for the year.
Non-interest Income. The following table summarizes the components of
non-interest income for the fiscal years ended March 31, 2003 and 2002.
2003 2002
-------- --------
(In Thousands)
Gain on sale of loans $ 2,434 $ 1,782
Gain on sale of securities, net -- 194
Mortgage servicing fees 184 243
Service fees and charges 1,913 1,671
Commissions and other 161 125
-------- --------
Total non-interest income $ 4,692 $ 4,015
======== ========
Total non-interest income increased $677,000, or 16.9%, from fiscal 2002 to
fiscal 2003. Income on gain on sale of loans increased $652,000, or 36.6%, from
fiscal 2003 to fiscal 2002 because of a larger volume of sold loans that were
originated during the year. Service fees and charges increased $242,000 due to
fees charged on checking accounts, visa check cards, automatic teller machine
fees, and merchant bank cards offered at the end of fiscal year 2003.
E-9
Non-interest Expense. Total non-interest expense increased $1.9
million, or 19.4%, from $9.8 million for the year ended March 31, 2002 to $11.7
million for the year ended March 31, 2003. Compensation and related benefits
increased $1.1 million, or 19.2%, from fiscal 2002 to fiscal 2003. This increase
in compensation and related benefits was a result of opening loan production
offices in Boise, Idaho and Spokane, Washington during fiscal year 2003, and
additional compensation and related expenses from the 12.3% increase in the
average number of full-time equivalent employees from 122 in fiscal year 2002 to
137 in fiscal year 2003. Compensation and related benefits from the Boise and
Spokane loan production offices increased $572,000. Insurance benefits increased
$111,000. Employee related taxes increased $96,000 for the fiscal year 2003 over
fiscal year 2002. Occupancy expense increased $51,000 due to opening the Boise
and Spokane loan production offices in fiscal year 2003. Impairment on mortgage
servicing rights increased to $306,000. Bankcard and visa card expenses
increased $125,000, which is a result of increased utilization. Bankcard and
visa card income increased $142,000. Data processing increased $88,000, supplies
increased $35,000, checking account charges increased $30,000, and consulting
expense increased $22,000. All other non-interest expenses remained relatively
consistent between fiscal years 2002 and 2003.
Income Taxes. Income taxes were $1.1 million for the year ended March
31, 2003 and 2002. The effective tax rates for the years ended March 31, 2003
and 2002 were 27.53% and 30.94%, respectively. The decrease in the effective tax
rates is due to the permanent tax difference of bank owned life insurance.
E-10
Average Balances, Interest and Average Yields/Cost
The following table sets forth certain information for the years
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average tax
effected yields and costs. Such yields and costs for the years indicated are
derived by dividing tax effected income or expense by the average daily balance
of assets or liabilities, respectively, for the years presented.
Years Ended March 31,
---------------------------------------------------------------------------------------------------
2003 2002 2001
------------------------------- ------------------------------- -------------------------------
Interest Average Interest Average Interest Average
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
--------- --------- ------ --------- --------- ------ --------- --------- ------
(Dollars in Thousands)
Interest-earning assets (1):
Loans receivable:
Mortgage loans receivable $ 55,975 $ 4,160 7.43% $ 67,231 $ 5,147 7.66% $ 70,133 $ 5,555 7.92%
Commercial loans receivable 109,559 7,361 6.77 87,022 6,658 7.74 66,492 6,106 9.35
Construction loans receivable 19,750 1,717 8.69 6,659 692 10.39 5,485 581 10.59
Consumer loans receivable 31,085 2,558 8.23 34,657 2,917 8.42 34,677 3,097 8.93
Agricultural loans receivable 30,894 2,077 6.72 27,748 2,238 8.07 27,258 2,542 9.33
Unearned loan fees and
discounts and allowance
for loan losses (3,814) -- -- (2,659) -- -- (2,095) -- --
--------- --------- ------ --------- --------- ------ --------- --------- ------
Loans receivable, net 243,449 17,873 7.37 220,658 17,652 8.03 201,950 18,026 8.87
Loans held for sale 6,483 360 5.55 4,195 268 6.39 2,496 145 5.81
Mortgage-backed securities 10,832 729 6.73 14,036 927 6.60 20,279 1,439 7.10
Investment securities 14,554 692 6.62 12,448 611 6.84 11,901 614 7.19
Other earning assets 21,540 921 5.03 17,886 789 4.89 11,479 678 5.91
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 296,858 20,575 7.10 269,223 20,247 7.67 248,105 20,757 8.51
--------- --------- ---------
Non-interest-earning assets 21,880 19,110 17,802
--------- --------- ---------
Total assets $ 318,738 $ 288,333 $ 265,907
========= ========= =========
Interest-earning liabilities:
Passbook, NOW and money
market accounts $ 67,522 534 0.79 $ 53,960 916 1.70 $ 46,945 1,186 2.53
Certificates of deposit 108,406 4,109 3.79 98,701 4,747 4.81 83,670 4,823 5.76
--------- --------- --------- --------- --------- ---------
Total deposits 175,928 4,643 2.64 152,661 5,663 3.71 130,615 6,009 4.60
Advances from FHLB and
other 82,292 4,067 4.94 83,395 4,328 5.19 88,747 5,608 6.32
--------- --------- --------- --------- --------- ---------
Total interest-bearing
liabilities 258,220 8,710 3.37 236,056 9,991 4.23 219,362 11,617 5.30
--------- --------- ---------
Total non-interest-bearing
deposits 26,140 19,752 16,541
Non-interest-bearing
liabilities 5,169 4,467 3,408
--------- --------- ---------
Total liabilities 289,529 260,275 239,311
Total stockholders' equity 29,209 28,058 26,596
--------- --------- ---------
Total liabilities and
total stockholders' equity $ 318,738 $ 288,333 $ 265,907
========= ========= =========
Net interest income $ 11,865 $ 10,256 $ 9,140
========= ========= =========
Interest rate spread 3.73% 3.44% 3.21%
====== ====== ======
Net interest margin 4.16% 3.96% 3.83%
========= ========= =========
Ratio of average interest-
earning assets to average
interest-bearing liabilities 114.96% 114.05% 113.10%
========= ========= =========
(1) Does not include interest on loans 90 days or more past due.
E-11
Rate/Volume Analysis
The following table sets forth the effects of changing rates and
volumes on the interest income and interest expense of the Company. Information
is provided with respect to: (i) effects attributable to changes in rate
(changes in rate multiplied by prior volume); (ii) effects attributable to
changes in volume (changes in volume multiplied by prior rate); (iii) effects
attributable to changes in rate/volume (changes in rate multiplied by changes in
volume); and (iv) the net change (the sum of the prior columns).
Year Ended March 31, 2003 Year Ended March 31, 2002
Compared to Year Ended Compared to Year Ended
March 31, 2002 March 31, 2001
-------------------------------------------- --------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------------------- --------------------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
-------- -------- -------- -------- -------- -------- -------- --------
(In Thousands)
Interest-earning assets:
Loans receivable (1) $ (1,452) $ 1,823 $ (150) $ 221 $ (1,717) $ 1,698 $ (163) $ (182)
Loans held for sale (35) 146 (19) 92 (15) 101 (10) 76
Mortgage-backed securities 18 (212) (4) (198) (100) (443) 31 (512)
Investment securities (19) 103 (3) 81 (30) 28 (1) (3)
Other earning assets (24) 161 (5) 132 (172) 379 (96) 111
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in income
on interest-earning assets (1,512) 2,021 (181) 328 (2,034) 1,763 (239) (510)
-------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Passbook, NOW and money
market accounts (489) 230 (123) (382) (108) (178) 16 (270)
Certificates of deposit (1,006) 467 (99) (638) (799) 866 (143) (76)
FHLB advances and other (206) (57) 3 (260) (1,002) (338) 60 (1,280)
-------- -------- -------- -------- -------- -------- -------- --------
Total net change in expense
on interest-bearing liabilities (1,701) 640 (219) (1,280) (1,909) 350 (67) (1,626)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase (decrease) in net
interest income $ 189 $ 1,381 $ 38 $ 1,608 $ (125) $ 1,413 $ (172) $ 1,116
======== ======== ======== ======== ======== ======== ======== ========
(1) Does not include interest on loans 90 days or more past due.
Asset and Liability Management
The Company's principal financial objective is to achieve long-term
profitability while reducing its exposure to fluctuating interest rates. The
Company has sought to reduce exposure of its earnings to changes in market
interest rates by attempting to manage the mismatch between asset and liability
maturities and interest rates. The principal element in achieving this objective
is to increase the interest-rate sensitivity of the Company's interest-earning
assets by retaining for its portfolio shorter term loans and loans with interest
rates subject to periodic adjustment to market conditions and by selling
substantially all of its longer term, fixed-rate residential mortgage loans. The
Company has historically relied on retail deposits as its primary source of
funds. Management believes retail deposits, compared to brokered deposits,
reduce the effects of interest rate fluctuations because they generally
represent a more stable source of funds. As part of its interest rate risk
management strategy, the Company promotes non-interest-bearing transaction
accounts and certificates of deposit with longer maturities (up to five years)
to reduce the interest sensitivity of its interest-bearing liabilities.
E-12
Market Risk
Market risk is the risk of loss in a financial instrument arising from
adverse changes in market rates/prices such as interest rates, foreign currency
exchange rates, commodity prices, and equity prices. The Company's primary
market risk exposure is interest rate risk. The on-going monitoring and
management of the risk is an important component of the Company's
asset/liability management process, which is governed by policies established by
its Board of Directors that are reviewed and approved annually. The Board of
Directors delegates responsibility for carrying out the asset/liability
management policies to the Asset/Liability Committee ("ALCO"). In this capacity,
ALCO develops guidelines and strategies impacting the Company's asset/liability
management related activities based upon estimated market risk sensitivity,
policy limits and overall market interest rate levels/trends.
Interest Rate Risk
Interest rate risk represents the sensitivity of earnings to changes in
market interest rates. As interest rates change the interest income and expense
streams associated with the Company's financial instruments also change thereby
impacting net interest income ("NII"), the primary component of the Company's
earnings. ALCO utilizes the results of a detailed and dynamic simulation model
to quantify the estimated exposure of NII to sustained interest rate changes.
While ALCO routinely monitors simulated NII sensitivity over a rolling two-year
and five-year horizon, it also utilizes additional tools to monitor potential
longer-term interest rate risk.
The simulation model captures the impact of changing interest rates on
the interest income received and interest expense paid on all assets and
liabilities reflected on the Company's balance sheet as well as for
off-balance-sheet derivative financial instruments, if any. This sensitivity
analysis is compared to ALCO policy limits which specify a maximum tolerance
level for NII exposure over a one year horizon, assuming no balance sheet
growth, given both a 200 basis point (bp) upward and downward shift in interest
rates. A parallel and pro rata shift in rates over a 12-month period is assumed.
The following reflects the Company's NII sensitivity analysis as of March 31,
2003 and 2002 as compared to the 10.00% Board approved policy limit.
March 31, 2003: -100 BP Flat +200 BP
--------- ---- -------
(Dollars in Thousands)
Year 1 NII $ 11,376 $ 11,856 $ 12,656
NII $ Change (480) -- 800
NII % Change -4.05% -- 6.75%
March 31, 2002: -100 BP Flat +200 BP
-------- ---- -------
(Dollars in Thousands)
Year 1 NII $ 11,317 $ 11,549 $ 11,851
NII $ Change (232) -- 302
NII % Change -2.01% -- 2.61%
The preceding sensitivity analysis does not represent a Company
forecast and should not be relied upon as being indicative of expected future
operating results. These hypothetical estimates are based upon numerous
assumptions including the nature and timing of interest rate levels including
yield curve shape, prepayments on loans and securities, deposit decay rates,
pricing decisions on loans and deposits, reinvestment/replacement of asset and
liability cash flows, and others. While assumptions are developed based upon
current economic and local market conditions, the Company cannot make any
assurances as to the predictive nature of these assumptions including how
customer preferences or competitor influences might change.
Also, as market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to: prepayment/refinancing levels
likely deviating from those assumed, the varying impact of interest rate change
caps or floors on adjustable rate assets, the potential effect of changing debt
service levels on customers with adjustable rate loans, depositor early
withdrawals and product preference changes, and other internal/external
variables. Furthermore, the sensitivity analysis does not reflect actions that
ALCO might take in responding to or anticipating changes in interest rates.
E-13
Liquidity and Capital Resources
The Company's primary recurring sources of funds are customer deposits,
proceeds from principal and interest payments on loans, proceeds from sales of
loans, maturing securities and FHLB advances. While maturities and scheduled
amortization of loans are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Company must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to support loan growth and deposit withdrawals,
to satisfy financial commitments and to take advantage of investment
opportunities. The Company generally maintains sufficient cash and short-term
investments to meet short-term liquidity needs. At March 31, 2003, cash and cash
equivalents totaled $24.7 million, or 7.4% of total assets. In addition, the
Company maintains a credit facility with the FHLB-Seattle, which provides for
immediately available advances. Advances under this credit facility totaled
$81.8 million at March 31, 2003. The Bank also maintains additional credit with
Wells Fargo Bank with available funds totaling $10.0 million. There were no
outstanding advances under this facility at March 31, 2003.
The primary investing activity of the Company is the origination of
mortgage loans. During the years ended March 31, 2002 and 2003, the Company
originated loans in the amounts of $234.5 million and $334.7 million,
respectively. At March 31, 2003, the Company had loan commitments totaling $59.0
million, undisbursed lines of credit totaling $46.4 million, credit card
available balances of $4.7 million and undisbursed loans in process totaling
$16.7 million. The Company anticipates that it will have sufficient funds
available to meet its current loan origination commitments. Certificates of
deposit that are scheduled to mature in less than one year from March 31, 2003
totaled $46.4 million. Historically, the Company has been able to retain a
significant amount of its deposits as they mature. In addition, management of
the Company believes that it can adjust the offering rates of savings
certificates to retain deposits in changing interest rate environments.
The Bank is required to maintain specific amounts of capital pursuant
to the FDIC and the State of Washington requirements. As of March 31, 2003, the
Bank was in compliance with all regulatory capital requirements which were
effective as of such date with Tier 1 Capital to average assets, Tier 1 Capital
to risk-weighted assets and total capital to risk-weighted assets of 8.4%,
11.8%, and 13.1%, respectively. For a detailed discussion of regulatory capital
requirements, see "Regulation -- State Regulation and Supervision" and "--
Capital Requirements."
Impact of New Accounting Standards
In June 2001, Financial Accounting Standards Board (FASB) approved for
issuance SFAS No. 143, "Accounting for Asset Retirement Obligations," which
addresses the accounting for legal obligations associated with the retirement of
tangible long-lived assets. Under SFAS No. 143, the fair value of a liability
for an asset retirement obligation shall be recognized in the period in which
the obligation is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002, with early adoption permitted. The Company's adoption of
SFAS No. 143 will not have a material effect on the Company's financial position
or results of operations.
In April 2002, FASB issued SFAS No. 145, "Rescission of FASB Statements
Nos. 4, 44, and 64, Amendment of FASB Statement 13, and Technical Corrections."
SFAS No. 145 updates, clarifies and simplifies existing accounting
pronouncements, by rescinding SFAS No. 4, which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. As a result, the criteria
in Accounting Principles Board Opinion 30 will now be used to classify those
gains and losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that
certain lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
Finally, SFAS No. 145 also makes technical corrections to existing
pronouncements. The Company's adoption of SFAS No. 145 did not have a material
impact on the Company's financial position or results of operations.
E-14
In June 2002, FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146, addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to exit an
Activity (including Certain Costs Incurred in a Restructuring)". The provisions
of this Statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company's adoption of SFAS No. 146 will
not have a material impact on the Company's financial position or results of
operations.
In October 2002, FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions - an amendment of FASB Statement Nos. 72 and 144 and FASB
Interpretation No. 9". SFAS No. 147 removes acquisitions of financial
institutions from the scope of both Statement 72 and Interpretation No. 9 and
requires that those transactions be accounted for in accordance with FASB
Statements No. 141, "Business Combinations", and No. 142, "Goodwill and Other
Intangible Assets". In addition, this statement amends FASB Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", to include in
its scope long-term customer relationship intangible assets of financial
institutions such as depositor and borrower relationship intangible assets and
credit card holder intangible assets. The provisions of this statement were
effective on October 1, 2002. The Company's adoption of SFAS No. 147 did not
have a material impact on the Company's financial position or results of
operations.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123". SFAS No. 148 provides alternative methods of transition for a voluntary
change in the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reporting results. The Company's adoption of SFAS No. 148 did not have a
material impact on the Company's financial position or results of operations.
The Company has elected to continue recognizing employee stock options under APB
No. 25, as permitted by this statement. In addition, the disclosures in the
Company's financial statements reflect the guidance provided by SFAS No. 148.
In November 2002, the FASB issued Interpretation No. 45 (FIN),
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others". FIN 45 requires a company, at
the time it issues a guarantee, to recognize an initial liability for the fair
value of obligations assumed under the guarantee and elaborates on existing
disclosure requirements. The initial recognition requirements of FIN 45 are
effective for guarantees issued or modified after December 31, 2002, and
adoption of disclosure requirements is effective for the Company in the current
year. The adopting of FIN 45 did not have material impact on the Company's
financial position or results of operations.
In April 2003, FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities".
SFAS No. 149 improves financial reporting by requiring that contracts with
comparable characteristics be accounted for similarly. In particular, this
Statement (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in paragraph 6(b)
of Statement No. 133, (2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to conform it to language
used in FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others", and (4) amends certain other existing pronouncements. Those changes
will result in more consistent reporting of contracts as either derivatives or
hybrid instruments. SFAS No. 149 is effective prospectively for contracts
entered into or modified after June 30, 2003, except in certain circumstances,
and for hedging relationships designated after June 30, 2003. The Company
believes that the adoption of SFAS No. 149 will not have a material impact on
the Company's financial position or results of operations.
E-15
Effect of Inflation and Changing Prices
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with GAAP, which require the
measurement of financial position and operating results in terms of historical
dollars without considering the change in the relative purchasing power of money
over time due to inflation. The primary impact of inflation is reflected in the
increased cost of the Company's operations. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant impact
on a financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
E-16
To the Board of Directors and Stockholders
FirstBank NW Corp. and Subsidiaries
Clarkston, Washington
We have audited the accompanying consolidated statement of financial condition
of FirstBank NW Corp. and Subsidiaries as of March 31, 2002, and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 consolidated financial position of
FirstBank NW Corp. and Subsidiaries as of March 31, 2002, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ BDO Seidman, LLP
April 18, 2002
E-17
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
FirstBank NW Corp. and Subsidiaries
Clarkston, Washington
We have audited the accompanying consolidated statement of financial condition
of FirstBank NW Corp. and subsidiaries as of March 31, 2003, and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the 2003 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
FirstBank NW Corp. and subsidiaries as of March 31, 2003, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ MOSS ADAMS LLP
Spokane, Washington
April 18, 2003
E-18
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- ----------------------------------------------
- --------------------------------------------------------------------------------------------
ASSETS
March 31,
---------------------------
2003 2002
------------ ------------
Cash and cash equivalents:
Noninterest-bearing cash deposits $ 9,378,650 $ 10,841,708
Interest-bearing cash deposits 643,154 3,318,476
Federal funds sold 14,718,971 9,851,718
------------ ------------
Total cash and cash equivalents 24,740,775 24,011,902
Investment securities available for sale 16,812,845 12,523,641
Mortgage-backed securities:
Held to maturity 1,969,138 2,140,478
Available for sale 7,649,066 9,292,604
Loans held for sale 5,214,077 3,740,302
Loans receivable, net of allowance for loan losses of
$3,414,262 in 2003 and $2,562,757 in 2002 251,804,620 234,395,856
Accrued interest receivable 1,882,060 1,913,222
Equity securities, at cost 5,730,675 5,379,875
Premises and equipment, net 7,210,040 5,506,770
Bank-owned and cash surrender value of life insurance policies 7,272,489 6,849,783
Mortgage servicing rights 825,814 1,016,953
Other assets 1,286,400 1,069,058
------------ ------------
TOTAL ASSETS $332,397,999 $307,840,444
============ ============
E-19
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- ----------------------------------------------
- --------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31,
---------------------------
2003 2002
------------ ------------
LIABILITIES
Deposits $203,189,041 $188,857,060
Securities sold under agreements to repurchase 11,150,956 7,265,454
Advances from borrowers for taxes and insurance 1,191,545 1,395,685
Advances from Federal Home Loan Bank 81,816,228 79,722,443
Deferred income taxes 453,539 185,000
Accrued expense and other liabilities 4,532,586 2,602,118
------------ ------------
TOTAL LIABILITIES 302,333,895 280,027,760
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 5,000,000 shares authorized,
1,380,992 and 1,440,072 shares issued, 1,278,531 and
1,314,304 shares outstanding 13,810 14,400
Additional paid-in capital 9,842,120 10,842,691
Unearned ESOP shares (884,020) (969,580)
Deferred compensation (156,659) (393,020)
Retained earnings, substantially restricted 20,213,669 18,144,686
Accumulated other comprehensive income 1,035,184 173,507
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 30,064,104 27,812,684
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $332,397,999 $307,840,444
============ ============
See accompanying notes. E-20
- --------------------------------------------------------------------------------
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
- ----------------------------------------------------------------------------------------
Year Ended March 31,
----------------------------
2003 2002
------------ ------------
Interest income:
Loans receivable $ 18,232,984 $ 17,920,163
Mortgage-backed securities 729,474 927,190
Investment securities 691,624 610,944
Other interest earning assets 921,035 789,264
------------ ------------
Total interest income 20,575,117 20,247,561
------------ ------------
Interest expense:
Deposits 4,515,090 5,522,263
Advances from Federal Home Loan Bank and other borrowings 4,067,310 4,327,952
Securities sold under agreement store purchase 128,099 141,421
------------ ------------
Total interest expense 8,710,499 9,991,636
------------ ------------
Net interest income 11,864,618 10,255,925
Provision for loan losses (1,033,068) (1,063,920)
------------ ------------
Net interest income after provision for loan losses 10,831,550 9,192,005
------------ ------------
Noninterest income:
Gain on sale of loans 2,434,387 1,781,782
Service fees and charges 2,097,335 1,914,044
Commissions and other 161,067 319,081
------------ ------------
Total noninterest income 4,692,789 4,014,907
------------ ------------
Noninterest expenses:
Compensation and related benefits 7,056,566 5,922,109
Occupancy 1,259,685 1,209,182
Supplies and postage 385,211 343,885
Data processing 446,592 358,611
Professional fees 232,973 219,010
Advertising 308,828 287,281
Travel and meals 135,281 113,451
Impairment of mortgage servicing rights 306,290 --
Debit and credit card expense 485,475 360,734
Telephone 191,895 175,899
Insurance 160,288 132,614
Other 729,720 643,400
------------ ------------
Total noninterest expense 11,698,804 9,766,176
------------ ------------
Income before income tax expense 3,825,535 3,440,736
Income tax expense 1,053,129 1,064,440
------------ ------------
NET INCOME $ 2,772,406 $ 2,376,296
============ ============
Basic earnings per share $ 2.15 $ 1.76
============ ============
Diluted earnings per share $ 2.07 $ 1.70
============ ============
Weighted average common shares outstanding-basic 1,287,967 1,351,705
============ ============
Weighted average common shares outstanding-diluted 1,341,111 1,400,658
============ ============
See accompanying notes. E-21
- --------------------------------------------------------------------------------
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
- -----------------------------------------------
- -----------------------------------------------------------------------------------
Year Ended March 31,
----------------------------
2003 2002
------------ ------------
Net income $ 2,772,406 $ 2,376,296
------------ ------------
Other comprehensive income (loss):
Net change in unrealized gain (loss) on securities
available for sale 1,172,364 (703,083)
Less deferred income tax (benefit) provision (460,504) 276,258
Net change in unrealized gain on cash flow hedge 246,734 --
Less deferred income tax benefit (96,917) --
------------ ------------
Net other comprehensive income (loss) 861,677 (426,825)
------------ ------------
COMPREHENSIVE INCOME $ 3,634,083 $ 1,949,471
============ ============
See accompanying notes. E-22
- --------------------------------------------------------------------------------
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ----------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Accumulated
Earnings Other
Common Stock Additional Unearned Sub- Compre- Total
------------------------ Paid-In ESOP Deferred stantially hensive Stockholders'
Shares Amount Capital Shares Compensation Restricted Income(Loss) Equity
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2001 1,550,633 $ 15,506 $12,666,185 $(1,053,130) $ (629,381) $16,376,831 $ 600,332 $27,976,343
Repurchase of common stock (114,761) (1,148) (1,936,676) -- -- -- -- (1,937,824)
Amortization of deferred
compensation -- -- -- -- 236,361 -- -- 236,361
Dividends paid -- -- -- -- -- (608,441) -- (608,441)
Net change in unrealized
loss on securities
available for sale,
net of tax -- -- -- -- -- -- (426,825) (426,825)
ESOP shares released -- -- 46,822 83,550 -- -- -- 130,372
Stock issued from the
exercise of stock
option 4,200 42 66,360 -- -- -- -- 66,402
Net income -- -- -- -- -- 2,376,296 -- 2,376,296
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2002 1,440,072 14,400 10,842,691 (969,580) (393,020) 18,144,686 173,507 27,812,684
Repurchase of common stock (63,280) (632) (1,149,053) -- -- -- -- (1,149,685)
Amortization of deferred
compensation -- -- -- -- 236,361 -- -- 236,361
Dividends paid -- -- -- -- -- (703,423) -- (703,423)
Net change in unrealized
gain on securities
available for sale,
net of tax -- -- -- -- -- -- 711,860 711,860
Net change in unrealized
gain on cash flow hedge,
net of tax -- -- -- -- -- -- 149,817 149,817
ESOP shares released -- -- 82,122 85,560 -- -- -- 167,682
Stock issued from the
exercise of stock option 4,200 42 66,360 -- -- -- -- 66,402
Net income -- -- -- -- -- 2,772,406 -- 2,772,406
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance, March 31, 2003 1,380,992 $ 13,810 $ 9,842,120 $ (884,020) $ (156,659) $20,213,669 $ 1,035,184 $30,064,104
=========== =========== =========== =========== =========== =========== =========== ===========
See accompanying notes. E-23
- --------------------------------------------------------------------------------
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
- ---------------------------------------------------------------------------------------------------------
Year Ended March 31,
------------------------------
2003 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,772,406 $ 2,376,296
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 622,033 668,720
Amortization (accretion) of securities, net (42,510) 5,013
Provision for loan losses 1,033,068 1,063,920
Gain on sale of loans held for sale (2,434,387) (1,781,782)
Proceeds from sale of loans held for sale 148,810,682 92,943,745
Originations of loans held for sale (147,850,070) (92,435,963)
Other gains, net (6,657) (195,155)
Deferred income taxes (446,561) (310,742)
Federal Home Loan Bank stock dividends (350,800) (348,000)
Deferred compensation expense 438,830 370,981
ESOP compensation expense 167,682 130,372
Impairment of mortgage servicing rights 306,290 --
Changes in assets and liabilities:
Accrued interest receivable and other assets (320,516) 38,861
Income taxes receivable 118,083 81,549
Accrued expenses and other liabilities 1,727,999 268,334
------------- -------------
Net cash provided by operating activities 4,545,572 2,876,149
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities of mortgage-backed
securities available for sale 2,105,665 2,940,792
Proceeds from sale of mortgage-backed securities
available for sale -- 5,271,715
Purchases of investment securities available for sale (3,530,186) (1,382,393)
Proceeds from sale of investment securities available for sale -- 1,119,268
Proceeds from maturities of mortgage-backed securities held to maturity 165,069 188,267
Other net change in loans receivable (18,513,710) (19,337,708)
Purchases of premises and equipment (2,325,303) (187,394)
Net increase in bank-owned and cash surrender value of life insurance (422,706) (185,287)
Purchase of bank-owned life insurance -- (4,920,039)
Proceeds from disposition of assets 1,800 177,681
Proceeds from the sale of foreclosed assets 382,250 --
------------- -------------
Net cash used by investing activities (22,137,121) (16,315,098)
------------- -------------
See accompanying notes. E-24
- --------------------------------------------------------------------------------
FIRSTBANK NW CORP. AND SUBSIDIARIES
- -----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
- ------------------------------------------------------------------------------------------------------
Year Ended March 31,
------------------------------
2003 2002
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 14,331,981 $ 33,372,969
Net increase securities sold under agreements to repurchase 3,885,502 4,952,422
Net decrease in advances from borrowers for
taxes and insurance (204,140) (4,945)
Advances from Federal Home Loan Bank and other borrowers 120,089,000 134,605,500
Repayments on advances from Federal Home Loan Bank and
other borrowings (117,995,215) (145,800,080)
Redemption of common stock (1,149,685) (1,937,824)
Cash dividends paid on common stock (703,423) (608,441)
Proceeds from the exercise of stock option 66,402 66,402
------------- -------------
Net cash provided by financing activities 18,320,422 24,646,003
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 728,873 11,207,054
Cash and cash equivalents, beginning of year 24,011,902 12,804,848
------------- -------------
Cash and cash equivalents, end of year $ 24,740,775 $ 24,011,902
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ 8,812,129 $ 9,729,529
============= =============
Income taxes $ 1,539,050 $ 1,294,530
============= =============
NONCASH INVESTING AND FINANCING ACTIVITIES
Unrealized gain (loss) on securities available for sale, net of tax $ 711,860 $ (426,825)
============= =============
Unrealized gain on interest rate swap, net of tax $ 149,817 $ --
============= =============
Transfer from loans receivable to real estate acquired
through foreclosure $ 71,878 $ 562,456
============= =============
Loans receivable charged to allowance for loan losses $ 203,472 $ 266,654
============= =============
See accompanying notes. E-25
- --------------------------------------------------------------------------------
Note 1 - Summary of Accounting Policies
Organization and principles of consolidation:
FirstBank NW Corp. (the Holding Company) was a Delaware Corporation organized on
March 12, 1997, to acquire all of the capital stock of FirstBank Northwest (the
Bank) as part of its conversion from a federally chartered mutual savings bank
to a federally chartered stock savings bank (the Conversion) and to complete an
initial public offering of Holding Company common stock. The Holding Company is
the parent company of the Bank and of Tri Star Financial Corporation (Tri Star),
which are collectively referred to as the Company and constitute these
consolidated financial statements. On January 30, 1998, the Bank converted to a
Washington Chartered savings bank. All significant intercompany transactions and
balances are eliminated in consolidation.
Nature of business and concentration of credit risk:
The Holding Company's principal business consists of the operations of the Bank
and Tri Star that operate in one business segment. The Bank's operations consist
of attracting deposits from the general public through a variety of deposit
products and investing these, together with funds from on-going operations, in
the origination of residential mortgage and commercial loans and, to a lesser
extent, construction, agricultural, consumer, and other loans. The Bank
primarily originates residential loans to customers located throughout Idaho and
southeast Washington.
Use of estimates:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Material
estimates that are susceptible to significant change in the near-term, relate to
the determination of the allowance for loan losses, the calculation of the
deferred tax assets and liabilities, and the valuation of mortgage servicing
rights.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. In connection with the determination
of the estimated losses on loans, management obtains independent appraisals for
significant collateral.
The Company's loans are generally secured by specific items of collateral
including real property, business assets, and consumer assets. Although the
Company has a diversified loan portfolio, a substantial portion of its debtors'
ability to honor their contracts is dependent on local economic conditions.
E-26
Note 1 - Summary of Accounting Policies (Continued)
Use of estimates (continued):
While management uses available information to recognize losses on loans,
further reductions in the carrying amounts of loans may be necessary based on
changes in local economic conditions. In addition, regulatory agencies, as an
integral part of their examination process, periodically review the estimated
losses on loans. Such agencies may require the Company to recognize additional
losses based on their judgments about information available to them at the time
of their examination. Because of these factors, it is reasonably possible that
the estimated losses on loans may change in the near term. However, the amount
of the change that is reasonably possible cannot be estimated.
Cash and cash equivalents:
Cash equivalents are any highly liquid debt instrument with a remaining maturity
of three months or less at the date of purchase. Cash and cash equivalents are
on deposit with other banks and financial institutions in amounts that
periodically exceed the federal insurance limit. The Bank evaluates the credit
quality of these banks and financial institutions to mitigate its credit risk.
In addition, the Bank sells excess funds to financial institutions on an
overnight basis.
Investments and mortgage-backed securities:
The Company accounts for securities according to the provisions of Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. SFAS No. 115 addresses the accounting
and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. Investments
in securities are to be classified as either held to maturity, available for
sale or trading.
o Held to maturity - Investments in debt securities classified as held to
maturity are stated at cost, adjusted for amortization of premiums and
accretion of discounts using the effective interest method. The Company has
the ability and the intention to hold these investment and mortgage backed
securities to maturity and, accordingly, they are not adjusted for temporary
declines in their fair value.
o Available for sale - Investments in debt and equity securities classified as
available for sale are stated at fair value. Unrealized gains and losses are
recognized (net of tax effect) as a separate component of stockholders'
equity.
o Trading - Investments in debt and equity securities classified as trading
are stated at fair value. Realized and unrealized gains and losses for
trading securities are included in income.
Purchase premiums and discounts are recognized in interest income using the
level yield method over the terms of the securities. Declines in the fair value
of held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
E-27
Note 1 - Summary of Accounting Policies (Continued)
Loans receivable:
The Company grants mortgage, commercial, consumer, and agricultural loans to
customers. A substantial portion of the loan portfolio is represented by loans
originated throughout Idaho and southeastern Washington.
The ability of the Company's debtors to honor their contracts is dependent upon
the general economic conditions in this area.
Loans that management has the intent and ability to hold for the foreseeable
future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge offs, the allowance for loan
losses, and any deferred fees or costs on originated loans. Deferred loan
origination fees and discounts are amortized over the contractual life of the
loan using the level-yield method. Interest income is accrued on any unpaid
principal balances.
The accrual of interest on loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well-secured and in process of collection. Loans
are placed on nonaccrual or charged off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual
or charged off is reversed against interest income or the loan loss reserve as
appropriate. The interest on these loans is accounted for on the cash basis or
cost recovery method, until qualifying for return to accrual. Loans are returned
to accrual status when all the principal and interest amounts contractually due
are brought current and future payments are reasonably assured. Suspended
interest ultimately collected is credited to interest income in the period of
recovery.
Allowance for loan losses:
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management and
is based upon management's periodic review of the collectibility of the loans in
light of historical experience, the nature and volume of the loan portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and prevailing economic conditions. This
evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes available.
E-28
Note 1 - Summary of Accounting Policies (Continued)
Allowance for loan losses (continued):
The Company accounts for loan impairment according to the provisions of SFAS No.
114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118.
Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures, which amended SFAS No. 114. These statements define the recognition
criteria for loan impairment and the measurement methods for certain impaired
loans and loans for which terms have been modified in troubled-debt
restructurings (a restructured loan). Specifically, a loan is considered
impaired when, based on current information and events, it is probable that the
Company will be unable to collect the scheduled payments or principal or
interest when due according to the contractual terms of the loan agreement.
Factors considered by management in determining impairment include payment
status, collateral value, and the probability of collecting scheduled principal
and interest payments when due. Loans that experience insignificant payment
delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls
on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower's prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan-by-loan basis for commercial and construction loans by either
the present value of expected future cash flows discounted at the loan's
effective interest rate, the loan's obtainable market price, or the fair value
of the collateral if the loan is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment. Accordingly, the Company does not separately identify individual
consumer and residential loans for impairment disclosures.
Loans held for sale:
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate. Market
values are determined by discounting future cash flows at current market rates.
Net unrealized losses, if any, are recognized through a valuation allowance by
charges to income.
Other real estate owned:
Assets acquired through loan foreclosure are held for sale and are initially
recorded at fair value at the date of foreclosure, establishing a new cost
basis. Subsequent to foreclosure, management periodically performs valuations
and the assets are carried at the lower of carrying amount or fair value less
cost to sell. Revenue and expenses from operations and changes in the valuation
allowance are included in other noninterest income or other noninterest expense,
respectively.
Stock in Federal Home Loan Bank:
Federal law requires a member institution of the Federal Home Loan Bank (FHLB)
System to hold common stock of its district FHLB according to predetermined
formulas. No readily determinable market exists for such stock and it has no
quoted market value. Accordingly, the Company reports its investment in FHLB
stock at cost.
E-29
Note 1 - Summary of Accounting Policies (Continued)
Premises and equipment:
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from three to forty years. Expenditures for
new properties and equipment and major renewals or betterments are capitalized.
Expenditures for repairs and maintenance are charged to expense as incurred.
Upon sale or retirement, the cost and related accumulated depreciation are
removed from the respective property or equipment accounts and the resulting
gains or losses are reflected in operations.
Income taxes:
The Company accounts for income taxes according to the provisions of SFAS No.
109, Accounting for Income Taxes that requires the use of the liability method
of accounting for deferred income taxes. Under SFAS No. 109, deferred income
taxes are provided for temporary differences between the financial reporting and
tax basis of assets and liabilities using the enacted tax rate expected to apply
to the taxable income of the period in which the deferred tax liability or asset
is expected to be settled or realized. Tax credits are accounted for as a
reduction of income taxes in the year in which the credit originates.
Mortgage servicing rights:
Servicing assets are recognized as separate assets when rights are acquired
through the purchase or sale of financial assets. Capitalized servicing rights
are reported separately in the statement of financial condition and are
amortized into noninterest income in proportion to, and over the period of, the
estimated future net servicing income of the underlying financial assets.
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 to the extent that the
capitalized amount for the stratum exceeds their fair value.
Employee Stock Ownership Plan:
The Company sponsors an Employee Stock Ownership Plan (the ESOP). The ESOP is
accounted for in accordance with the American Institute of Certified Pubic
Accountants Statement of Position No. 93-6, Employer's Accounting for Employee
Stock Ownership Plans. Accordingly, the shares held by the ESOP are reported as
unearned shares issued to the ESOP in the statements of financial condition. As
shares are released from collateral, compensation expense is recorded equal to
the then current market price of the shares, and the shares become outstanding
for earnings per share calculations.
Stock and cash dividends on allocated shares are recorded as a reduction of
retained earnings and paid or distributed directly to participants' accounts.
Stock and cash dividends on unallocated shares are recorded as a reduction of
debt and accrued interest.
E-30
Note 1 - Summary of Accounting Policies (Continued)
Stock-based compensation:
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations and to furnish the pro forma disclosures
required under SFAS No. 123. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
The following table illustrates the effect on net income if the Bank had applied
the fair value recognition provisions of Financial Accounting Standards Board
(FASB) Statement No. 123, Accounting for Stock-Based Compensation, to
stock-based employee compensation.
2003 2002
------------ ------------
Net income as previously reported $ 2,772,406 $ 2,376,296
Pro forma adjustment for effect of fair value
accounting for stock options (26,161) (33,737)
------------ ------------
PRO FORMA NET INCOME $ 2,746,245 $ 2,342,559
============ ============
Basic earnings per share:
As reported $ 2.15 $ 1.76
============ ============
Pro forma $ 2.13 $ 1.73
============ ============
Diluted earnings per share:
As reported $ 2.07 $ 1.70
============ ============
Pro forma $ 2.05 $ 1.67
============ ============
Earnings per share:
The Company reports earnings per shares (EPS) in accordance with SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting EPS. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period. SFAS No. 128 also
requires presentation of EPS assuming dilution (diluted EPS). Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
ESOP shares that are unallocated and not yet committed to be released are
excluded from the weighted average shares outstanding calculation (see Note 16).
E-31
Note 1 - Summary of Accounting Policies (Continued)
Comprehensive income:
SFAS No. 130, Reporting Comprehensive Income requires that certain changes in
assets and liabilities, such as unrealized gains and losses on available for
sale securities and certain derivative instruments, are reported as a separate
component of the equity section of the balance sheet, such items, along with net
income, are components of comprehensive income.
Off-balance-sheet financial instruments:
In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.
Derivative financial instruments designated as hedges:
As part of the Company's asset/liability management, the Company uses a swap
agreement to hedge interest rate risk. The derivative used as part of the
asset/liability management process is linked to specific assets and has a high
correlation between the contract and the underlying item being hedged, both at
inception and throughout the hedge period. The derivative is designated as a
cash flow hedge in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended by SFAS No. 137 and No. 138. SFAS
No. 133 establishes accounting and reporting standards for financial
derivatives, including certain financial derivatives embedded in other
contracts, and hedging activities. The standard requires the recognition of all
financial derivatives as assets or liabilities in the Company's statement of
financial condition at fair value. The accounting treatment of changes in fair
value is dependent upon whether or not a financial derivative is designated as a
hedge and if so, the type of hedge.
In accordance with SFAS No. 133, the Company recognizes all derivatives on the
statement of financial condition at fair value. Fair value is based on dealer
quotes, or quoted prices from instruments with similar characteristics. The
Company uses financial derivatives designated for hedging activities as cash
flow hedges. For derivatives designated as cash flow hedges, changes in fair
value are recognized in other comprehensive income, until the hedge items is
recognized in earnings.
The Company formally documents all relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. The Company also formally assesses (both
at the hedge's inception and on an ongoing basis) whether the derivatives that
are used in hedging transactions have been highly effective in offsetting
changes in cash flows of hedged items and whether those derivatives may be
expected to remain highly effective in future periods. The Company will
discontinue hedge accounting prospectively when it determines that the
derivative is no longer an effective hedge, the derivative expires or is sold,
or management discontinues the derivative's hedge designation.
E-32
Note 1 - Summary of Accounting Policies (Continued)
Reclassifications:
Certain amounts in the notes to the 2002 consolidated financial statements have
been reclassified to conform to the presentation in the 2003 consolidated
financial statements. These reclassifications did not effect previously reported
net income or equity.
New accounting pronouncements:
In June 2001, Financial Accounting Standards Board (FASB) approved for issuance
SFAS No. 143, Accounting for Asset Retirement Obligations, which addresses the
accounting for legal obligations associated with the retirement of tangible
long-lived assets. Under SFAS No. 143, the fair value of a liability for an
asset retirement obligation shall be recognized in the period in which the
obligation is incurred. SFAS No. 143 is effective for fiscal years beginning
after June 15, 2002, with early adoption permitted. The Bank's adoption of SFAS
No. 143 will not have a material impact on the Company's financial position or
results of operations.
In April 2002, FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4,
44, and 64, Amendment of FASB Statement 13, and Technical Corrections. SFAS No.
145 updates, clarifies, and simplifies existing accounting pronouncements, by
rescinding SFAS No. 4, which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an extraordinary item,
net of related income tax effect. As a result, the criteria in Accounting
Principles Board Opinion No. 30 will now be used to classify those gains and
losses. Additionally, SFAS No. 145 amends SFAS No. 13 to require that certain
lease modifications that have economic effects similar to sale-leaseback
transactions be accounted for in the same manner as sale-leaseback transactions.
Finally, SFAS No. 145 also makes technical corrections to existing
pronouncements. The Company's adoption of SFAS No. 145 did not have a material
impact on the Company's financial position or results of operations.
In June 2002, FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. SFAS No. 146 addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies
Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). The provisions of this
Statement are effective for exit or disposal activities that are initiated after
December 31, 2002. The Company's adoption of SFAS No. 146 will not have a
material impact on the Company's financial position or results of operations.
E-33
Note 1 - Summary of Accounting Policies (Continued)
New accounting pronouncements (continued):
In October 2002, FASB issued SFAS No. 147, Acquisitions of Certain Financial
Institutions - an amendment of FASB Statement Nos. 72 and 144 and FASB
Interpretation No. 9. SFAS No. 147 removes acquisitions of financial
institutions from the scope of both Statement No. 72 and Interpretation No. 9
and requires that those transactions be accounted for in accordance with FASB
Statements No. 141, Business Combinations, and No. 142, Goodwill and Other
Intangible Assets. In addition, this statement amends FASB Statement No 144,
Accounting for the Impairment or Disposal of Long-Lived Assets, to include in
its scope long-term customer-relationship intangible assets of financial
institutions such as depositor and borrower relationship intangible assets and
credit card holder intangible assets. The provisions of this statement were
effective on October 1, 2002. The Company's adoption of SFAS No. 147 did not
have a material impact on the Company's financial position or results of
operations.
In December 2002, FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of FASB Statement No.
123. SFAS No. 148 provides alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reporting results. The Company's adoption of SFAS No. 148 did not have a
material impact on the Company's financial position or results of operations.
The Company has elected to continue recognizing employee stock options under APB
No. 25, as permitted by this statement. In addition, the disclosures in the
Company's financial statements reflect the guidance provided by SFAS No. 148.
In November 2002, the FASB issued Interpretation No. 45 (FIN), Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a company, at the time it
issues a guarantee, to recognize an initial liability for the fair value of
obligations assumed under the guarantee and elaborates on existing disclosure
requirements. The initial recognition requirements of FIN 45 are effective for
guarantees issued or modified after December 31, 2002, and adoption of
disclosure requirements is effective for the Company in the current year. The
adoption of FIN 45 did not have a material impact on the Company's financial
position or results of operations.
E-34
Note 1 - Summary of Accounting Policies (Continued)
New accounting pronouncements (continued):
In April 2003, FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments under SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 149
improves financial reporting by requiring that contracts with comparable
characteristics be accounted for similarly. In particular, this Statement (1)
clarifies under what circumstances a contract with an initial net investment
meets the characteristic of a derivative discussed in paragraph 6(b) of
Statement No. 133, (2) clarifies when a derivative contains a financing
component, (3) amends the definition of an underlying to conform it to language
used in FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, and (4) amends certain other existing pronouncements. Those changes will
result in more consistent reporting of contracts as either derivatives or hybrid
instruments. SFAS No. 149 is effective prospectively for contracts entered into
or modified after June 30, 2003, except in certain circumstances, and for
hedging relationships designated after June 30, 2003. The Company believes that
the adoption of SFAS No. 149 will not have a material impact on the Company's
financial position or results of operations.
Note 2 - Securities
The amortized cost and fair value of securities, with gross unrealized gains and
losses, are as follows:
March 31, 2003
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Securities Available for Sale
Municipal bonds $ 16,026,025 $ 834,723 $ (47,903) $ 16,812,845
Mortgage-backed securities 6,977,917 671,149 -- 7,649,066
------------ ------------ ------------ ------------
$ 23,003,942 $ 1,505,872 $ (47,903) $ 24,461,911
============ ============ ============ ============
Securities Held to Maturity
Mortgage-backed securities $ 1,969,138 $ 7,460 $ (18,473) $ 1,958,125
============ ============ ============ ============
E-35
Note 2 - Securities (Continued)
March 31, 2002
-----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
Securities Available for Sale
Municipal bonds $ 12,496,149 $ 192,546 $ (165,054) $ 12,523,641
Mortgage-backed 9,034,491 261,162 (3,049) 9,292,604
------------ ------------ ------------ ------------
$ 21,530,640 $ 453,708 $ (168,103) $ 21,816,245
============ ============ ============ ============
Securities Held to Maturity
U.S. government and federal agency $ 1,432,279 $ 50,130 $ -- $ 1,482,409
Mortgage-backed 708,199 4,337 (20,662) 691,874
------------ ------------ ------------ ------------
$ 2,140,478 $ 54,467 $ (20,662) $ 2,174,283
============ ============ ============ ============
For the years ended March 31, 2003 and 2002, proceeds from sales of securities
available for sale amounted to approximately $-0- and $6,391,000, respectively.
Gross realized gains amounted to approximately $-0- and $194,000, respectively.
The tax provision applicable to these net realized gains amounted to
approximately $-0- and $66,000, respectively.
The amortized cost and fair value of U.S. government, federal agency, and
mortgage-backed securities by contractual maturity at March 31, 2003, are as
follows:
Held to Maturity Available for Sale
------------------------- -------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------- ----------- ----------- -----------
Amounts maturing in:
One year or less $ -- $ -- $ 2,563,780 $ 2,519,912
After one year through five years -- -- 962,640 964,108
After five years through ten years -- -- 700,350 726,058
After ten years -- -- 11,799,255 12,602,767
----------- ----------- ----------- -----------
-- -- 16,026,025 16,812,845
Mortgage-backed securities 1,969,138 1,958,125 6,977,917 7,649,066
----------- ----------- ----------- -----------
$ 1,969,138 $ 1,958,125 $23,003,942 $24,461,911
=========== =========== =========== ===========
E-36
Note 2 - Securities (Continued)
Expected maturities will differ from contractual maturities because issues may
have the right to call or prepay obligations with or without call or prepayment
penalties.
At March 31, 2003 and 2002, securities with an amortized cost of $15,154,324 and
$9,057,140, respectively, were pledged to secure the Company's performance of
its obligations under repurchase agreements. Approximate market value of these
securities was $15,929,462 and $9,150,571 at March 31, 2003 and 2002,
respectively. Securities with an amortized cost of 405,000 at March 31, 2003 and
2002, were pledged to secure public deposits for purposes required or permitted
by law. The approximate market value of these securities was $417,971 and
$396,742 at March 31, 2003 and 2002, respectively. Securities with an amortized
cost of $7,533,315 and $9,615,767 at March 31, 2003 and 2002, respectively, were
pledged as collateral for Federal Home Loan Bank advances. The approximate
market value of these securities was $8,204,464 and $9,935,694 at March 31, 2003
and 2002, respectively.
Note 3 - Equity Securities
Equity securities carried at cost at March 31 consists of the following:
2003 2002
------------ ------------
Federal Home Loan Bank stock $ 5,726,200 $ 5,375,400
FarmerMac stock 4,475 4,475
------------ ------------
EQUITY SECURITIES $ 5,730,675 $ 5,379,875
============ ============
During 2002, the FHLB revised their capital structure from the issuance of one
class of stock to two, B(1) and B(2) stock. B(1) stock can be sold back to the
FHLB at cost, but is restricted as to purchase, sale, and redemption based on
the level of business activity the Company is doing with the FHLB. Class B(2) is
not a required investment for institutions and is not restricted as to purchase
and sale, but has the same redemption restrictions as class B(1). The Bank had
$5,726,200 in B(1) stock and $-0- in B(2) stock at March 31, 2003.
Federal Home Loan Bank stock is a required investment for institutions that are
members of the Federal Home Loan Bank. The required investment in the common
stock is based on a predetermined formula and is carried at cost on the
consolidated statement of financial condition.
E-37
Note 4 - Loans Receivable
Loans receivable at March 31 consists of the following:
2003 2002
------------ ------------
Real estate loans:
Residential $ 50,780,992 $ 62,680,034
Commercial 68,125,421 52,495,723
Agricultural 15,920,524 16,263,924
Construction 46,836,132 9,869,760
Other loans:
Commercial (nonreal estate) 50,602,602 55,568,478
Other consumer 7,843,541 7,924,176
Home equity 19,924,033 24,831,875
Agricultural operating 12,999,558 12,288,953
------------ ------------
Total loans receivable 273,032,803 241,922,923
Less:
Loans in process 16,676,636 4,272,302
Unearned loan fees and discounts 1,137,285 692,008
Allowance for loan losses 3,414,262 2,562,757
------------ ------------
Loans receivable, net $251,804,620 $234,395,856
============ ============
Total loans receivable consist of approximately $76,464,000 and $89,853,000 in
one-to-four family residential real estate loans at March 31, 2003 and 2002,
respectively.
At March 31, 2003, the contractual principal payments due on outstanding loans
receivable are shown below. Actual payments may differ from expected payments
because borrowers have the right to prepay loans, with or without prepayment
penalties.
2004 $ 90,030,023
2005 11,435,864
2006 7,911,973
2007 10,288,105
2008 11,428,077
Thereafter 141,938,761
------------
$273,032,803
============
E-38
Note 4 - Loans Receivable (Continued)
The following summarizes the changes in the allowance for loan losses at March
31:
2003 2002
----------- -----------
Allowance for loan losses, beginning of year $ 2,562,757 $ 1,758,263
Provision for loan losses 1,033,068 1,063,920
Charge offs, net (181,563) (259,426)
----------- -----------
Allowance for loan losses, end of year $ 3,414,262 $ 2,562,757
=========== ===========
As of March 31, 2003 and 2002, loans on a nonaccrual status totaled
approximately $1,251,284 and $591,000, respectively. The effect of not
recognizing interest income on nonaccrual loans in accordance with the original
terms totaled approximately $60,761 during 2003 and $38,000 during 2002. The
following information at March 31 relates to the Bank's impaired loans which
include troubled debt restructurings that meet the definition of impaired loans:
2003 2002
----------- -----------
Impaired loans with a specific allowance $ 51,009 $ 76,237
Impaired loans with no specific allowance 1,952,016 980,510
----------- -----------
TOTAL IMPAIRED LOANS $ 2,003,025 $ 1,056,747
=========== ===========
Total allowance related to impaired loans $ 160,612 $ 91,564
=========== ===========
Average aggregate balance of impaired loans for the year $ 1,612,762 $ 1,335,305
=========== ===========
Interest income recognized on impaired loans for cash
payments received $ 105,614 $ 73,571
=========== ===========
E-39
Note 4 - Loans Receivable (Continued)
Outstanding commitments of the Bank to originate loans as of March 31, 2003,
were as follows:
Fixed Rate Variable Rate Total
----------- ----------- -----------
First mortgage loans $35,621,430 $ 2,735,400 $38,356,830
Other loans 2,848,600 17,814,975 20,663,575
----------- ----------- -----------
OUTSTANDING LOAN
COMMITMENTS $38,470,030 $20,550,375 $59,020,405
=========== =========== ===========
Interest rates on fixed rate loan commitments range from 4.75% to 8.37% and are
committed through June 20, 2003. Fees received in connection with these
outstanding loan commitments are deferred and will be recognized in income over
the life of the related loan after funding of the loan. In addition, the Bank
had commitments to fund outstanding credit lines of approximately $46,362,269
and commitments to fund credit card lines of approximately $4,744,378 at March
31, 2003. Commitments to extend credit may involve elements of interest rate
risk in excess of the amount recognized in the balance sheets. Interest rate
risk on commitments to extend credit results from the possibility that interest
rates may have moved unfavorably from the position of the Bank since the time
the commitment was made.
The Bank remains contingently liable for $149,161 of loans sold with recourse as
of March 31, 2003.
Note 5 - Loan Servicing
Loans serviced for others (including contract collections) are not included in
the consolidated statements of financial condition. The unpaid principal
balances of these loans at March 31 are as follows:
2003 2002
------------ ------------
Loan portfolios serviced for:
FNMA $ 11,750,776 $ 19,831,161
FHLMC 97,914,259 111,983,887
Others 5,859,923 6,424,985
------------ ------------
$115,524,958 $138,240,033
============ ============
The balance of capitalized mortgage servicing rights at March 31, 2003 and 2002,
was $825,814 and $1,016,953, respectively. The fair value of mortgage servicing
rights was determined using discount rates ranging from 10.00% to 10.30% and
prepayment speeds ranging from 22.40% to 40.46% percent, depending upon the
stratification of the specific mortgage servicing right.
E-40
Note 5 - Loan Servicing (Continued)
The following summarizes mortgage servicing rights activity:
2003 2002
------------ ------------
Mortgage servicing asset, beginning of year $ 1,016,953 $ 866,489
Capitalized 278,745 283,457
Amortized (163,594) (132,993)
Impairment writedown (306,290) --
------------ ------------
Mortgage servicing asset, end of year $ 825,814 $ 1,016,953
============ ============
Note 6 - Premises and Equipment
Premises and equipment at March 31 consists of the following:
2003 2002
------------ ------------
Land, buildings, and building improvements $ 6,034,275 $ 5,665,838
Furniture, fixtures, and equipment 5,129,533 4,853,422
Construction in progress 1,718,972 65,784
------------ ------------
12,882,780 10,585,044
Accumulated depreciation (5,672,740) (5,078,274)
------------ ------------
Premises and equipment, net $ 7,210,040 $ 5,506,770
============ ============
Depreciation expense for the years ended March 31, 2003 and 2002, amounted to
$622,033 and $668,720, respectively.
Note 7 - Foreclosed Real Estate
Foreclosed real estate of $119,755 and $423,925 was included in other assets on
the consolidated statement of financial condition at March 31, 2003 and 2002,
respectively.
E-41
Note 8 - Deposits
Deposits and the related weighted-average interest rates at March 31 consist of
the following:
2003 2002
------------ ------------
Transaction accounts:
NOW accounts (.15% and 0.27%) $ 62,480,204 $ 49,446,173
Passbook accounts (.30% and 0.50%) 15,534,815 13,919,906
Money market accounts (1.30% and 1.57%) 24,237,997 21,068,571
------------ ------------
Total transaction accounts 102,253,016 84,434,650
------------ ------------
Certificates of deposit:
0.00% to 1.99% 35,020,383 24,977,839
2.00% to 2.99% 16,919,143 13,792,497
3.00% to 3.99% 11,937,240 3,273,940
4.00% to 4.99% 32,125,791 32,634,440
5.00% to 5.99% 14,523,092 26,239,456
6.00% to 6.99% 1,218,758 10,192,630
7.00% to 7.99% 336,475 531,984
8.00% to 8.99% 6,099 45,078
------------ ------------
Total certificates of deposit 112,086,981 111,687,864
------------ ------------
TOTAL DEPOSITS $214,339,997 $196,122,514
============ ============
The scheduled maturities of certificates of deposit at March 31, 2003, are as
follows:
Year ending March 31,
2004 $ 46,391,036
2005 19,783,624
2006 14,665,333
2007 18,157,743
2008 10,168,811
Thereafter 2,920,434
------------
TOTAL CERTIFICATES OF DEPOSIT $112,086,981
============
E-42
Note 8 - Deposits (Continued)
Interest expense on deposits consists of the following:
Year Ended March 31,
----------------------------
2003 2002
------------ ------------
NOW and money market $ 474,748 $ 706,420
Passbook savings 59,477 210,232
Certificates of deposit 4,108,964 4,747,032
------------ ------------
INTEREST EXPENSE $ 4,643,189 $ 5,663,684
============ ============
Certificates of deposit of $100,000 or more totaled approximately $47,235,657
and $44,160,000 at March 31, 2003 and 2002, respectively. Deposit balances in
excess of $100,000 totaled approximately $68,288,772 and $54,041,000 at March
31, 2003 and 2002, respectively, are not insured by the Federal Deposit
Insurance Corporation (FDIC).
Note 9 - Advances from FHLB and Other Borrowed Funds
Advances from FHLB had weighted average interest rates at March 31, 2003 and
2002, of 4.93% and 4.91%, respectively. Maturity dates of advances at March 31
were as follows:
2003 2002
------------ ------------
Advances from FHLB due:
Less that 1 year $ 13,551,600 $ 14,090,000
After one year through two years 12,572,900 11,551,600
After two years through three years 16,111,000 12,572,900
After three years through four years 11,197,204 16,111,000
After four years through five years 5,000,000 11,947,204
More than 5 years 23,383,524 13,449,739
------------ ------------
$ 81,816,228 $ 79,722,443
============ ============
E-43
Note 9 - Advances from FHLB and Other Borrowed Funds (Continued)
The Bank has an unsecured operating line of credit with Wells Fargo for
$10,000,000. There was no outstanding balance under the line of credit at March
31, 2003 and 2002. In addition, the Bank has an operating line of credit with
Federal Home Loan Bank (FHLB) for up to 42% of total assets. The FHLB borrowings
are collateralized by investment securities and residential real estate loans.
Interest is charged at the market rate for federal funds purchased. There was
$81,816,228 and $79,722,443 outstanding under the FHLB line of credit at March
31, 2003 and 2002, respectively.
Securities sold under agreements to repurchase generally mature within one to
four days from the transaction date. Securities underlying the agreements are
presented in Note 2.
Information concerning securities sold under agreements to repurchase at March
31, 2003, is summarized as follows:
Average balance during the year $10,740,160
-----------
Average interest rate during the year 1.19%
-----------
Maximum month-end balance during the year $13,535,131
-----------
Note 10 - Income Taxes
The components of income tax expense are summarized as follows:
Year Ended March 31,
------------------------------
2003 2002
------------ ------------
Current tax expense $ 1,342,011 $ 1,375,182
Deferred tax benefit (288,882) (310,742)
------------ ------------
INCOME TAX EXPENSE $ 1,053,129 $ 1,064,440
============ ============
E-44
Note 10 - Income Taxes (Continued)
Deferred tax liabilities and assets at March 31 consist of the following:
2003 2002
------------ ------------
Deferred tax assets:
Unearned loan fees $ 14,636 $ 21,000
Allowance for loan losses 1,386,384 1,235,000
Deferred compensation 266,308 198,000
Other 99,451 53,000
------------ ------------
Total deferred tax assets 1,766,779 1,507,000
------------ ------------
Deferred tax liabilities:
Federal Home Loan Bank stock dividends (882,924) (746,000)
Loan loss reserves (40,315) (80,000)
Mortgage servicing rights (322,645) (397,000)
Depreciation (308,909) (335,000)
Unrealized gain on securities available for sale (568,608) (108,104)
Unrealized gain on cash flow hedge (96,917) --
Other -- (25,896)
------------ ------------
Total deferred tax liabilities (2,220,318) (1,692,000)
------------ ------------
NET DEFERRED INCOME TAX LIABILITY $ (453,539) $ (185,000)
============ ============
At March 31, 2003 and 2002, an income tax receivable of $82,559 and $42,963,
respectively, was included in other assets on the consolidated statement of
financial condition.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
2003 2002
------------------------ ------------------------
Amount Percent Amount Percent
---------- ---------- ---------- ----------
Income tax expense at statutory rates $1,300,682 34.0 $1,169,850 34.0
Effect of permanent differences (367,952) (9.6) (269,897) (7.8)
Effect of state income taxes, net of
federal benefit 213,351 5.6 182,029 5.2
Other (92,952) (2.4) (17,542) (0.5)
---------- ---------- ---------- ----------
$1,053,129 27.6 $1,064,440 30.9
========== ========== ========== ==========
E-45
Note 11 - Equity
The Holding Company is not subject to capital adequacy requirements by its
primary regulator, the Office of Thrift Supervision. The Bank, however, is
subject to various regulatory capital requirements administered by the
Washington Department of Financial Institutions (the Department) and the FDIC,
(collectively referred to as the regulators). Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by the regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of March 31, 2003, that the Bank
meets all capital adequacy requirements to which it is subject.
As of September 3, 2002, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set
forth in the table below. There are no conditions or events since the most
recent notification that management believes have changed the Bank's category.
The Bank's actual capital amounts and ratios are presented in the table below
(dollars in thousands):
To Be Well
Capital Adequacy Capitalized Under
Purposes Prompt Corrective
----------------- -----------------
Actual Actual Actual
March 31, 2003 Amount Ratio Amount Rate Amount Rate
- -------------- ------- ------- ------- ------- ------- -------
Tier 1 capital (to average assets) $27,562 8.4% $13,127 4.0% $16,409 5.0%
Tier 1 capital (to risk-weighted assets) 27,562 11.8% 9,313 4.0% 13,970 6.0%
Total capital (to risk-weighted assets) 30,485 13.1% 18,627 8.0% 23,284 10.0%
March 31, 2002
- --------------
Tier 1 capital (to average assets) 26,360 8.8% 11,994 4.0% 14,992 5.0%
Tier 1 capital (to risk-weighted assets) 26,360 12.3% 8,589 4.0% 12,884 6.0%
Total capital (to risk-weighted assets) 28,923 13.5% 17,178 8.0% 21,473 10.0%
E-46
Note 11 - Equity (Continued)
Federal and state banking regulations place certain restrictions on dividends
paid and loans or advances made by the Bank to the Company. The total amount of
dividends, which may be paid at any date, is generally limited to the retained
earnings of the Bank.
The payment of dividends to the Holding Company by its bank subsidiary is
subject to various federal and state regulatory limitations. Under current
guidelines, at March 31, 2003, the bank subsidiary could have declared
approximately $7,200,000 of aggregate dividends in addition to amounts
previously paid.
In addition, dividends paid by the Bank to the Company would be prohibited if
the effect thereof would cause the Bank's capital to be reduced below applicable
minimum capital requirements.
The Corporation authorized a 5% stock repurchase plan, or 69,300 shares, on
October 17, 2002. The Company's stock repurchase program intent is to enhance
trading liquidity and stock value. The shares are purchased on the open market
at market value through an authorized broker.
Note 12 - Related Party Transactions
The following schedule summarizes the activity in loans to directors and
officers at March 31:
2003 2002
----------- -----------
Balance, beginning of year $ 1,611,200 $ 1,277,130
Additions 952,913 1,178,029
Repayments and sales proceeds (1,194,034) (843,959)
----------- -----------
BALANCE, END OF YEAR $ 1,370,079 $ 1,611,200
=========== ===========
The Bank also accepts deposits from its executive officers, directors, and
affiliated companies on substantially the same terms as unrelated persons. The
aggregate amount of deposits from such related parties at March 31, 2003 and
2002, was $1,690,616 and $1,355,184, respectively.
E-47
Note 13 - Employee Benefit Plans
The Company has entered into a salary continuation agreements with certain
employees. This program was funded by purchasing single premium life insurance
contracts. The program provides for aggregate continued annual compensation for
all participants totaling $143,500 for life on the insured and a guarantee
period ranging from fifteen to twenty years for the beneficiaries. Participants
vest ratably each plan year until retirement, termination, death, or disability.
The Company is recording the salary obligation over the estimated remaining
service lives of the participants. Expenses related to this program were
approximately $202,469 and $134,000 for the years ended March 31, 2003 and 2002,
respectively. At March 31, 2003 and 2002, an obligation of $696,234 and
$493,765, respectively, was included in accrued expenses and other liabilities.
During the year ended March 31, 2002, the Bank purchased certain additional
policies on various members of' management and of the Board of Directors. Total
purchase of this Bank-owned life insurance were approximately $4,920,000. At
March 31, 2003 and 2002, cash value of life insurance of $7,272,489 and
$6,849,783, respectively, was recorded. Net earnings on the life insurance
contracts were $411,286 and $185,287 for the years ended March 31, 2003 and
2002, respectively.
The Company entered into three-year employment agreements with certain officers,
which may be extended by the Board for an additional year at each anniversary
date. The agreements provide for severance payments and other benefits in the
event of termination without cause and termination of employment in connection
with any change in control of the Company of up to 2.99 times the officer's
average annual compensation during the preceding five years. The employment
agreements provide for termination by the Company for cause at any time.
During 1995, the Bank established a profit sharing plan pursuant to Section 401
(k) of the Internal Revenue Code (Code) of 1986, as amended, whereby
participants may contribute a percentage of compensation, but not in excess of
the maximum allowed under the Code. The plan was amended during 1998, whereby
contributions by the Bank are discretionary. Approximately $112,500 and $113,000
were contributed by the Company to the plan for the years ended March 31, 2003
and 2002, respectively.
Note 14 - Employee Stock Ownership Plan
The Bank established for eligible employees an ESOP and related trust in
connection with the stock conversion consummated on July 1, 1997. Eligible
employees of the Bank as of June 30, 1997 and eligible employees of the Company
and the Bank employed after such date who have been credited with at least 1,000
hours during a 12-month period will become participants. The ESOP borrowed
$1,587,000 from the Holding Company in order to purchase 158,700 shares of
common stock of the Holding Company. The loan will be repaid principally from
the Bank's contributions to the ESOP over a period of twenty-five years, as
amended during fiscal 1999, and the collateral for the loan will be the
unreleased, restricted common stock purchased by the ESOP. Contributions to the
ESOP will be discretionary; however, the Bank intends to make annual
contributions to the ESOP in an aggregate amount at least equal to the principal
and interest requirements of the debt. The stated interest rate for the loan is
8.5%.
E-48
Note 14 - Employee Stock Ownership Plan (Continued)
The cost of shares acquired by the ESOP is considered unearned compensation and
as such, is recorded as a reduction of the Company's stockholders' equity.
Shares purchased by the ESOP are held in a suspense account for allocation among
participants as the loan is repaid. Shares are released based on the ratio of
total ESOP loan payments made during the period to the remaining total payments
due on the loan. Contributions to the ESOP and shares released from the suspense
account are allocated among the participants on the basis of compensation in the
year of allocation. Participants generally become 100% vested in their ESOP
account after five years of credited service or if their service was terminated
due to death, permanent disability or a change in control. Prior to the
completion of four years of credited service, a participant who terminates
employment for reasons other than death, disability, or change in control of the
Company will not receive any benefit. Forfeitures will be reallocated among
remaining participating employees, in the same proportion as contributions.
Benefits are payable upon death, retirement, disability, or separation from
service. The contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
Compensation expense is recorded equal to the fair value of shares held by the
ESOP which are deemed committed to be released. ESOP compensation expense was
approximately $167,682 and $130,372 for the years ended March 31, 2003 and 2002,
respectively. As of March 31, 2003, the Company has allocated 69,104 shares to
participant accounts and has 89,596 unallocated shares. The Company has
committed to release 2,085 shares of stock resulting in 87,511 unearned,
restricted shares remaining to be released. The market value of unearned,
restricted shares held by the ESOP trust was approximately $2,073,017 at March
31, 2003.
Note 15 - Stock Award Plans
Stock Option Plan:
On July 22, 1998, the shareholders of the Holding Company voted to approve the
1998 Stock Option Plan (the SOP) for employees, officers and directors of the
Company. The SOP is administered by the Board of Directors. Under the SOP, a
maximum of 198,375 shares were approved to be granted. Generally, the SOP
provides that the terms under which options may be granted are to be determined
by a Committee subject to certain requirements as follows: (1) the exercise
price will not be less than 100% of the market price per share of the common
stock of the Holding Company at the time stock option is granted, and (2) the
option purchase price will be paid in full on the date of purchase. The SOP
provides that options may be transferred only by will or by laws of descent and
distribution and may be exercised during the optionee's lifetime only by the
optionee or by the optionee's guardian or legal representative.
E-49
Note 15 - Stock Award Plans (Continued)
Stock option transactions for the above described plan is summarized as follows:
2003 2002
-------------------- --------------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
-------- -------- -------- --------
Outstanding options at beginning of year 151,200 $ 15.81 156,150 $ 15.81
Granted -- -- 7,000 15.82
Exercised (4,200) 15.81 (4,200) 15.81
Forfeited -- -- (7,750) 15.81
------- --------
Outstanding at end of year 147,000 $ 15.81 151,200 $ 15.81
======== ======== ======== ========
Options exercisable at year end 111,720 84,840
======== ========
Weighted-average fair value of options
granted during the year $ 1.80
========
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the fiscal 2002 grant:
Dividend yield 8%
Expected volatility 25%
Risk free interest rates 5%
Expected option lives 7 years
The following table presents information about the options as of March 31, 2003:
Options Outstanding Options Exercisable
---------------------------------- --------------------
Weighted Weighted
Average Average Weighted
Remaining Exercise Average
Range of Exercise Number of Contractual Price Per Number of Exercise
Price Shares Life Share Shares Price
- ----------------- -------- -------- -------- -------- --------
$ 15.81 140,000 5.80 $ 15.81 110,320 $ 15.81
$ 15.82 7,000 8.00 15.82 1,400 15.82
-------- -------- -------- -------- --------
147,000 $ 5.90 $ 15.81 111,720 $ 15.81
======== ======== ======== ======== ========
E-50
Note 15 - Stock Award Plans (Continued)
Restricted stock:
During fiscal 1999, the shareholders of the Company approved the Management
Recognition and Development Plan (MRDP). Under the MRDP, the Company is
authorized to grant up to 79,350 shares of restricted stock to employees,
officers and directors of the Company. During fiscal 1999, 79,350 shares of
restricted stock was awarded to the deferred compensation plan. The fair market
value at the date of award was $15.81 per share. These awards vest ratably over
a five-year period. Deferred compensation resulting from these awards is
amortized as a charge to expense over the five-year period; expense recognized
by the Company was $236,361 for the years ending March 31, 2003 and 2002. The
balance of deferred compensation is shown as a reduction of stockholders'
equity.
Note 16 - Earnings Per Share
Information used to calculate earnings per share was as follows:
Year Ended March 31,
-----------------------
2003 2002
---------- ----------
Net income $2,772,406 $2,376,296
========== ==========
Basic weighted-average number of common shares outstanding 1,287,967 1,351,705
Dilutive effect of potential common shares 53,144 49,727
---------- ----------
DILUTED WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING 1,341,111 1,401,432
========== ==========
Net income per common share
Basic $ 2.15 $ 1.76
========== ==========
Diluted $ 2.07 $ 1.70
========== ==========
Note 17 - Fair Values of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments, whether or not
recognized on the balance sheet, for which it is practicable to estimate that
value. SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly. the aggregate fair
value estimates presented do not reflect the underlying fair value of the
Company.
E-51
Note 17 - Fair Values of Financial Instruments (Continued)
Although management is not aware of any factors that would materially affect the
estimated fair value amounts presented, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date and, therefore, estimates of fair value subsequent to that date may differ
significantly from the amounts presented as follows.
2003 2002
--------------------------- ---------------------------
Carrying Estimated Carrying Estimated Fair
Amount Fair Value Amount Value
------------ ------------ ------------ ------------
Financial Assets:
Cash and cash equivalents $ 24,740,775 $ 24,740,775 $ 24,011,902 $ 24,011,902
Investment securities available for sale 16,812,845 16,812,845 12,523,641 12,523,641
Mortgage-backed securities:
Held to maturity 1,969,138 1,958,125 2,140,478 2,174,283
Available for sale 7,649,066 7,649,066 9,292,502 9,292,502
Loans held for sale 5,214,077 5,214,077 3,740,302 3,740,302
Loans receivable 251,804,620 254,236,534 234,395,856 234,983,698
Equity securities 5,730,675 5,730,675 5,379,875 5,379,875
Cash surrender value of life
insurance 7,272,489 7,272,489 6,849,783 6,849,783
Financial Liabilities:
Deposits 203,189,041 215,730,362 196,122,514 196,495,000
Advances from borrowers for
taxes and insurance 1,191,545 1,191,545 1,395,685 1,395,685
FHLB advances 81,816,228 86,380,819 79,722,443 83,313,235
The following methods and assumptions were used to estimate the fair value of
financial instruments:
Cash and cash equivalents:
The carrying amount of these items is a reasonable estimate of their fair value.
Investment securities and mortgaged-backed securities available for sale and
held to maturity:
The fair value of investment securities is based on quoted market prices or
dealer estimates. Estimated fair value for mortgage-backed securities issued by
quasi-governmental agencies is based on quoted market prices. The fair value of
all other mortgage-backed securities is based on dealer estimates.
Loans held for sale:
The fair value of loans held for sale are estimated by discounting the future
cash flows at current rates.
E-52
Note 17 - Fair Values of Financial Instruments (Continued)
Loans receivable:
For certain homogeneous categories of loans, such as fixed and variable rate
residential mortgages, fair value is estimated using quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. The fair value of other loan types is estimated by discounting
the future cash flows and estimated prepayments using the current rates at which
similar loans would be made to borrowers with similar credit ratings and for the
same remaining term. Some loan types were valued at carrying value because of
their floating rate or expected maturity characteristics.
Cash surrender value of bank owned and other life insurance policies:
The carrying amount of these policies approximate their fair value.
Equity securities:
The fair value is based upon the redemption value of the stock which equates to
its carrying value.
Deposits:
The fair value of demand deposits, savings accounts, and money market accounts
is the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated by discounting the estimated
future cash flows using the rates currently offered for deposits with similar
remaining maturities.
Advances to borrowers for taxes and insurance:
The fair value of advances to borrowers for taxes and insurance is the amount
payable on demand at the reporting date.
Advances from FHLB:
The fair value of FHIB advances and other borrowings is estimated by discounting
the estimated future cash flows using rates currently available to the Bank for
debt with similar remaining maturities.
Off-balance sheet instruments:
The fair value of a loan commitment is determined based on the fees currently
charged to enter into similar agreements, taking into account the remaining
length of the commitment period and the present creditworthiness of the
counterparties. Neither the fees earned during the year on these instruments nor
their value at year end are significant to the Company's consolidated financial
position.
E-53
Note 18 - Liquidation Account
At the time of the conversion, the Bank established a liquidation account in an
amount equal to its equity as reflected in the latest statement of financial
condition used in the final conversion prospectus. The liquidation account will
be maintained for the benefit of eligible account holders and supplemental
eligible account holders who continue to maintain their accounts at the Bank
after the conversion. The liquidation account will be reduced annually to the
extent that eligible account holders and supplemental eligible account holders
have reduced their qualifying deposits as of each anniversary date. Subsequent
increases will not restore an eligible account holder's or supplemental eligible
account holder's interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount proportionate
to the current adjusted qualifying balances for accounts then held.
Note 19 - Commitments and Contingencies
Periodically, there have been various claims and lawsuits involving the Bank,
such as claims to enforce liens, condemnation proceedings on properties in which
the Bank holds security interests, claims involving the making and servicing of
real property loans and other issues incident to the Bank's business. The
Company and the Bank are not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Company.
The Company rents branch and office space under various operating leases. Total
rent expense recognized during the years ended March 31, 2003 and 2002, was
$186,329 and $120,379, respectively. Future minimum rental payments under the
operating lease agreements are:
Year Ending March 31,
2004 $ 153,786
2005 146,206
2006 91,653
2007 93,501
Thereafter 131,504
----------
$ 616,650
==========
E-54
Note 19 - Commitments and Contingencies (Continued)
The Company subleases portions of its branch facilities under noncancelable
operating lease agreements. Total sublease income recognized during the years
ended March 31, 2003 and 2002, was $107,577 and $95,450, respectively. Future
minimum rental payments due to the Company under subleases are as follows:
Year Ending March 31,
2004 $ 98,928
2005 98,928
2006 98,928
2007 65,952
----------
$ 362,736
==========
The Company has committed to a $2.1 million contract for the construction of a
new building and branch in Clarkston, Washington. During the year ended March
31, 2003, the Bank had capitalized $1,018,734 relating to this project. The
construction project is expected to be completed within a twelve-month period.
Note 20 - Merger
On February 24, 2003, the Company signed a definitive agreement to effect a
merger with Oregon Trail Financial Corporation, Baker, Oregon. The total
consideration is approximately $75,000,000.
Note 21 - Derivative Financial Instrument Designated as Hedges
At March 31, 2003, the Company had a swap agreement to exchange monthly payments
on a notional amount of $10 million. The swap agreement terminates May 29, 2004.
Under this two-year agreement, the Company swapped a variable rate payment equal
to Prime for a 6.32% fixed rate payment. Amounts to be paid or received on the
interest rate swap will be included in earnings upon the receipt of interest
payments on the underlying hedged loans. As of March 31, 2003, the Company had
realized $151,348 in interest related to the swap. The fair value of the
interest rate swap as of March 31, 2003, was $246,734. During the year ended
March 31, 2003, the Company recorded a credit of $149,817, net of $96,917 tax,
to other comprehensive income arising from the change in the value of the cash
flow hedges.
E-55
Note 22 - Parent Company Financial Information
First Bank NW Corp.
Statements of Financial Condition
Year Ended March 31,
---------------------------
2003 2002
------------ ------------
Assets
Cash and cash equivalents $ 25,515 $ 111,926
Loan receivable from ESOP 918,465 970,511
Investment in subsidiaries 28,724,289 26,613,992
Other assets 396,442 118,360
------------ ------------
TOTAL ASSETS $ 30,064,711 $ 27,814,789
============ ============
Liabilities and Stockholders' Equity
Other liabilities $ 609 $ 2,105
Stockholders' equity 30,064,102 27,812,684
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,064,711 $ 27,814,789
============ ============
E-56
Note 22 - Parent Company Financial Information (Continued)
First Bank NW Corp.
Statements of Income
Year Ended March 31,
---------------------------
2003 2002
------------ ------------
Interest income:
Certificates and time deposit $ 2 $ 5,355
ESOP loan 81,330 83,209
Cash and cash equivalents 1,311 3,730
Other income:
Equity in undistributed income of subsidiaries, net of taxes 2,940,300 2,471,824
------------ ------------
3,022,943 2,564,118
------------ ------------
Other expense:
Compensation, payroll taxes, and fringe benefits 194,157 72,652
Other expense 164,990 176,967
------------ ------------
359,147 249,619
------------ ------------
Income before income tax expense 2,663,796 2,314,499
Income tax benefit 108,610 61,797
------------ ------------
NET INCOME $ 2,772,406 $ 2,376,296
============ ============
E-57
Note 22 - Parent Company Financial Information (Continued)
First Bank NW Corp.
Statements of Cash Flows
Year Ended March 31,
--------------------------
2003 2002
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,772,406 $ 2,376,296
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Equity in undistributed earnings of subsidiaries, net of taxes (2,940,300) (2,471,824)
Amortization of deferred compensation 236,361 236,361
Changes in assets and liabilities:
Other assets (278,082) (70,242)
Liabilities (1,496) (39,008)
----------- -----------
Net cash provided (used) by operating activities (211,111) 31,583
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Maturities of certificates of deposit -- 712,429
Dividends received from subsidiaries 1,910,000 1,790,000
Principal repayments on ESOP loan 52,046 50,168
----------- -----------
Net cash provided by investing activities 1,962,046 2,552,597
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Redemption of common stock (1,149,685) (1,937,824)
Proceeds from the exercise of stock options 66,402 66,402
Cash dividends paid on common stock (703,423) (608,441)
Cash dividends paid on unallocated ESOP Shares (50,640) (46,780)
----------- -----------
Net cash used by financing activities (1,837,346) (2,526,643)
----------- -----------
NET CHANGE IN CASH AND CASH EQUIVALENTS (86,411) 57,537
Cash and cash equivalents, beginning of year 111,926 54,389
----------- -----------
Cash and cash equivalents, end of year $ 25,515 $ 111,926
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest $ -- $ --
=========== ===========
Income taxes $ 1,539,050 $ 1,294,530
=========== ===========
NONCASH INVESTING AND FINANCING ACTIVITIES
ESOP shares released $ 167,682 $ 130,372
=========== ===========
Unrealized gain (loss) on securities available for sale, net of tax $ 711,860 $ (426,825)
=========== ===========
Unrealized gain on interest rate swap, net of tax $ 149,817 $ --
=========== ===========
E-58
Corporate Information Board of Directors
Corporate Headquarters: Clyde E. Conklin
920 Main Street Chairman of the Board, President
P.O. Box 996 and CEO
Lewiston, Idaho 83501 Larry K. Moxley
(208) 746-9610 Executive Vice President, CFO and
Director
Subsidiaries William J. Larson
FirstBank Northwest Partner, Quality Inn and Convention
Center
Transfer Agent and Registrar Steve R. Cox
Registrar & Transfer Company President and stockholder of
Randall, Blake & Cox,
10 Commerce Drive P.A., a law firm
Cranford, NJ 07016
Robert S. Coleman, Sr.
Special Counsel Retired businessman
Breyer & Associates PC
8180 Greensboro Drive, Suite 785 James N. Marker
McLean, VA 22102 President and owner of Idaho Truck
Sales Co., Inc.
Annual Meeting of Stockholders W. Dean Jurgens
A date for this year's annual Retired certified public accountant
meeting of shareholders has
not been established by the
Board of Directors.
Executive Officers
Clyde E. Conklin, President and CEO
Larry K. Moxley, Executive Vice
President and CFO
Investor Information
A copy of the Form 10-KSB, including
consolidated financial statements,
as filed with the Securities and
Exchange Commission, will be
furnished without charge to
stockholder as of the record date for
voting at the annual meeting of
stockholders upon written request to
the Secretary, FirstBank NW Corp.,
920 Main Street, Lewiston, Idaho
83501.
E-59
Stock Listing
FirstBank NW Corp. common stock is traded over-the-counter on the Nasdaq
National Market under the symbol "FBNW" since July 2 , 1997. Stockholders of
record at March 31, 2003 totaled 600 including 260 record holders who hold stock
in nominee or "street" name. The following table shows the reported high and low
closing prices of the Company's common stock and declared dividends for each
quarter within the two most recent fiscal years.
Sale Price Dividends
----------------- ----------
High Low Declared
---- --- --------
Fiscal 2003
First quarter $19.090 $17.850 $0.12
Second quarter 19.450 17.800 0.12
Third quarter 20.980 18.950 0.15
Fourth quarter 23.940 20.450 0.15
Fiscal 2002
First quarter $16.000 $13.030 $0.10
Second quarter 17.900 15.410 0.10
Third quarter 17.950 16.250 0.12
Fourth quarter 18.409 16.500 0.12
Offices
Main Office Coeur d'Alene Office
- ----------- --------------------
920 Main Street Ironwood at NW Boulevard
Lewiston, Idaho Coeur d'Alene, Idaho
Orchards Office Grangeville Office
- --------------- ------------------
444 Thain Road 108 S. Mill Street
Lewiston, Idaho Grangeville, Idaho
Moscow Office Clarkston Office
- ------------- ----------------
201 South Jackson Street 733 5th Street
Moscow, Idaho Clarkston, Washington
Post Falls Office Liberty Lake Office
- ----------------- -------------------
1501 East Seltice Way 22408 E. Appleway Avenue
Post Falls, Idaho Liberty Lake, Washington
Boise Office Spokane Office
- ------------ --------------
1412 W. Idaho, Suite 120 111 W. North River Drive
Boise, Idaho Spokane, Washington
E-60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act ("WBCA") contain specific provisions relating to indemnification
of directors and officers of Washington corporations. In general, the statute
provides that (i) a corporation must indemnify a director or officer who is
wholly successful in his defense of a proceeding to which he is a party because
of his status as such, unless limited by the articles of incorporation, and (ii)
a corporation may indemnify a director or officer if he is not wholly successful
in such defense, if it is determined as provided in the statute that the
director meets a certain standard of conduct, provided when a director is liable
to the corporation, the corporation may not indemnify him. The statute also
permits a director or officer of a corporation who is a party to a proceeding to
apply to the courts for indemnification or advance of expenses, unless the
articles of incorporation provide otherwise, and the court may order
indemnification or advance of expenses under certain circumstances set forth in
the statute. The statute further provides that a corporation may in its articles
of incorporation or bylaws or by resolution provide indemnification in addition
to that provided by the statute, subject to certain conditions set forth in the
statute.
Pursuant to FirstBank's Articles of Incorporation, FirstBank will
indemnify the officers, directors, agents and employees of FirstBank with
respect to expenses, settlements, judgments and fines in suits in which such
person has made a party by reason of the fact that he or she is or was an agent
of FirstBank. No such indemnification may be given if the acts or omissions of
the person are adjudged to be in violation of law, if such person is liable to
the corporation for an unlawful distribution, or if such person personally
received a benefit to which he or she was not entitled.
FirstBank's Articles of Incorporation provide that the directors of
FirstBank shall not be personally liable for monetary damages to FirstBank for
certain breaches of their fiduciary duty as directors, except for liabilities
that involve intentional misconduct by the director, the authorization or
illegal distributions or receipt of an improper personal benefit from their
actions as directors.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description of Document
- ------ -----------------------
2 Merger Agreement dated February 24, 2003 by and between
FirstBank NW Corp. and Oregon Trail Financial Corp.
(incorporated by reference to Appendix A to the
Prospectus-Proxy Statement contained in this Registration
Statement).
4 Form of Certificate for Common Stock of FirstBank NW Corp.*
5 Opinion of Breyer & Associates PC regarding legality of
securities (previously filed).
8 Opinion of Silver, Freedman & Taff, L.L.P. regarding federal
income tax consequences.
10.1 Employment Agreement with Clyde E. Conklin**
10.2 Employment Agreement with Larry K. Moxley**
10.3 Salary Continuation Agreement with Clyde E. Conklin**
II-1
10.4 Salary Continuation Agreement with Larry K. Moxley**
10.6 Employee Severance Compensation Agreement**
10.7 Employee Stock Ownership Plan****
10.8 Management Recognition and Development Plan*****
10.9 1998 Stock Option Plan*****
23.1 Consent of Breyer & Associates PC (contained in its opinion
previously filed as Exhibit 5).
23.2 Consent of Silver, Freedman & Taff, L.L.P. as to its tax
opinion (contained in its opinion filed as Exhibit 8).
23.3 Consent of Moss Adams LLP, FirstBank NW Corp.'s independent
auditors.
23.4 Consent of Deloitte & Touche LLP, Oregon Trail Financial
Corp.'s independent auditors.
23.5 Consent of BDO Seidman, LLP
23.6 Consent of Sandler O'Neill & Partners, Inc.
23.7 Consent of Keefe Bruyette & Woods, Inc.
24 Power of Attorney (previously filed).
99.1 Opinion of Keefe Bruyette & Woods, Inc. (included as Appendix
B to the proxy statement-prospectus contained in this
Registration Statement).
99.2 Opinion of Sandler O'Neill & Partners, Inc. (included as
Appendix C to the proxy statement-prospectus contained in
this Registration Statement).
99.3 Form of Proxy to be Mailed to Shareholders of Oregon Trail
Financial Corp.
99.4 Form of Proxy to be Mailed to Shareholders of FirstBank NW
Corp.
99.5 Cover Letter for Election Form (previously filed).
99.6 Election Form and Letter of Transmittal (previously filed).
99.7 Notice of Guaranteed Delivery (previously filed).
99.8 Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 (previously filed).
* Filed as an exhibit to the Registrant's Registration Statement on Form
S-B2 initially filed on March 14, 1997, Registration No. 333-23395, and
incorporated herein by reference.
** Filed as an exhibit to the Registrant's Registration Statement on Form
Form S-8 filed on September 28, 1998, Registration No. 333-64445.
II-2
(b) Financial Statement Schedules
Not applicable.
(c) Reports, Opinions or Appraisals
1 Opinion of Keefe Bruyette & Woods, Inc. (included
as Appendix B to the proxy statement-prospectus
contained in this Registration Statement).
2 Opinion of Sandler O'Neill & Partners, Inc. (included
as Appendix C to the proxy statement-prospectus
contained in this Registration Statement).
Item 22. Undertakings
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933, as amended ("Securities Act");
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high and of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability
under the Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a
post-effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4) The undersigned registrant hereby undertakes that,
for purposes of determining any liability under the Securities Act of 1933 each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions referred to in
Item 20 of this registration statement, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the
II-3
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by
means of a post effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of,
and included in the registration statement when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
FirstBank NW Corp. has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Lewiston, State of Idaho on July 24, 2003.
FIRSTBANK NW CORP.
By: /s/ CLYDE E. CONKLIN
-------------------------------------
Clyde E. Conklin
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/s/ CLYDE E. CONKLIN President, Chief Executive Officer July 24, 2003
- ----------------------------------- and Chairman of the Board
Clyde E. Conklin (Principal Executive Officer)
/s/ LARRY K. MOXLEY* Executive Vice President, Chief July 24, 2003
- ----------------------------------- Financial Officer and Director
Larry K. Moxley (Principal Financial Officer)
/s/ CYNTHIA M. MOORE* Controller July 24, 2003
- -----------------------------------
Cynthia M. Moore
/s/ WILLIAM J. LARSON* Director July 24, 2003
- -----------------------------------
William J. Larson
/s/ STEVE R. COX* Director July 24, 2003
- -----------------------------------
Steve R. Cox
/s/ ROBERT S. COLEMAN, SR.* Director July 24, 2003
- -----------------------------------
Robert S. Coleman, Sr.
/s/ JAMES N. MARKER* Director July 24, 2003
- -----------------------------------
James N. Marker
/s/ W. DEAN JURGENS* Director July 24, 2003
- -----------------------------------
W. Dean Jurgens
- -----------------------------------
* Pursuant to the Power of Attorney included as part of the signature page to
the Registration Statement on Form S-4 for FirstBank NW Corp. filed on June
26, 2003.
II-5
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------ -----------------------
2 Merger Agreement dated February 24, 2003 by and between
FirstBank NW Corp. and Oregon Trail Financial Corp.
(incorporated by reference to Appendix A to the
Prospectus-Proxy Statement contained in this Registration
Statement).
5 Opinion of Breyer & Associates PC regarding legality of
securities (previously filed).
8 Form of opinion of Silver, Freedman & Taff, L.L.P. regarding
federal income tax consequences.
23.1 Consent of Breyer & Associates PC (contained in its opinion
previously filed as Exhibit 5).
23.2 Consent of Silver Freedman & Taff, L.L.P. as to its tax
opinion (contained in its opinion filed as Exhibit 8).
23.3 Consent of Moss Adams LLP, FirstBank NW Corp.'s independent
auditors.
23.4 Consent of Deloitte & Touche LLP, Oregon Trail Financial
Corp.'s independent auditors.
23.5 Consent of BDO Seidman, LLP
23.6 Consent of Sandler O'Neill & Partners, Inc.
23.7 Consent of Keefe Bruyette & Woods, Inc.
24 Power of Attorney (previously filed).
99.1 Opinion of Keefe Bruyette & Woods, Inc. (included as Appendix
B to the proxy statement-prospectus contained in this
Registration Statement).
99.2 Opinion of Sandler O'Neill & Partners, Inc. (included as
Appendix C to the proxy statement-prospectus contained in this
Registration Statement).
99.3 Form of Proxy to be Mailed to Shareholders of Oregon Trail
Financial Corp.
99.4 Form of Proxy to be Mailed to Shareholders of FirstBank NW
Corp.
99.5 Cover Letter for Election Form (previously filed).
99.6 Election Form and Letter of Transmittal (previously filed).
99.7 Notice of Guaranteed Delivery (previously filed).
99.8 Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 (previously filed).