<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14294
Great Falls Bancorp
(Exact name of small business issuer as specified in its charter)
NEW JERSEY 22-2545165
(State or other jurisdiction of(IRS Employer
incorporation or organization)Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
(Address of principal executive offices)
(201) 942-1111
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. YES X NO
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: Common stock $1.00
par value - 1,069,750 shares at November 13, 1995.
Transition Small Business Disclosure Format (check one);
Yes No X
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Statements of Condition
September 30, 1995 (unaudited) and December 31, 1994. . . . 2
Condensed Consolidated Statements of Income
Three and Nine Months ended
September 30, 1995 and 1994 (unaudited). . . . . . . . . . . 3
Condensed Consolidated Statements of Cash Flows
Nine Months ended September 30, 1995 and 1994 (unaudited). . 4
Notes to Condensed Consolidated Financial Statements (unaudited).5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . 6
PART II - OTHER INFORMATION
Items 1 through 6 . . . . . . . . . . . . . . . . . . . . . . . . . 14
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1- Financial Statements
GREAT FALLS BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION
(in thousands, except share data)
<TABLE>
September 30, December 31,
1995 1994
Unaudited
ASSETS <C> <C>
CASH AND DUE FROM BANKS
Non-interest-bearing $ 6,846 $ 4,289
FEDERAL FUNDS SOLD 2,600 -
Total cash and cash equivalents 9,446 4,289
DUE FROM BANKS - Interest-bearing 846 424
SECURITIES:
Available-for-sale, at fair value in 1995
and lower of cost or market in 1994 39,779 25,403
Held-to-maturity, at amortized cost 28,350 20,297
68,129 45,700
LOANS HELD FOR SALE 266 -
LOANS 84,346 54,009
Less - Allowance for possible loan losses 2,096 1,233
Net loans 82,250 52,776
PREMISES AND EQUIPMENT, net 2,042 664
OTHER REAL ESTATE 1,534 561
ACCRUED INTEREST RECEIVABLE 1,592 1,031
INTANGIBLE AND OTHER ASSETS 2,895 1,237
Total assets $169,000 $106,682
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand
Non-interest-bearing $32,715 $21,082
Interest-bearing 27,686 19,407
Savings 23,823 18,649
Time 62,396 30,481
Total deposits 146,620 89,619
ACCRUED INTEREST AND OTHER LIABILITIES 2,918 957
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE 3,050 2,700
REDEEMABLE SUBORDINATED DEBENTURES 4,973 4,963
Total Liabilities 157,561 98,239
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
1,000,000 shares authorized, none outstanding - -
Common Stock, par value $1 per share:
4,000,000 shares authorized, 1,069,750
and 816,190 shares outstanding 1,070 816
Additional paid-in capital 10,255 7,314
Retained earnings 436 847
Unrealized holding loss on
securities available-for-sale (322) (534)
Total shareholders' equity 11,439 8,443
Total liabilities and
shareholders' equity $169,000 $106,682
</TABLE>
(See notes to Condensed Consolidated Financial Statements)
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
Three Months Nine Months
Ended Ended
September 30, September 30,
1995 1994 1995 1994
INTEREST INCOME <C> <C> <C> <C>
Interest on loans, including fees $2,040 $1,275 $5,385 $3,551
Interest on securities 1,129 521 2,840 1,359
Interest on Federal Funds
sold and deposits with banks 43 62 154 159
Total interest income 3,212 1,858 8,379 5,069
INTEREST EXPENSE
Interest on deposits 1,062 525 2,750 1,417
Interest on borrowings 158 114 473 350
Total interest expense 1,220 639 3,223 1,767
Net interest income 1,992 1,219 5,156 3,302
PROVISION FOR POSSIBLE LOAN LOSSES 90 60 240 120
Net interest income after
provision for possible loan losses 1,902 1,159 4,916 3,182
OTHER INCOME 215 100 707 355
2,117 1,259 5,623 3,537
OTHER EXPENSES
Salaries and employee benefits 596 369 1,555 1,091
Occupancy and equipment 266 136 603 400
Amortization of intangible
assets and organizational costs 54 28 136 83
Other operating expenses 590 304 1,581 894
Total other expenses 1,506 837 3,875 2,468
Income before income taxes 611 422 1,748 1,069
PROVISION FOR INCOME TAXES 233 158 613 377
Net Income $378 $264 $1,135 $692
WEIGHTED AVERAGE SHARES OUTSTANDING 1,069 886 1,009 886
NET INCOME PER SHARE $0.35 $0.30 $1.13 $0.78
</TABLE>
(See notes to Condensed Consolidated Financial Statements)
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
Nine Months Ended
September 30,
1995 1994
<C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,135 $ 692
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 298 255
Accretion of discount on securities, net (74) (1)
Gain on sale of securities 141 -
Provision for possible loan losses 240 120
Increase in accrued interest receivable (51) (169)
Increase in other assets (129) (403)
Increase in accrued interest and other liabilities 1,676 290
Net cash provided by operating activities 3,236 784
CASH FLOWS FROM INVESTING ACTIVITIES
Available-for-sale securities -
Purchases (8,975) (24,218)
Sales or maturities 6,929 12,121
Held-to-maturity securities -
Purchases (10,795) (2,650)
Maturities 7,526 2,250
Net decrease in interest-bearing
deposits with banks 927 1,895
Net (increase) in loans (3,676) (4,097)
Purchase of premises and equipment (1,473) (154)
Proceeds of sale of other real estate - 275
Net cash used in investing activities (9,537) 14,578)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 7,192 11,610
Increase in securities sold under
the agreement to repurchase 350 980
Dividends paid (129) (93)
Cash acquired through purchase transaction 4,045 -
Net cash provided by financing activities 11,458 12,497
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,157 (1,297)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,289 5,790
CASH AND CASH EQUIVALENTS, END OF PERIOD $9,446 $4,493
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during period for:
Interest $2,961 $1,600
Income taxes 561 495
Loans reclassified from other
real estate back to loans - 485
Common stock issued in purchase transaction 1,802 -
</TABLE>
(See notes to Condensed Consolidated Financial Statements)
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, these unaudited condensed financial statements
contain all disclosures which are necessary to present fairly the
Corporation's consolidated financial position at September 30, 1995 and the
consolidated results of operations and cash flows for three and nine months
ended September 30, 1995 and 1994. The financial statements include all
adjustments (consisting solely of normal recurring adjustments) which in the
opinion of management are necessary in order to present fairly the
financial position and results of operations for the interim periods.
Certain information and footnote disclosures normally included in financial
statements under generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. These financial statements should be read in
conjunction with the annual financial statements and notes thereto included
in Form 10-KSB for the fiscal year ended December 31, 1994.
ACQUISITION
Great Falls Bancorp (the "Corporation") is continually seeking growth
opportunities with minimal dilutions to the earnings. In evaluating
acquisitions, the Corporation conducts reviews that are necessary to
identify risks as well as income potential and structure a transaction which
allows it to manage the risks while earning a fair return on the investment.
As of close of business April 7, 1995, the Corporation consummated an
acquisition. The Corporation, through its subsidiary Great Falls Bank
("Bank"), acquired the banking offices of Family First Federal Savings Bank
("Family First") located in Clifton, New Jersey. Effective that date, the
Bank opened for business banking offices formerly housing Family First
branches under its name. The acquisition was accounted for as a purchase
transaction and accordingly the Bank recorded all assets and liabilities of
Family First on to its books.
The purchase price exceeded the fair market value of net assets acquired by
approximately $734,000. The value assigned to assets acquired and
liabilities assumed is as follows:
Assets acquired (primarily cash, securities and leases) $51.9 million
Liabilities assumed (primarily deposits) $50.1 million.
Acquisition of Bergen Commercial Bank. The Corporation entered into an
Acquisition Agreement dated August 16, 1995 with Bergen Commercial Bank
(BCB). Pursuant to the Acquisition Agreement, the Corporation will
acquire all of the outstanding BCB Common Stock solely in exchange for the
Corporation's Common Stock on the basis of 1.7 shares of the Corporation's
Common Stock for each outstanding share of BCB Common Stock. The
Corporation's registration statement on Form S-4 with respect to such
acquisition, Registration No. 33-62915, was declared effective by the
Securities and Exchange Commission on November 9, 1995. Special Meetings
of the respective shareholders of the Corporation and BCB are scheduled to
be held on December 19, 1995. Assuming the receipt of all regulatory
approvals, if the acquisition is approved during December, 1995 by the
required votes of the shareholders of the Corporation and BCB, the
acquisition is scheduled to become effective at the end of December, 1995.
At September 30, 1995, BCB has total assets of $74.3 million, total
liabilities of $67.5 million and total shareholders' equity of $6.8 million.
IMPAIRED LOANS
The Corporation adopted 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, as of January 1, 1995. SFAS No.
<PAGE>
114 requires that certain impaired loans be measured based on the present
value of expected future cash flows discounted at the loans' original
effective interest rate. As a practical expedient, impairment may be
measured based on the loans' observable market price or the fair value of
the collateral if the loan is collateral dependent. When the measure of the
impaired loan is less than the recorded investment in the loan, the
impairment is recorded through a valuation allowance. This statement is not
applicable to large groups of smaller homogeneous loans, such as residential
mortgage loans, credit card loans and consumer loans, which are collectively
evaluated for impairment.
The Corporation had previously measured the allowance for credit losses
using methods similar to those prescribed in SFAS No. 114. As a result of
adopting SFAS No. 114 and SFAS No. 118, no additional allowance for possible
loan losses was required as of January 1, 1995.
A loan is considered impaired when it is probable that the bank will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. These loans consist primarily of non-accrual loans but may
include performing loans to the extent that situations arise which would
reduce the probability of collection in accordance with contractual terms.
As of September 30, 1995 the Corporation's recorded investment in impaired
loans and the related valuation allowance calculated under SFAS No. 114 are
as follows:
<TABLE>
Recorded Valuation
Investment Allowance
(in thousands)
<C> <C>
Impaired loans -
Valuation allowance required $2,100 $ 516
No valuation allowance required 429 -
Total impaired loans $2,529 $ 516
</TABLE>
This valuation allowance is included in the allowance for possible loan
losses on the Corporation's statement of condition.
The average recorded investment in impaired loans for the nine-month period
ended September 30, 1995 was $2.5 million.
Interest payments received on impaired loans are recorded as interest income
unless collection of the remaining recorded investment is doubtful in which
event payments received are recorded as reductions of principal. The
Corporation recognized interest income on impaired loans of $31,000 for the
nine-month period ended September 30, 1995.
DIVIDEND
During September 1995, the Corporation's Board of Directors declared a cash
dividend of 5 cents ($.05) per share payable on October 31, 1995 to
shareholders of record October 1, 1995. The financial information in this
report have been adjusted to reflect the dividends as of September 30, 1995.
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion and analysis of the Corporation's consolidated
financial condition as of September 30, 1995 and results of operations for
the three- and nine-month periods ended September 30, 1995 and 1994 should
be read in conjunction with the Condensed Consolidated Financial Statements
and related Notes thereto included in the Corporation's latest Annual Report
on Form 10-KSB and the other information herein. The information as of
September 30, 1995 and for the three- and nine-month periods ended September
30, 1995 and 1994 is derived from unaudited financial data but, in the
opinion of management of the Corporation, reflects all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the financial condition and results of operations at those
dates and for those periods. The term "Corporation" as used herein refers
to Great Falls Bancorp and subsidiaries and the term "Bank" as used herein
refers to Great Falls Bank and subsidiaries.
A. Financial Condition: September 30, 1995 and December 31, 1994
General. The Corporation's financial condition at September 30, 1995
compared to December 31, 1994 was primarily affected by the merger of Family
First Federal Savings Bank into the Bank (the "Family First Merger"), which
became effective at the close of business on April 7, 1995. Details
regarding the Family First Merger were reported in the Corporation's Form
10-QSB for the quarter ended June 30, 1995 and Form 8-K/A filed July 13,
1995.
The increases of $62.3 million in total assets, $29.5 million in loans (net
of allowance), $57.0 million in total deposits, and $3.0 million in
shareholders' equity during the nine months ended September 30, 1995, were
attributable to a large extent to the Family First Merger. The primary
components of the $3.0 million increase in shareholders' equity during such
nine-month period were the approximately $2.0 million increase in
shareholders' equity resulting from the Family First Merger, net income of
$1.1 million, and a $212,000 decrease in the unrealized loss on securities
available for sale.
The Corporation's allowance for possible loan losses increased by $863,000,
or 70.0%, during the nine months ending September 30, 1995, from $1,233,000
to $2,096,000. Net charge-offs of $416,000 were more than offset by the
$1,039,000 addition related to the Family First Merger and provisions
charged to operations in the amount of $240,000. During the nine months
ended September 30, 1995, total nonperforming assets increased by 139%, from
$2.3 million to $5.5 million. This $3.2 million increase was primarily due
to the acquisition of approximately $5.1 million in nonperforming assets in
connection with the Family First Merger in April, 1995; since the Merger
approximately $1.5 million of the acquired nonperforming assets were
restructured and are now performing, and approximately $400,000 were charged
off. The Corporation also acquired approximately $1.0 million in ORE in the
Family First Merger. See below, "Analysis of the Allowance for Possible
Loan Losses".
As a result of the increase in total nonperforming loans during the first
nine months of 1995, the amount of the allowance for possible loan losses
at September 30, 1995 was 52.86% of nonperforming loans and 2.49% of total
gross loans. On September 30, 1995, nonperforming loans were 4.70% of total
gross loans, and nonperforming assets were 6.52% of total gross loans and
3.25% of total assets. In the opinion of management of the Corporation, the
allowance for possible loan losses is adequate and the addition of the
Family First loan portfolio will not have a material adverse impact on
future operations. See "Asset Quality" below.
<PAGE>
Investment Securities
Investment Securities totalled $68.1 million at September 30, 1995, an
increase of $22.4 million or 49.1% compared to the amount reported at
December 31, 1994, as a direct result of the Family First Merger.
Management reviews the investment portfolio continually to achieve maximum
yields without having to sacrifice the high quality of the investments. Of
the total, 70.5% of the investments are in U.S. Government obligations,
23.0% in U.S. Government agency obligations and the balance in municipal and
other securities.
In 1994, the Corporation adapted the Statement of Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities"
(SFAS No. 115). Under the requirements of SFAS No. 115, the Corporation
segregated its investment portfolio into held to maturity and available for
sale. At September 30, 1995, based on the fair market value of its available
for sale portfolio, the Corporation recorded the difference between the
unamortized cost and the fair market value as an unrealized loss in the
amount of $322,000 net of taxes, as a component of shareholders' equity.
Loan Portfolio
The Corporation's loan portfolio net of allowance for possible loan losses
at September 30, 1995 totalled $82.2 million, an increase of $29.4 million
or 55.8%, compared to the amount reported at December 31, 1994. Of the
total increase, $25.9 million, or 88.0%, is related to the Family First
Merger and the remaining due primarily to increased lending activity. Loans
held for sale totalled $270,000 compared to $0 at December 31, 1994.
Other Real Estate
As of September 30, 1995, other real estate totalled $1,534,000, an increase
of $973,000 or 173.4% when compared to the amount reported at December 31,
1994. Excluding the effect of the Family First merger, other real estate
decreased by $151,000.
Deposits
Total deposits at September 30, 1995 were $146.6 million, an increase of
$57.0 million or 63.6% relative to the amount reported at December 31, 1994.
The Family First Merger is the key factor in the posted deposit growth
compared to the amount reported at December 31, 1994. Deposits acquired in
the Family First Merger totalled $49.6 million; excluding these deposits,
total deposits increased by $7.3 million or 8.1% over the amount reported
at December 31, 1994.
Of the total increase, time deposits increased by $31.9 million or 104.7%.
Of that amount, $26.1 million or 81.8% represented time deposits acquired
from Family First and the remaining $5.8 million or 18.2% was due to the
growth in deposits. Savings deposits increased by $5.1 million or 27.7% due
to the $8.2 million acquired from Family First coupled with a decrease of
$3.1 million compared to the amount reported at December 31, 1994. Demand
deposits increased by $19.9 million or 49.2%, of which $15.3 million is
attributable to the Family First Merger and the remaining $4.6
million is due to internal growth.
Liquidity
The Corporation maintains a liquidity position which it considers adequate
to provide funds to meet loan demand or the possible outflow of deposits.
It actively manages its liquidity position under the direction of the Bank's
Asset and Liability Management Committee. At September 30, 1995, sources of
liquidity include $7.7 million in cash and due from banks, $2.6 million in
federal funds sold and investment securities available for sale of $39.8
million.
<PAGE>
Capital Adequacy and Regulatory Matters
The Corporation is subject to regulation by the Board of Governors of the
Federal Reserve System (Federal Reserve Board). The Bank is subject to
regulation by both the Federal Deposit Insurance Corporation (FDIC) and the
New Jersey Department of Banking (Department). Such regulators have
promulgated regulations which require the Corporation and the Bank to
maintain certain capital ratios. The following table sets forth selected
regulatory capital ratios for the Corporation and the Bank and the required
regulatory ratios at September 30, 1995:
<TABLE> Great FallsGreat Falls
Bancorp Bank Required
<C> <C> <C>
Tier I leverage ratio 7.63% 6.43% 3%
Tier I core capital ratio 6.54% 6.40% 4%
Tier I risk based capital ratio 10.99% 10.87% 4%
Tier I and Tier II risk based
capital ratio 16.83% 12.38% 8%
</TABLE>
Asset Quality
The Corporation seeks to manage credit risk through diversification of its
loan portfolio and the application of policies and procedures designed to
foster sound underwriting and credit monitoring policies. Over the last
several years management has devoted increased resources to its lending
department to remediate problem assets and improve loan review procedures.
The senior lending officer is charged with monitoring asset quality,
establishing credit policies and procedures and seeking consistent
applications of these procedures.
The Corporation's lending is concentrated in its local market area. Its
non-performing loans primarily were made to the Corporation's customers who
operated in northeastern New Jersey. The degree of risk inherent in all of
the Corporation's lending activities is influenced heavily by general
economic conditions in the immediate market area. Among the factors which
tend to increase or decrease portfolio risk are changes in local or regional
real estate values, income levels and energy prices. These factors, coupled
with levels of unemployment, tax rates, governmental actions and market
conditions affecting the demand for credit among qualified borrowers, are
also important determinants of the risk inherent in the Corporation's
lending.
General economic conditions in the State of New Jersey have improved over
the past year. Interest rates have decreased, due in part to action by the
Federal Reserve Board, and real estate values and employment levels are
fairly stable and in some cases have shown an upward movement.
The components of nonperforming assets are delinquent loans, nonperforming
assets and renegotiated loans. Each component is discussed in greater
detail below. Nonperforming assets consist of nonaccrual loans, accruing
loans past due 90 days or more delinquent, and ORE. It is the Corporation's
policy to place a loan on nonaccrual status when, in the opinion of
management, the ultimate collectibility of the principal or interest on the
loan becomes doubtful. As a general rule, a commercial loan or real estate
loan more than 90 days past due with respect to principal or interest is
classified as a nonaccrual loan. Installment loans generally are not placed
on nonaccrual status but, instead, are charged off at 90 days past due,
except where the loans are secured and foreclosure proceedings have
commenced.
Loans are considered renegotiated if, for economic or legal reasons, a
concession has been granted to the borrower related to the borrower's
financial difficulties that the creditor would not otherwise consider. The
Corporation has renegotiated certain loans in instances where a
determination was made that greater economic value will be realized under
new terms than through foreclosure, liquidation, or other disposition. ORE
<PAGE>
includes both loan collateral that has been formally repossessed and
collateral that is in the Corporation's possession and under its control
without legal transfer of title.
At the time of classification as ORE, loans are reduced to the fair value
of the collateral (if less than the loan receivable) by charge-offs against
the allowance for possible loan losses. ORE is carried on the books at the
lower of cost or fair value, less estimated costs to sell. Subsequent
valuation adjustments to the fair value of the collateral are charged or
credited to current operations.
The following table sets forth the composition of the Corporation's
nonperforming assets and related asset quality ratios as of the dates
indicated. All of such assets were domestic assets since the Corporation
had no foreign loans.
<TABLE>
September 30, December 31,
1995 1994
<C> <C>
Loans past due 90 days and accruing $ 1,724 $ -
Non-accruing loans 2,001 1,499
Renegotiated loans 240 241
Total non-performing loans $3,965 $1,740
Other real estate 1,534 561
Total non-performing assets $5,499 $2,301
Asset Quality Ratios
Non-performing loans to total gross loans 4.70% 3.21%
Non-performing assets to total gross loans 6.52% 4.24%
Non-performing assets to total assets 3.25% 2.16%
Allowance for possible loan losses to
non-performing loans 52.86% 70.86%
Allowance for possible loan losses
to gross loans 2.49% 2.28%
</TABLE>
During the nine months ended September 30, 1995, gross interest income of
$260,000 would have been recorded on loans accounted for on a nonaccrual
basis if the loans had been current throughout the period. No interest was
included on such loans during such period. The Corporation had no
restructured loans during this period.
All amounts in renegotiated loans predate the Family First Merger and such
loans were essentially unchanged during the nine-month period from December
31, 1994 to September 30, 1995. The $1.7 million increase in loans past due
90 days and accruing, the $502,000 increase in non-accruing loans, and the
increase in ORE during this period from $561,000 to $1.5 million, were all
primarily attributable to the Family First Merger.
Analysis of the Allowance For Possible Loan Losses
The allowance for possible loan losses is determined by management based
upon its evaluation of the known, as well as the inherent, risks within the
Corporation's loan portfolio, and is maintained at a level considered
adequate to provide for potential loan losses. The allowance for possible
loan losses is increased by provisions charged to expense and recoveries of
prior charge-offs, and is reduced by charge-offs. In establishing the
allowance for possible loan losses, management considers, among other
factors, previous loss experience, the performance of individual loans in
relation to contract terms, the size of particular loans, the risk
characteristics of the loan portfolio generally, the current status and
credit standing of borrowers, management's judgment as to prevailing and
anticipated real estate values, other economic conditions in the
<PAGE>
Corporation's market, and other factors affecting credit quality.
Management believes the allowance for possible loan losses at September 30,
1995 of $2.1 million, or 52.86% of nonperforming loans, was adequate.
The Corporation's management continues to actively monitor the Corporation's
asset quality and to charge off loans against the allowance for possible
loan losses as it deems appropriate. Although management believes it uses
the best information available to make determinations with respect to the
allowance for possible loan losses, future adjustments may be necessary if
economic conditions differ substantially from the assumptions used in making
the initial determinations.
At September 30, 1995, the allowance for possible loan losses was $2.1 million
as compared to $1.2 million at December 31, 1994. The following table
represents transactions affecting the allowance for possible loan losses
during the nine-month period ended September 30, 1995.
(in thousands)
Balance at beginning of period, December 31, 1994 $1,233
Charge-offs:
Commercial, financial and agricultural 297
Real estate--mortgage 174
Installment loans to individuals 19
490
Recoveries:
Commercial, financial and agricultural 72
Real estate--mortgage 0
Installment loans to individuals 2
74
Net charge-offs 416
Increase in the allowance (1) 1,039
Provision charged to operations
during the nine-month period 240
Balance at end of period, September 30, 1995 $2,096
Ratio of net charge-offs during the
nine-month period to average loans
outstanding during that period 0.57%
(1) The $1,039 increase in the allowance for possible loan losses is
directly related to the Family First Merger. This amount was the amount of
the allowance of possible loan losses on Family First's books which was
transferred to the Corporation's books upon consummation of the Family First
Merger.
Allocation of the Allowance for Possible Loan Losses
The following table sets forth the allocation of the allowance for possible
loan losses by loan category amounts (dollars in thousands), the percent of
loans in each category to total loans in the allowance, and the percent of
loans in each category to total loans, at September 30, 1995.
<PAGE>
<TABLE>
Balance at September 30, 1995
applicable to: Percent of
loans in each
Percent of category to
Amount Allowance total loans
<C> <C> <C>
Commercial, financial
and agricultural 894 43% 35%
Real estate--mortgage 398 19% 48%
Installment loans
to individuals 143 7% 17%
Unallocated 661 31% n.a.
Total $2,096 100% 100%
</TABLE>
Management has determined from continued evaluation of the various elements
of the loan portfolio, previous charge-off experience, collateral evaluation
and borrower's credit histories, that different risks are associated with
each loan category. Accordingly, management has assigned general reserve
percentages within each loan category, in addition to specific reserves
allocated to individual loans within each category.
B. Results of Operations: Three and Nine Months ended September 30, 1995
General. The Corporation's results of operations are dependent primarily
on its net interest and dividend income, which is the difference between
interest earned on its loans and investments and the interest paid on
interest-bearing liabilities. The Corporation's net income is also affected
by the generation of noninterest income, which primarily consists of service
fees on deposit accounts and other income. Net interest income is
determined by (i) the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities ("interest rate
spread") and (ii) the relative amounts of interest-earning assets and
interest-bearing liabilities. The Corporation's interest rate spread is
affected by regulatory, economic and competitive factors that influence
interest rates, loan demand and deposit flows and general levels of
nonperforming assets. In addition, net income is affected by the level of
operating expenses and establishment of loan loss reserves and ORE reserves.
The operations of the Corporation and the entire banking industry are
significantly affected by prevailing economic conditions, competition and
the monetary and fiscal policies of governmental agencies. Lending
activities are influenced by the demand for and supply of real estate,
competition among lenders, the level of interest rates and the availability
of funds. Deposit flows and costs of funds are influenced by prevailing
market rates of interest, primarily on competing investments, account
maturities and the levels of personal income and savings in the market area.
Nine Months Ended September 30, 1995. The Corporation's net income was
$1,135,000 for the nine months ended September 30, 1995, an increase of
$443,000 or 64.0% over the first nine months of 1994.
The $3.3 million increase in total interest income during the nine months
ended September 30, 1995 relative to the comparable period in 1994 was
attributable primarily to the increase in income-yielding assets resulting
from the Family First Merger. The $352,000 increase in other income, from
$355,000 in the first three quarters of 1994 to $707,000 for the comparable
period in 1995, also contributed to the increase in net income. This
increase in other income was attributable primarily to the Family First
Merger, coupled with gain on the sale of securities, including primarily a
one-time capital gain of approximately $140,000 realized from a sale of
equity securities available for sale during the second quarter.
The $1.5 million increase in total interest expense during the first nine
months of 1995 relative to the first nine months of 1994 resulted primarily
from the increase in deposits resulting from the Family First Merger. The
$1.4 million increase in other expenses during the first nine months of 1995
<PAGE>
compared to the comparable period in 1994 was mainly attributable to
increases of $687,000 in other operating expenses, $464,000 in salaries and
employee benefits, and $203,000 in occupancy and equipment expense, which
were mainly attributable to the Family First Merger, as well as increases
generally resulting from the Corporation's continued growth.
The provision for possible loan losses for the nine months ended September
30, 1995 was $240,000 compared to $120,000 during the first nine months of
the prior year. Management increase the provision primarily as a result of
the increase in its loan portfolio resulting from the Family First Merger.
Three Months Ended September 30, 1995. The Corporation's net income for the
three months ended September 30, 1995 was $378,000 compared to $264,000 for
the third quarter of 1994. Net interest income for the third quarter of
1995 was $1,992,000 compared to $1,219,000 during the third quarter of the
prior year. This increase was due to the Family First Merger, which
resulted in an increase in earning assets, coupled with an increase in-
rate-related liabilities. Total other expenses increased during the third
quarter of 1995 compared to the third quarter of 1994 by $669,000, from
$837,000 to $1,506,000. This increase is primarily due to the Family First
Merger which resulted in increased personnel expenses, occupancy and
equipment expenses and other operating expenses. Other income increased
from $100,000 to $215,000 during the third quarter of 1995 compared to the
three months ended September 30, 1994. The provision for possible loan
losses for the third quarter of 1995 increased by $30,000, to $90,000,
compared to the $60,000 provision for the third quarter of 1994.
Some Specific Factors Affecting Future Results of Operations. Management
is aware of certain specific factors which should have a favorable impact
on the Corporation's results of operations during the coming year. Most
importantly, amortization of intangible assets related to the original
acquisition of the Bank's main office in 1986 (which includes core deposits
and goodwill) will be substantially completed by the end of 1995. Such
amortization is being expensed at the rate of approximately $110,000 per
year for a 10-year period. In addition, certain post-acquisition payroll
expenses related to the Family First Merger, which contributed approximately
$60,000 to employee expense during the second and third quarters of 1995,
will not be incurred after October, 1995. On the other hand, as noted
above, the Corporation realized a one-time capital gain of $140,000 from the
sale of securities during the second quarter of 1995. Also, the Corporation
is now amortizing goodwill related to the Family First Merger at the rate
of $108,000 annually.
Although future movement of interest rates cannot be predicted with
certainty, the interest rate sensitivity of the Corporation's assets and
liabilities are such that a decline in interest rates during the next few
months would have a favorable impact on the Corporation's results of
operations. However, because overall future performance is dependent on
many other factors, past performance is not necessarily an indication of
future results and there can be no guarantee regarding future overall
results of operations.
Acquisition of Bergen Commercial Bank. The Corporation entered into an
Acquisition Agreement dated August 16, 1995 with Bergen Commercial Bank
(BCB). Pursuant to the Acquisition Agreement, Great Falls Bancorp will
acquire all of the outstanding BCB Common Stock solely in exchange for the
Corporation's Common Stock on the basis of 1.7 shares of the Corporation's
Common Stock for each outstanding share of BCB Common Stock. The
Corporation's registration statement on Form S-4 with respect to such
acquisition, Registration No. 33-62915, was declared effective by the
Securities and Exchange Commission on November 9, 1995. Special Meetings
of the respective shareholders of the Corporation and BCB are scheduled to
be held on December 19, 1995. Assuming the receipt of all regulatory
approvals, if the acquisition is approved during December, 1995 by the
required votes of the shareholders of the Corporation and BCB, the
acquisition is scheduled to become effective at the end of December, 1995.
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Corporation and its subsidiaries are parties in the ordinary
course of business to litigation involving collection matters,
contract claims and other miscellaneous causes of action arising from
their business. Management does not consider that any such
proceedings depart from usual routine litigation and in its judgement,
neither the Corporation's consolidated financial position nor its
results of operations will be affected materially by any present
proceedings.
Item 2 - Changes in Securities
None.
Item 3 - Default Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
None.
Item 5 - Other information
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. None.
(b) Reports on Form 8-K. Two reports on Form 8-K (including Form
8-K/A) were filed during the quarter ended September 30, 1995,
as follows:
- Form 8-K/A dated July 13, 1995, reporting (1) in Item 2,
"Acquisition or Disposition of Assets", details of the
Corporation's acquisition of Family First Federal Savings Bank
by merger of Family First into Great Falls Bank effective on
April 7, 1995, and (2) in Item 7, "Financial Statements and
Exhibits", both financial statements of the business acquired
and pro forma financial information. The consent of KPMG Peat
Marwick LLP was attached as Exhibit 23.1 to such Form 8-K/A.
- Form 8-K dated August 16, 1995, reporting in Item 5, "Other
Events", the Corporation's execution of the Acquisition
Agreement with respect to the acquisition of all of the
outstanding shares of common stock of Bergen Commercial Bank.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
GREAT FALLS BANCORP
(Registrant)
Date: November 14, 1995 By: /s/ Naqi A. Naqvi
Naqi A. Naqvi, Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
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