<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT*
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): APRIL 7, 1995
................
GREAT FALLS BANCORP
.................................................................
(Exact name of registrant as specified in its charter)
NEW JERSEY 0-14294 22-2545165
.................................................................
(State or other (Commission (IRS Employer
jurisdiction of File No.) Identification No.)
incorporation)
55 UNION BOULEVARD, TOTOWA, NEW JERSEY 07512
.................................................................
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 201-942-1111
..............
NONE
.................................................................
(Former name or former address, if changed since last report)
*This is an amended report. The original report with respect to this event was
filed on or about April 20, 1995.
<PAGE>
Item 2. Acquisition or Disposition of Assets.
- ------- ------------------------------------
On April 7, 1995, the Corporation consummated a Merger Agreement with
Family First Federal Savings Bank, of Clifton, New Jersey ("Family First")
relating to the merger ("Merger") of Family First into the Corporation's bank
subsidiary, Great Falls Bank (the "Bank"). Family First had two offices for the
conduct of banking. Such offices became branches of the Bank upon consummation
of the Merger.
The assets acquired in the Merger consisted of the following:
a. Approximately $26.9 million in loans ($26.0 million net of unearned
income and reserve for loan losses).
b. Approximately $20.6 million in investments (primarily, approximately
$12.0 million in taxable securities, net, and approximately $6.0 million in
mortgage-backed securities, net).
c. Approximately $4.0 million in non-earning assets (primarily,
approximately $1.8 million in cash and due from banks, and approximately $1.2
million in real estate owned, net; also includes approximately $120,000 in fixed
assets, net, consisting of equipment related to the conduct of Family First's
banking business, which the Bank intends to continue to use in the newly-
acquired branches).
In connection with the Merger, the Bank also assumed approximately $50.0
million in liabilities, consisting primarily of approximately $49.6 million in
deposits, of which approximately $43.2 million were interest-bearing and
approximately $6.4 million were non-interest-bearing.
The consideration paid by the Corporation in connection with the Merger was
as follows: (1) the Corporation issued 156,645 shares of its common stock,
$1.00 par value per share, to shareholders of Family First owning approximately
98% of Family First's outstanding stock; and (2) the Corporation paid cash in
the aggregate amount of $30,022.50 to (a) the remaining shareholders of Family
First who elected to receive cash rather than stock of the Corporation and (b)
shareholders who received stock as cash in lieu of fractional shares. The cash
was provided from the Corporation's working capital on hand.
Pursuant to the formula for the conversion rate provided for in the Merger
Agreement dated August 31, 1994, Family First shares were valued at $1.89 per
share compared to the agreed value of $11.50 per share for the Corporation's
stock. $1.89 was arrived at as the agreed base price of $1.85 for each share of
Family First stock as of the end of Family First's most recently ended fiscal
year, June 30, 1994, plus an adjustment for 133% of Family First's profits per
share during the period July 1, 1994 through March 31, 1995 (the end of the
calendar month preceding the closing of the transaction), less an adjustment
which was agreed upon by the parties at the closing for a claim which was
asserted against Family First by a third party.
2
<PAGE>
Item 7. Financial Statements and Exhibits.
- ------- ---------------------------------
(a) Financial Statements of Business Acquired. The following financial
-----------------------------------------
statement of Family First Federal Savings Bank are filed as a part of this
report:
Independent Auditors' Report
Statements of Financial Condition
at June 30, 1994 and 1993
Statements of Operations for Each of the Years
in the Two-Year Period Ended June 30, 1994
Statements of Changes in Shareholders' Equity for
Each of the Years in the Two-Year Period
Ended June 30, 1994
Statements of Cash Flows for Each of the Years in
the Two-Year Period Ended June 30, 1994
Notes to Financial Statements
Statements of Condition at March 31, 1995 and 1994
(unaudited)
Statements of Income for the Nine-Month
Periods Ended March 31, 1995 and 1994 (unaudited)
Statements of Cash Flows for the Nine-Month
Periods Ended March 31, 1995 and 1994 (unaudited)
(b) Pro Forma Financial Information. The following pro forma financial
-------------------------------
information is filed as a part of this report:
Pro Forma Combined Condensed Statement of
Condition (unaudited) as of March 31, 1995
Pro Forma Combined Condensed Statement of Income
(unaudited) for the Three Months Ended March 31, 1995
Pro Forma Combined Condensed Statement of
Income (unaudited) for the Year Ended December 31, 1994
Notes to Pro Forma Combined Condensed Financial
Statements
3
<PAGE>
(c) Exhibits.
--------
Exhibit No. Title
----------- -----
23.1 Consent of KPMG
Peat Marwick LLP
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by the
undersigned hereunto duly authorized.
GREAT FALLS BANCORP
...............................
(Registrant)
Date: June 20, 1995 /s/ George E. Irwin
.................... ...............................
(Signature)
GEORGE E. IRWIN
VICE PRESIDENT
4
<PAGE>
Independent Auditors' Report
The Board of Directors
Family First Federal Savings Bank:
We have audited the accompanying statements of financial condition of Family
First Federal Savings Bank (the Bank) as of June 30, 1994 and 1993, and the
related statements of operations, changes in shareholders' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. 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 financial statements referred to above present fairly, in
all material respects, the financial position of Family First Federal Savings
Bank at June 30, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the Bank
will continue as a going concern. As discussed in note 1 to the financial
statements, the prompt corrective action provisions of the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA) place restrictions on any
insured depository institution that does not meet certain requirements,
including minimum capital ratios. These restrictions are based on an
institution's FDICIA defined capital category and become increasingly more
severe as an institution's capital category declines. At June 30, 1994, the
Bank is categorized as "significantly undercapitalized." Because the Bank does
not meet the minimum capital thresholds to be considered "adequately
capitalized," it is subject to certain operating restrictions such as growth
limitations, prohibitions on dividend payments, increased supervisory monitoring
by the Office of Thrift Supervision (OTS), limitations on executive
compensation, and restrictions on deposit interest rates. At June 30, 1994, the
Bank has failed to comply with two of the three regulatory capital requirements
(core and risk-based capital) imposed by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 (FIRREA). In addition, the Bank has
continued to suffer recurring losses from operations. The Bank has filed a
capital plan with the OTS outlining its plans for attaining the required levels
of regulatory capital, but the plan has not yet been accepted by the OTS. Such
plan includes an anticipated merger with another financial institution. Failure
to meet the capital requirements exposes the Bank to possible regulatory
sanctions, including restrictions on operations and growth, mandatory asset
dispositions and regulatory takeover. This situation raises substantial doubt
about the Bank's ability to continue as a going concern. The ability
5
<PAGE>
of the Bank to continue as a going concern is dependent upon many factors,
including the consummation of the proposed merger described in note 1 to the
financial statements, as well as regulatory action. Management's plans in
regard to this situation are described in note 1 to the financial statements.
The accompanying financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
As discussed in note 2 to the financial statements, on June 30, 1993, the Bank
changed its method of accounting for investment securities to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
KPMG Peat Marwick LLP
Short Hills, New Jersey
September 20, 1994
6
<PAGE>
FAMILY FIRST FEDERAL SAVINGS BANK
Statements of Financial Condition
June 30, 1994 and 1993
<TABLE>
<CAPTION>
ASSETS 1994 1993
- ----------------------------------------------------------------------------- ------------ ------------
<S> <C> <C>
Cash $ 3,367,587 $ 2,758,510
Federal funds sold 1,500,000 1,000,000
----------- -----------
Total cash and cash equivalents 4,867,587 3,758,510
Time deposits and certificates of deposit 384,933 476,810
Securities available for sale (note 5) 828,509 3,568,368
Investment securities at amortized cost, estimated market value
of $13,014,847 and $4,745,190 at June 30, 1994 and 1993,
respectively (note 4) 13,804,613 4,597,673
Mortgage-backed securities, net, estimated market value of $6,342,963
and $4,716,939 at June 30, 1994 and 1993, respectively (note 4) 6,612,947 4,620,745
Loans receivable, net (notes 3 and 11) 26,660,167 29,859,883
Accrued interest receivable:
Loans 252,692 262,524
Investment securities 234,637 124,134
Mortgage-backed securities, net 53,585 57,726
Other real estate (note 3) 1,348,148 2,363,091
Office properties and equipment, net (note 6) 188,853 340,508
Other assets 104,099 95,598
----------- -----------
$55,340,770 $50,125,570
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
-------------------------------------
Liabilities:
Deposits (notes 7 and 11) 53,595,727 47,221,917
Advance payments by borrowers for taxes and insurance 124,562 90,692
Accrued expenses and other liabilities 75,657 78,267
----------- -----------
Total liabilities 3,795,946 47,390,876
----------- -----------
Shareholders' equity (notes 1 and 9):
Common stock, $5 par value. Authorized 2,000,000
shares; issued 982,498 shares 4,912,490 4,912,490
Additional paid-in capital 812,198 814,914
Accumulated deficit (3,954,478) (3,055,669)
Net unrealized holding (losses) gains on securities available for sale (105,902) 185,159
Less treasury stock, at cost - 13,200 shares in 1994 and
13,500 shares in 1993 119,484 122,200
----------- -----------
1,544,824 2,734,694
----------- -----------
Commitments and contingencies (notes 1, 3 and 11) $55,340,770 $50,125,570
=========== ===========
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
FAMILY FIRST FEDERAL SAVINGS BANK
Statements of Operations
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Interest income:
Mortgage loans $1,622,905 $1,987,710
Commercial loans 238,508 226,595
Other loans 227,044 259,402
Investment securities 927,073 685,644
Mortgage-backed securities 482,008 429,634
---------- ----------
Total interest income 3,497,538 3,588,985
Interest expense - deposits (note 7) 1,690,790 2,085,925
---------- ----------
Net interest income 1,806,748 1,503,060
Provision for loan losses (note 3) 89,000 215,000
---------- ----------
Net interest income after provision for loan losses 1,717,748 1,288,060
---------- ----------
Other (expense) income:
Service charges 326,021 330,548
Net gain on sale of investment securities - 3,719
Net gain on sale of mortgage-backed securities - 43,718
Net gain on sale of loans 16,581 83,545
Branch closing expenses (57,168) -
---------- ----------
285,434 461,530
---------- ----------
Operating expenses:
Compensation, payroll taxes and fringe benefits 797,930 771,872
Occupancy expense, including depreciation and amortization 352,117 368,855
Professional fees (note 11) 508,837 436,782
Advertising and business promotion 20,874 16,185
Net cost of operations of real estate owned,
including provision for losses of $525,830 in 1994
and $79,000 in 1993 629,104 75,685
Deposit insurance premiums 249,209 220,958
Other operating expenses (note 10) 343,920 314,375
---------- ----------
Total operating expenses 2,901,991 2,204,712
---------- ----------
Net loss (898,809) (455,122)
========== ==========
Loss per common share:
Weighted average shares outstanding 969,253 968,998
========== ==========
Net loss ($.93) ($.47)
========== ==========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
FAMILY FIRST FEDERAL SAVINGS BANK
Statements of Changes in Shareholders' Equity
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock held
Common Stock in Treasury
--------------------- --------------------
Additional
Number of Paid-in Accumulated
Shares Amount Capital Deficit Shares Cost
--------- ---------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1992
$982,498 $4,912,490 $814,914 (2,600,547) $13,500 (122,200)
Net loss for the year ended June - - - (455,122) - -
30, 1993
Unrealized holding gains on
securities available for sale - - - - - -
-------- ---------- -------- ----------- ------- ---------
Balance at June 30, 1993 982,498 4,912,490 814,914 (3,055,669) 13,500 (122,200)
Net loss for the year ended June - - - (898,809) - -
30, 1994
Unrealized holding losses on
securities available for sale - - - - - -
Issuance of treasury stock - - (2,716) - (300) 2,716
-------- ---------- -------- ----------- ------- ---------
Balance at June 30, 1994 $982,498 $4,912,490 $812,198 ($3,954,478) $13,200 ($119,484)
======== ========== ======== =========== ======= =========
<CAPTION>
Unrealized
holding gains
(losses) on
Securities Total
available for Shareholder's
Sale Equity
------------ -------------
<S> <C> <C>
Balance at June 30, 1992
- $3,004,657
Net loss for the year ended June - (455,122)
30, 1993
Unrealized holding gains on
securities available for sale 185,159 185,159
--------- ----------
Balance at June 30, 1993 185,159 2,734,694
Net loss for the year ended June - (898,809)
30, 1994
Unrealized holding losses on
securities available for sale (291,061) (291,061)
Issuance of treasury stock - -
--------- ----------
Balance at June 30, 1994 ($105,902) $1,544,824
========= ==========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
FAMILY FIRST FEDERAL SAVINGS BANK
Statements of Cash Flows
Years ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($898,809) ($455,122)
------------ -----------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 112,963 123,868
Amortization of premiums, net of accretion of discounts on
securities available for sale 26,878 -
Amortization of premiums, net of accretion of discounts on
securities held to maturity 84,886 82,529
Provision for loan losses 89,000 215,000
Provision for losses on other real estate 525,830 79,000
Net gain on sale of investment securities - (3,719)
Gain on sale of mortgage-backed securities - (43,718)
Loss on sale of real estate owned (10,160) (3,315)
Loss (gain) on sale of loans 16,581 (83,545)
Loans originated for sale (541,500) (3,418,550)
Proceeds from sales of loans 546,226 3,607,095
Changes in assets and liabilities:
(Increase) decrease in accrued interest receivable and
other assets, net (115,064) 135,937
(Decrease) increase in accrued expenses and other liabilities
and advance payments by borrowers for taxes and insurance (39,906) 4,468
------------ -----------
Total adjustments 695,734 695,050
------------ -----------
Net cash (used in) provided by operating activities (203,075) 239,928
------------ -----------
Cash flows from investing activities:
Net decrease in loans receivable 3,209,548 3,566,771
Purchases of mortgage-backed securities (2,557,210) (2,854,867)
Purchase of securities available for sale (8,958,399) -
Principal payments on mortgage-backed securities available for sale 601,474 -
Principal payments on mortgage-backed securities held to maturity 2,102,813 1,292,321
Proceeds from sales of mortgage-backed securities - 780,321
Purchases of investment securities (1,178,286) (3,885,068)
Proceeds from sales of investment securities - 514,375
Proceeds from maturities of investment securities and time deposits 1,219,377 6,948,000
Proceeds from sales of real estate owned 457,892 205,883
Disposal to office properties and equipment, net 38,691 9,712
------------ -----------
Net cash (used in) provided by investing activities (5,064,100) 6,577,448
------------ ------------
Cash flows from financing activities - net increase
(decrease) in deposits $ 6,386,252 $ 6,316,033
------------ -----------
Net (decrease) increase in cash and cash equivalents (1,109,077) 501,343
Cash and cash equivalents at beginning of year 3,758,510 3,257,167
------------ -----------
Cash and cash equivalents at end of year $ 4,867,587 $ 3,758,510
============ ===========
Cash paid during the year for:
Interest $ 1,693,230 $ 2,137,036
============ ===========
Income taxes $ - $ -
============ ===========
Supplemental schedule of noncash investing and financing activities:
Real estate acquired in settlement of loans, net $ - $ 198,052
Transfer of investment and mortgage-backed securities to
securities available for sale - 3,568,368
Transfer of investment and mortgage-backed securities
to held to maturity 10, 908,431 -
Change in unrealized holding gains on securities available
for sale (291,061) 185,159
============ ===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
FAMILY FIRST FEDERAL SAVINGS BANK
Notes to Financial Statements
June 30, 1994 and 1993
(1) REGULATORY MATTERS AND GOING CONCERN
------------------------------------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
(FIRREA) was signed into law on August 9, 1989 and the regulations for
savings institutions' minimum capital requirements went into effect on
December 7, 1989. In addition to its capital requirements, FIRREA includes
provisions for changes in the Federal regulatory structure for
institutions, including a new deposit insurance system, increased deposit
insurance premiums, and restricted investment activities with respect to
non-investment grade corporate debt and certain other investments. FIRREA
also increases the required ratio of housing-related assets in order to
qualify as a savings institution.
The regulations require institutions to have a minimum regulatory tangible
capital ratio equal to 1.5% of adjusted tangible assets, a minimum 3% core
capital ratio and an 8% risk-based capital ratio. The Office of Thrift
Supervision (OTS) has proposed an amendment to the capital regulations
which, if passed, would most likely increase Family First Federal Savings
Bank's (the Bank) core capital requirement to a level greater than 3%.
Because of the financial condition of the Bank, the OTS has imposed a 4%
minimum capital requirement on the Bank. In September 1993, the OTS issued
a final rule which requires that an amount be added to an institution's
risk-based capital requirement equal to 50% of the decline in market value
of portfolio equity (MVPE) that exceeds 2% of the institution's assets
under a hypothetical 200 basis point shift in interest rates. MVPE is
defined as the market value of assets, less the market value of
liabilities, plus or minus the market value of off-balance-sheet items.
At June 30, 1994, the Bank is not in compliance with minimum regulatory
requirements for core and risk-based capital.
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) was
signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19,
1992. In addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment for
insured depository institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the Federal
regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls, accounting
and operations.
The prompt corrective action regulations defined specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." Institutions categorized as
"undercapitalized" or worse are subject to certain restrictions, including
the requirement to file a capital plan with the OTS, prohibitions on the
payment of dividends and management fees, restrictions on executive
compensation, and increased supervisory monitoring, among other things.
Other restrictions may be imposed on the institution either by the OTS or
by the FDIC, including requirements to raise additional capital, sell
assets, or sell the entire institution. Once an institution becomes
"critically undercapitalized" it is generally placed in receivership or
conservatorship within 90 days. The Bank is considered "significantly
undercapitalized" under the defined categories of FDICIA. In addition, for
the years ended June 30, 1994 and 1993, the Bank has incurred operating
losses of $898,809 and $455,122, respectively.
11
<PAGE>
The Bank and the OTS entered into a consent order (the Order) effective
June 3, 1991. The Order required, among other things, that the Bank monitor
the allowance for loan losses on at least a quarterly basis, monitor its
liquidity and submit a business plan outlining specific goals and targets
for future operations. The Order restricted the types and amounts of loans
that could be originated or purchased without prior written notice of non-
objection from the OTS, and the Order prohibited the Bank from growing
beyond the level of total assets as of March 31, 1991.
On August 28, 1991, as a result of failing to meet the minimum regulatory
capital requirements on June 30, 1991, the OTS issued a Capital Directive
(the Directive) which required the Bank to submit a capital plan outlining
the plans for attaining the required levels of capital, which was submitted
on August 29, 1991. The capital plan relied on the sale of common stock
under a private placement offering circular to return to compliance. In
addition, the Directive imposed a second growth restriction prohibiting the
levels of total assets from growing in excess of the levels at June 30,
1991.
Effective August 1, 1991, the Bank issued and filed a private placement
offering circular under which the Bank solicited subscriptions for a
minimum of 200,000 shares and a maximum of 750,000 shares of common stock
at $10 per share. The directors of the Bank had subscribed to purchase the
minimum number of shares. On September 30, 1991, the Bank received proceeds
of $1,965,000, net of offering costs, from the sale of the minimum offering
as permitted in the offering circular. As reported by the Bank in its
Thrift Financial Report at September 30, 1991, the sale of the 200,000
shares resulted in the Bank meeting all regulatory capital requirements at
that date. Since the capital requirements were met, the Bank formally
requested that the OTS terminate the Directive. On June 3, 1992, the OTS
rescinded some of the provisions of this Directive.
On July 7, 1993, the OTS issued Consent Orders to the Bank's former
Chairman of the Board and his law partner, the former Chairman's law firm
and one of the Bank's directors. As a result of such Consent Orders, they
have resigned. A Consent Order was subsequently issued to the Bank's then
President limiting certain of his activities with the Bank.
In October 1993, the OTS issued a Consent Order which generally
incorporated and replaced all of the provisions of the June 1991 Consent
Order and also required the Bank to replace certain of its executive
officers and directors.
On August 16, 1994, the OTS issued a Corrective Action Directive (the
Directive) against the Bank. Under the terms of the Directive, the Bank is
subject to a number of restrictions, prohibitions, and affirmative actions,
including restrictions on interest rates paid on deposits and limits on
compensation.
On August 15, 1994, the Bank submitted a revised capital plan to the OTS.
The revised capital plan provides for a merger of the Bank with and into
the bank subsidiary (the subsidiary) of Great Falls Bancorp, Totowa, New
Jersey (Great Falls) as the Bank's primary plan for capital restoration. On
August 31, 1994, the Bank entered into an agreement with Great Falls under
which Great Falls will acquire 100% of the outstanding stock of the Bank.
The Bank's two offices will become branch offices of the subsidiary.
The stock of the Bank will be purchased for a combination of common stock
and cash. The agreement calls for Great Falls to pay $1.85, plus 133% of
profits or less 100% of losses of a specific period for each share of the
Bank's stock.
The merger is subject to shareholder and regulatory approval. Management
expects the transaction to be consummated during the first calendar quarter
of 1995.
12
<PAGE>
Failure to meet the capital requirements exposes the Bank to possible
regulatory sanctions, including restrictions on operations and growth,
mandatory asset dispositions and regulatory takeover. These matters raise
substantial doubt about the ability of the Bank to continue as a going
concern. The ability of the Bank to continue as a going concern is
dependent upon many factors, including the consummation of the proposed
merger and regulatory action. The accompanying financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
The Bank provides a full range of banking services to individual and
corporate customers in New Jersey. The Bank is subject to competition from
other financial institutions and to the regulations of certain Federal and
state agencies and undergoes periodic examinations by those regulatory
authorities.
The following are the significant accounting policies which were followed
in preparing and presenting these financial statements.
(a) Basis of Financial Statement Presentation
-----------------------------------------
The financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial
statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities as of the
dates of the statements of financial condition and revenues and
expenses for the periods. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowance
for loan losses and the valuation of real estate acquired in connection
with foreclosures or in satisfaction of loans. In connection with the
determination of the allowance for loan losses and the valuation of
real estate acquired in connection with foreclosures or in satisfaction
of loans, management generally obtains independent appraisals for
significant properties.
A substantial portion of the Bank's loans are secured by northern and
central New Jersey real estate, a market which has weakened in recent
years. In addition, other real estate is located in that same market.
Accordingly, as with most financial institutions in the market area,
the ultimate collectibility of a substantial portion of the Bank's loan
portfolio and the recovery of the carrying amount of other real estate
are susceptible to changes in market conditions.
(b) Allowance for Loan Losses
-------------------------
A provision for loan losses is charged to operations based on
management's evaluation of the potential losses in its portfolio. Such
evaluation includes a review of all loans for which full collectibility
may not be reasonably assured and considers, among other matters, the
estimated net realizable value of the underlying collateral, economic
conditions and other matters which warrant consideration.
Management believes that the allowance for loan losses is adequate.
While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions in the market area. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on
their judgments about information available to them at the time of
their examination.
13
<PAGE>
(c) Nonaccrual Policy
-----------------
Loans are generally placed on nonaccrual status when they become
delinquent 90 days or more as to principal or interest, or when other
factors indicate collection of principal or interest is doubtful.
Revenue accrued but not collected on nonaccrual loans is reversed.
Interest income on these loans is recognized only to the extent
payments are subsequently received.
(d) Loan Origination Fees and Costs
-------------------------------
Loan origination fees and certain direct loan origination costs are
deferred and amortized into income over the lives of the related loans
as an adjustment to the related loan yields.
(e) Loans Held for Sale
-------------------
Loans held for sale are carried at the lower of cost or market, using
the aggregate method.
(f) Investment Securities
---------------------
Investment securities include securities purchased with the intent to
hold until maturity. Investment securities are stated at cost and
adjusted for accretion of discounts and amortization of premiums.
The Bank, as a member of the Federal Home Loan Bank of New York (FHLB),
is required to hold shares of capital stock in the FHLB in an amount
equal to 1% of the outstanding balance of residential mortgage loans
and similar obligations or 5% of its outstanding advances from the
FHLB, whichever is greater.
(g) Mortgage-backed Securities
--------------------------
Mortgage-backed securities, other than those available for sale, are
carried at unpaid principal balances adjusted for unamortized premiums
and unearned discounts. Premiums and discounts are amortized using the
level-yield method over the remaining period before the contractual
maturity, adjusted for prepayments.
Gains and losses on the sales of mortgage-backed securities are
determined using the specific identification method.
(h) Securities Available for Sale
-----------------------------
As of June 30, 1993, securities available for sale are accounted for in
conformity with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities"
(SFAS 115). SFAS 115 requires that securities available for sale be
accounted for at fair value with the difference between the amortized
cost and fair value shown as an adjustment to shareholders' equity.
Prior to adoption of SFAS 115, securities available for sale were
carried at the lower of cost or market using the aggregate method, and
any depreciation in the portfolio was charged to operations.
Securities available for sale include mortgage-backed securities and
other securities held to manage interest rate risk and liquidity
positions. These securities are not purchased to realize short-term
trading profits or to be held to maturity. Securities classified as
available for sale are carried at fair value using the aggregate
method. Gains and losses upon sale are realized on the basis of
specific identification.
14
<PAGE>
(i) Other Real Estate
-----------------
When properties are acquired through foreclosure, in-substance
foreclosure, or by deed in lieu of foreclosure, they are transferred
at estimated fair value, and any required write-downs are charged to
the allowance for loan losses. Subsequently, such properties are
carried at the lower of the adjusted cost or fair value less estimated
selling costs. Estimated fair value of the property is generally based
on an appraisal. The Bank maintains an allowance for other real estate
losses for subsequent declines in estimated fair value. Expenses of
holding foreclosed properties, net of rental or other income, are
charged to operations as incurred.
(j) Office Properties and Equipment
-------------------------------
Depreciation of office properties and equipment is accumulated on a
straight-line basis over the estimated useful lives of the related
assets, not to exceed ten years. Amortization of leasehold
improvements is accumulated on a straight-line basis over the terms of
the respective leases or the estimated useful lives of the assets,
whichever are shorter.
(k) Statement of Cash Flows
-----------------------
For purposes of the statements of cash flows, cash and cash
equivalents include cash and overnight Federal funds sold.
(l) Loss Per Share
--------------
Loss per share has been computed on the basis of the weighted average
number of shares of common stock outstanding. The weighted average
number of shares outstanding was 969,253 and 968,998 for the years
ended June 30, 1994 and 1993, respectively.
(m) Income Taxes
------------
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109), which supersedes Opinion No. 11 of the
Accounting Principles Board (APB No. 11). SFAS 109 requires a change
from the deferred method of accounting for income taxes under APB No.
11 to the asset and liability method. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the
year in which those temporary differences are expected to be recovered
or settled. Under SFAS 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Effective July 1, 1993, the
Bank prospectively adopted SFAS 109, and there was no cumulative
effect of adopting SFAS 109.
Prior to July 1, 1993, the Bank made income tax provisions on a
current and deferred basis under APB No. 11.
(n) Reclassifications
-----------------
Certain reclassifications have been made in the 1993 financial
statements to conform to the classifications used in 1994.
15
<PAGE>
(3) LOANS RECEIVABLE, NET
---------------------
Loans receivable, net at June 30, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Mortgage loans - conventional $ 9,538,414 $23,388,089
Home equity loans 1,021,527 1,043,385
Loans secured by deposits 1,582,668 1,389,275
Commercial loans 4,431,750 3,772,990
Consumer and other loans 1,393,603 1,607,754
----------- -----------
27,967,962 31,201,493
Less:
Allowance for loan losses 1,277,338 1,291,971
Deferred loan fees 30,457 49,639
----------- -----------
$26,660,167 $29,859,883
=========== ===========
</TABLE>
The following is an analysis of the allowance for loan losses for the years
ended June 30, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Balance at beginning of year $1,291,971 $1,424,729
Provision charged to operations 89,000 215,000
Charge-offs net of recoveries (103,633) (347,758)
---------- ----------
Balance at end of year $1,277,338 $1,291,971
========== ==========
</TABLE>
The Bank is a party to transactions with off-balance-sheet risk in the normal
course of business in order to meet the financing needs of its customers.
These transactions consist of commitments to extend credit. These transactions
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the accompanying statements of financial
condition.
The Bank uses the same credit policies and collateral requirements in making
commitments and conditional obligations as it does for on-balance-sheet loans.
Commitments to extend credit are agreements to lend to customers 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. Since the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's creditworthiness on a case-
by-case basis. The amount of collateral obtained, if deemed necessary by the
Bank upon extension of credit, is based on management's credit evaluation of
the borrower. Collateral held varies but primarily includes residential
properties. Outstanding loan commitments at June 30, 1994 and 1993
approximated $1,215,420 and $723,775, respectively. In addition, at June 30,
1994 and 1993, the Bank had outstanding approximately $607,976 and $568,995,
respectively, of commitments under lines of credit for home equity loans. At
June 30, 1994 and 1993, the Bank had outstanding commitments of $95,058 and
$559,240, respectively, under commercial lines of credit.
16
<PAGE>
At June 30, 1994 and 1993, loans serviced by the Bank for others amounted to
approximately $3,535,855 and $3,874,000, respectively.
The following is a comparative summary of nonaccrual loans, loans which are
contractually past due 90 days or more as to interest or principal payments but
have not been classified nonaccrual, and other real estate at June 30, 1994 and
1993:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Nonaccrual loans $2,492,182 $3,394,013
Loans past due 90 days or more 739,542 891,787
---------- ----------
Total nonperforming loans 3,231,724 4,285,800
Other real estate 1,348,148 2,363,091
---------- ----------
Total nonperforming assets $4,579,872 $6,648,891
========== ==========
</TABLE>
If total nonaccrual loans had been current in accordance with their original
terms, total interest income would have increased by approximately $131,000,
net of cash payments, for the year ended June 30, 1993. In 1994, cash payments
received on nonaccrual loans exceeded forgone interest by approximately $5,000.
(4) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES, NET
---------------------------------------------------------
The following is a comparative summary of investment securities and
mortgage-backed securities at June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Gross Gross
1994: Carrying unrealized unrealized Market
value gains losses value
----------- ---------- ------------- -----------
U.S. Government and agency
obligations, net of premium and discount:
<S> <C> <C> <C> <C>
Maturing in one year or less $ 2,494,008 $ 16,443 ( $3,498) $ 2,506,953
Maturing in one to five years 6,720,816 11,529 (308,814) 6,423,531
Maturing in five to ten years 3,866,026 - (418,463) 3,447,563
Maturing in more than ten years 479,463 - (86,963) 392,500
----------- -------- ------------ -----------
13,560,313 27,972 (817,738) 12,770,547
----------- -------- ------------ -----------
FHLB stock 244,300 - - 244,300
----------- -------- ------------ -----------
13,804,613 27,972 (817,738) 13,014,847
----------- -------- ------------ -----------
Mortgage-backed securities, net
of premium and discount:
FHLMC 2,908,375 12,706 (113,438) 2,807,643
FNMA 3,261,097 - (145,200) 3,115,897
GNMA 443,475 - (24,052) 419,423
----------- -----------
6,612,947 12,706 (282,690) 6,342,963
----------- -------- ------------ -----------
1993: $20,417,560 $ 40,678 ($1,100,428) $19,357,810
=========== ======== ============ ===========
U.S. Government and agency obligations, net of
premium and discount:
Maturing in one year or less $ 355,386 $ 4,723 $ - $ 360,109
Maturing in one to five years 3,720,454 139,389 - 3,859,843
Maturing in five to ten years 250,033 3,405 - 253,438
----------- -------- ------------ -----------
4,325,873 147,517 - 4,473,390
FHLB stock 271,800 - - 271,800
----------- -------- ------------ -----------
4,597,673 147,517 - 4,745,190
----------- -------- ------------ -----------
Mortgage-backed securities, net of
premium and discount:
FHLMC 2,220,935 66,477 - 2,287,412
FNMA 2,399,810 36,864 (7,147) 2,429,527
----------- -------- ------------ -----------
4,620,745 103,341 (7,147) 4,716,939
----------- -------- ------------ -----------
$ 9,218,418 $250,858 ($7,147) $ 9,462,129
=========== ======== ============ ===========
</TABLE>
17
<PAGE>
(4) INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES, NET, CONT.
----------------------------------------------------------------
Gross gains of $47,437 on sales of investment and mortgage-backed
securities were recognized for the year ended June 30, 1993.
(5) SECURITIES AVAILABLE FOR SALE
-----------------------------
The Bank adopted SFAS 115 on June 30, 1993 and transferred certain
investment and mortgage-backed securities from the held to maturity
portfolio to the securities available for sale portfolio. SFAS 115 requires
that securities available for sale be accounted for at fair value and the
difference between the amortized cost and the fair value be shown as an
adjustment to shareholders' equity.
The securities available for sale at June 30, 1994 and 1993, by type of
security and by contractual maturity, are shown below. Expected maturities
of mortgage-backed securities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without penalty.
The following is a comparative summary of securities available for sale at
June 30, 1994 and 1993:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1994 mortgage-backed securities,
net of premium and discount:
GNMA $ 596,399 16,776 - 613,175
FHLMC 208,425 6,909 - 215,334
---------- -------- ---- ----------
804,824 23,685 - $ 828,509
========== ======== ==== ==========
1993:
U.S. Government and agency obligations, net
of premium and discount:
Maturing in one to five years 1,012,996 31,462 396 1,044,062
Maturing in five to ten years 760,075 32,271 2 792,344
---------- -------- ---- ----------
1,773,071 63,733 398 1,836,406
---------- -------- ---- ----------
Mortgage-backed securities, net of premium and
discount:
GNMA 996,347 78,216 - 1,074,563
FHLMC 613,792 43,607 - 657,399
---------- -------- ---- ----------
1,610,139 121,823 - 1,731,962
---------- -------- ---- ----------
$3,383,210 $185,556 $398 $3,568,368
========== ======== ==== ==========
</TABLE>
18
<PAGE>
(6) OFFICE PROPERTIES AND EQUIPMENT, NET
------------------------------------
A summary of office properties and equipment, less accumulated depreciation
and amortization, at June 30, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
At cost:
Furniture and equipment $ 651,460 $ 682,812
Leasehold improvements 265,824 383,896
-----------
917,284 1,066,708
Less accumulated depreciation and 728,431 726,200
amortization ----------- ----------
$ 188,853 $ 340,508
=========== ==========
</TABLE>
Depreciation expense amounted to $112,963 and $126,107 for the years ended
June 30, 1994 and 1993, respectively.
(7) DEPOSITS
-----------
Deposit accounts by interest rate at June 30, 1994 and 1993 are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993
----------------------------------------------------------------------------
Stated rate Amount % Stated rate Amount %
----------- ----------- ---------- ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing accounts - % $ 6,138,431 11.45 -% $ 6,422,368 13.60
NOW accounts 2.50 9,259,823 17.28 3.00 5,112,425 10.83
Savings accounts 2.50 - 3.0 11,224,914 20.94 3.00 - 3.50 9,650,724 20.44
Club accounts 3.50 229,387 .43 3.50 298,535 0.63
Money market accounts 2.65 - 2.80 3,357,855 6.27 3.00 - 3.30 3,502,972 7.42
Certificates of deposit 2.60 - 9.25 17,220,892 32.13 3.10 - 10.00 15,006,443 31.78
Jumbo certificates of
deposit ($99,000 or more) 2.95 - 5.10 6,136,755 11.45 3.25 - 9.00 7,198,338 15.24
=========== ============
Interest payable 27,670 .05 30,112 0.06
----------- ---------- ----------- ------
$53,595,727 100.00 $47,221,917 100.00
=========== ========== =========== ======
Contractual maturity of
certificate accounts:
Under 12 months $20,833,506 $20,468,367
12 months to 24 months 2,115,299 1,298,980
Over 24 months 408,842 437,434
----------- -----------
$23,357,647 $22,204,781
=========== ===========
</TABLE>
19
<PAGE>
(7) DEPOSITS, CONT.
---------------
For the years ended June 30, 1994 and 1993, interest expense on deposits is
composed of the following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Savings and club deposits $ 342,697 $ 338,904
Certificates of deposit 981,685 1,402,857
NOW and money market accounts 366,408 344,164
---------- ----------
$1,690,790 $2,085,925
========== ==========
</TABLE>
(8) BORROWINGS
----------
The Bank has a line of credit arrangement with the Federal Home Loan Bank of
New York in the amount of $2,951,700 expiring on June 15, 1995. The terms of
the line of credit require the Bank to pledge collateral prior to borrowing
against the line. There were no borrowings against the line of credit at June
30, 1994 or 1993.
(9) INCOME TAXES
------------
As discussed in note 2, the Bank prospectively adopted SFAS 109 as of July
1, 1993. Prior years' financial statements have not been restated to apply
the provisions of SFAS 109. There was no cumulative effect of adopting SFAS
109.
If certain conditions are met, the Bank, in determining taxable income, is
allowed a special bad debt deduction based on specified experience formulas
or a percentage of its taxable income before such deduction. The Bank used
an experience formula for the year ended June 30, 1993 and intends to use
the experience formula for the year ended June 30, 1994.
Shareholders' equity at June 30, 1994 includes approximately $179,000 of
financial statement bad debt provisions in excess of the amount allowable
for tax purposes for which no tax benefit has been given.
No income tax benefit has been recorded for the years ended June 30, 1994
and 1993 because of the absence of taxable income in the carryback period.
The Bank has a net operating loss carryforward of approximately $1,723,000
expiring through 2008. The difference between the net operating loss
carryforward for financial and tax reporting purposes results primarily
from the effect of the reversal of interest income on nonaccrual loans and
depreciation on office properties and equipment.
20
<PAGE>
The significant components of deferred tax assets and liabilities at June 30,
1994 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets:
<S> <C>
Deferred loan fees $ 11,269
Allowance for loan losses 666,999
Other valuation reserves 86,476
Federal net operating loss carry-forward 585,668
Depreciation premises and equipment 1,242
-----------
Gross deferred tax assets 1,351,654
-----------
Deferred tax liabilities:
Tax bad debts reserve in excess of "base year" 19,385
Discount accretion 6,995
Depreciation of premises and equipment 16,131
-----------
Gross deferred tax liabilities 42,511
-----------
Net deferred tax asset 1,309,143
Valuation reserve (1,309,143)
-----------
Net deferred taxes $ -
===========
</TABLE>
At July 1, 1993, the valuation allowance for both Federal and state
deferred tax assets was $1,070,000. This valuation allowance was necessary
due to the absence of taxable income in the tax carryback period and
projected earnings of the Bank.
Except for the effects of the reversal of net deductible temporary
differences, the Bank is not currently aware of any factors which would
cause any significant differences between taxable income and pretax book
income in future years. However, there can be no assurances that there will
be no significant differences in the future between taxable income and
pretax book income if circumstances change (such as, for example, changes
in tax laws or the Bank's financial condition or performance). In order to
fully realize the deferred tax asset, the Bank will need to generate future
taxable income. Management believes it is more likely than not that the
Bank will not realize the benefit of net deductible temporary differences.
Management has projected that the Bank will not generate sufficient taxable
income to currently utilize the deferred tax asset. There can be no
assurance that the Bank will generate any earnings or any specific level of
continuing earnings. A valuation allowance equal to the deferred tax asset
has been established as a result of the above.
(10) OTHER OPERATING EXPENSES
------------------------
Other operating expenses for the years ended June 30, 1994 and 1993 consist
of the following:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Data processing 86,626 74,500
Office supplies and printing costs 21,776 23,177
Service charges and fees 134,604 130,674
Telephone and postage 36,886 39,212
Other miscellaneous 64,028 46,812
-------- --------
$343,920 $314,375
======== ========
</TABLE>
21
<PAGE>
(11) RELATED-PARTY TRANSACTIONS
--------------------------
The Bank leases its main office building from a former member of the Board
of Directors. The lease term is five years beginning November 1, 1985,
with three successive five-year renewal options. The Bank has renewed its
option on the lease for the period November 1, 1990 through October 31,
1995. Monthly payments are $8,238. A branch location is also leased from
the same former director. The term on this branch is also five years with
three successive five-year renewal options, beginning September 1, 1989.
Monthly payments are $1,352. Future minimum payments under these leases
are $115,081, $101,560 and $32,952 for the years ended June 30, 1994, 1995
and 1996, respectively.
The former Chairman of the Board of Directors is a partner in a law firm
which the Bank used as its corporate counsel prior to the Chairman's
departure. The Chairman received a salary of $66,667 for the year ended
June 30, 1993 in his capacity as chief executive officer. The salary is
included in professional fees in the accompanying statement of operations
for the year ended June 30, 1993. Legal fees to such law firm for the year
ended June 30, 1993 totaled $165,753.
The Bank has loans outstanding to directors and executive officers,
including the former Chairman of the Board, and/or their associates
totaling approximately $886,000 and $681,000 at June 30, 1994 and 1993,
respectively. Substantially all loans to related parties are secured by
either deposits or real estate, and no director or officer has unsecured
loans outstanding in excess of $5,000. In addition, at June 30, 1994 and
1993, the Bank has loans outstanding to family members of a former
director of the Bank totaling $250,000 and $2,248,467, respectively.
Substantially all of these loans are secured by real estate.
Deposits maintained by related parties totaled approximately $1,473,000
and $1,461,000 at June 30, 1994 and 1993, respectively.
22
<PAGE>
<TABLE>
<CAPTION>
Family First Federal Savings Bank
Statement of Condition
Dollars in Thousands, Except for Per Share Data
(Unaudited)
March 31, December 31,
1995 1994
---------- -------------
<S> <C> <C>
ASSETS
Cash $ 2,865 $ 6,655
Federal funds sold 1,000 3,500
------- -------
Total cash and cash equivalents 3,865 10,155
Time deposits and certificate of deposits 290 383
Investment securities at amortized cost 12,240 12,836
Mortgage backed securities, net 5,984 7,912
Loans receivable, net 25,954 25,191
Accrued interest receivable 413 423
Other real estate 1,559 1,739
Office properties and equipment, net 120 213
Other assets 112 163
------- -------
Total assets $50,537 $59,015
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits 6,439 5,357
Demand deposits non-interest bearing 7,963 14,147
Demand deposits interest bearing 8,411 11,634
Savings deposits 25,618 25,509
Time deposits ------- -------
Total deposits 48,431 56,647
Advance payments by borrowers for taxes and insurance - -
Accrued expenses and other liabilities 550 527
------- -------
Total liabilities 48,981 57,174
Shareholders' equity
Common stock, $5 par value. Authorized 2,000,000
shares; issued 982,498 shares 4,912 4,912
Additional paid-in-capital 824 824
Accumulated deficit (3,933) (3,712)
Net unrealized holding (losses) gains on securities (128) (61)
available for sale (119) (122)
Treasury stock ------- -------
Total shareholders' equity 1,556 1,841
Total liabilities and shareholders' equity $50,537 $59,015
======= =======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Family First Federal Savings Bank
Statement of Operations
Nine Months ended March 31, 1995 and 1994
Dollars in Thousands, Except for Per Share Data
(Unaudited)
1995 1994
------- --------
<S> <C> <C>
Interest income:
Mortgage loans $1,310 $1,191
Commercial loans 239 174
Other loans 156 244
Investment securities 707 670
Mortgage backed securities 315 364
------ ------
Total interest income 2,727 2,643
Interest expense 1,209 1,289
------ ------
Net interest income before provision of loan losses 1,518 1,354
Provision for loan losses 19 -
------ ------
Net interest income after provision of loan losses 1,499 1,354
Other (expense) income:
Service charges 139 183
Other non-interest income 61 50
Net gain on sale of securities 15 -
Net (loss) gain on sale of loans (8) (383)
------ ------
207 (150)
Operating expenses:
Compensation, payroll taxes and benefits 591 611
Occupancy expense 236 271
Professional fees 312 373
Advertising and business promotion 6 17
Net cost of operating real estate owned 60 75
Deposit insurance premiums 144 130
Other operating expenses 324 317
------ ------
Total operating expenses 1,673 1,794
------ ------
Net income (loss) before extraordinary items 33 (590)
Extraordinary items, net - (57)
------ ------
$ 33 ($647)
====== ======
Loss per common share:
Weighted average shares outstanding 969 969
Net loss $0.03 $(0.61)
====== ======
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Family First Federal Savings Bank
Statement of Cash Flows
Nine Months ended March 31, 1995 and 1994
Dollars in Thousands, Except for Per Share Data
(Unaudited)
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ 33 ($647)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 68 88
Amortization of premiums, net of accretion of discounts 53 87
Provision for loan losses 19 -
Provision for losses on real estate owned - 400
Gain on sale of mortgage backed securities, available for sale (15) -
Gain on sale of loans (5) (17)
Loss on sale of real estate owned 8 -
Changes in assets and liabilities;
(Increases) decreases in accrued interest receivable and
other assets, net 119 (36)
(Decreases) increases in other liabilities 350 358
Total adjustments ------- -------
Net cash provided by operations 597 881
------- -------
630 234
Cash flows from investing activities:
Net (increase) decrease in loans receivable 529 4,669
Net (increase) decrease in investment securities 3,043 (8,200)
Proceeds from sale of real estate owned 128 212
Purchase of senior liens on real estate owned properties (169) -
Disposal of office properties, net 1 57
------- -------
Net cash provided by (used in) investing activities 3,532 (3,262)
------- -------
Cash flows from financing activities - net (decrease) increase in deposits (5,164) 9,425
------- -------
Net increase (decrease) in cash and due from banks (1,002) 6,397
Cash and due from banks at beginning of period 4,868 3,759
------- -------
Cash and due from banks at end of period $ 3,865 $10,155
======= =======
</TABLE>
25
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS
AS OF MARCH 31, 1995
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
ASSETS GFB FAMILY FIRST ADJUSTMENTS COMBINED
- ------ ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Cash and Due From Banks $ 6,881 $ 4,155 $ (29) (a) $ 11,077
Securities:
Available for Sale 25,064 - 18,224 41,797
(1,491) (c)
Held to Maturity 20,406 18,224 (18,224) 20,406
Loans, net of allowance
for possible loan losses 54,973 25,954 129 (d) 81,056
Accrued Interest Receivable 970 413 - 1,383
Premises and Equipment, net 629 120 - 749
Other Real Estate, net 559 1,559 - 2,118
Excess of Cost over Fair Value
of Assets Acquired - - 826 (h) 826
Other Assets 1,587 112 900 (f) 2,599
-------- ------- -------- --------
TOTAL ASSETS $111,069 $50,537 $ 335 $161,941
======== ======= ======== ========
LIABILITIES
- -----------
Deposits:
Demand $ 40,605 $14,402 - $ 55,007
Savings 17,438 8,411 - 25,849
Time 34,761 25,618 (62) (e) 60,317
-------- ------- -------- --------
Total Deposits 92,804 48,431 141,173
Other Liabilities 4,227 550 150 (g) 4,927
Subordinated Debentures 4,966 - - 4,966
-------- ------- -------- --------
TOTAL LIABILITIES 101,997 48,981 88 151,066
-------- ------- -------- --------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock 816 4,912 (4,912) (b) 973
157 (i)
Additional Paid-In Capital 7,314 824 (824) (b) 8,960
1,646 (i)
Retained Earnings (Deficit) 1,064 (3,933) 3,933 (b) 1,064
Net Unrealized Holding Losses
Securities Available for Sale (122) (128) 128 (b) (122)
Treasury Stock - (119) 119 (b) -
-------- ------- -------- --------
TOTAL SHAREHOLDERS' EQUITY 9,072 1,556 247 10,875
-------- ------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $111,069 $50,537 $ 335 $161,941
======== ======= ======== ========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements
26
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA
FOR THE THREE MONTHS ENDING MARCH 31, 1995
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
GFB FAMILY FIRST ADJUSTMENTS COMBINED
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
$ 2,035 $ 894 $ - $ 2,929
Total interest income
Total interest expense 754 424 - 1,178
-------- -------- --------
Net interest income 1,281 470 - 1,751
Provision for possible loan 60 19 - 79
losses -------- -------- ----- --------
Net interest income after provision
for possible loan losses 1,221 451 - 1,672
Other income 116 69 - 185
Other expenses 930 531 30 (j) 1,491
-------- -------- ----- --------
Income before income taxes 407 (11) (30) 366
Provision for income taxes 150 - (150) (k) 123
123 (k)
-------- -------- ----- --------
NET INCOME (LOSS) $ 257 ($11) ($3) $ 243
======== ======== ===== ========
Weighted Average Shares
Outstanding 816,190 969,028 - 972,995
Net Income (Loss) Per Share $0.31 $(0.01) - $0.25
</TABLE>
See accompanying notes to pro forma combined condensed financial statements
27
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF CONDITION
(UNAUDITED)
DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE DATA
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
GFB FAMILY FIRST ADJUSTMENTS COMBINED
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Total interest income $ 7,002 $ 3,601 $ - $ 10,603
Total interest expense 2,448 1,610 - 4,058
-------- -------- --------
Net interest income 4,554 1,991 - 6,545
Provision for possible loan losses 130 89 - 219
-------- -------- ----- --------
Net interest income after provision
for possible loan losses
4,424 1,902 - 6,326
Other income 398 247 - 645
Other expenses 3,320 2,867 118 (j) 6,305
-------- -------- ----- --------
Income before income taxes 1,502 (718) (118) 666
Provision for income taxes 536 - (536) (k) 188
188 (k)
-------- -------- ----- --------
NET INCOME (LOSS) $ 966 ($718) $ 230 $ 478
======== ======== ===== ========
Weighted Average Shares
Outstanding 805,273 969,298 - 962,078
Net Income (Loss) Per Share $1.20 $(0.74) - $0.50
</TABLE>
See accompanying notes to pro forma combined condensed financial statements
28
<PAGE>
NOTE 1
- ------
The pro forma combined condensed unaudited financial statements reflect the
following assumptions:
A merger (the "Merger") between Great Falls Bank, the subsidiary of Great
Falls Bancorp ("GFB"), and Family First Federal Savings Bank ("Family First")
was consummated on April 7, 1995, whereby GFB exchanged newly issued shares of
common stock of GFB ("GFB" Stock") to the shareholders of Family First for
their shares of common stock of Family First ("Family First Stock") based upon
a conversion ration of 0.1643 to 1 ("Conversion Rate"). The transaction would
be accounted for using the purchase method of accounting.
The Conversion Rate was based on the actual rate used upon consummation of the
transaction on April 7, 1995. This rate is computed using the value of Family
First Stock, based upon a formula specified in the Merger Agreement, or $1.89
divided by $11.50.
Utilizing the Conversion Rate and the actual number of shareholders holding
the outstanding Family First Stock who elected to receive GFB Stock rather
than cash upon consummation of the transaction on April 7, 1995, the Merger
would have resulted in the issuance of 156,805 shares of GFB Stock.
NOTE 2
- ------
In order to determine the fair value of Family First's assets acquired and
liabilities assumed under purchase accounting, certain methods and assumptions
were considered. The more significant methods used in assigning amounts were as
follows:
Fair value of securities was determined by reference to quoted market prices.
Loans and other receivables were based on the present values of amounts to be
received determined at appropriate current interest rates.
Deposits and other liabilities were based on the present value of amounts to
be paid determined at appropriate current interest rates, less allowance for
uncollectibility and collection cost, if necessary.
The excess of the cost of Family First over the sum of the amounts assigned to
identifiable assets acquired less liabilities assumed was recorded as goodwill
which will be amortized over a period of seven years, the estimated average
life of the deposit base acquired from Family First.
29
<PAGE>
The following table summarizes the purchase transaction of Family First as
reflected in the accompanying Pro Forma Combined Condensed Unaudited Statement
of Condition as of March 31, 1995;
<TABLE>
<S> <C>
Exchange of Family First stock for GFB stock:
Shares of Family First to exchange 954,103
Estimated per share price of Family First stock (Note 1) $1.89
-----------
Estimated fair value (Note 3) $ 1,803,255
Divided by the cost of GFB shares $11.50
-----------
Shares of GFB exchanged for Family First stock 156,805
Shares exchanged for cash 15,195
===========
Estimated per share price of Family First stock $1.89
-----------
Estimated cash paid for the exchange of stock $ 28,719 (a)
Cost of the acquisition 150,000 (g)
-----------
Total Purchase Price, including related costs 1,981,974
Total Shareholders' Equity of Family First $ 1,556,000 (b)
Fair value adjustments -
Investments (1,491,000) (c)
Loans (129,000) (d)
Excess of book value over fair value of deposits 62,000 (e)
Recognition of deferred tax asset 500,000 (f)
Recognition of net operating loss carryforward 400,000 (f)
-----------
Adjusted Shareholders' Equity of Family First 1,156,000
Excess of cost over fair value of assets acquired $ 825,974 (h)
===========
NOTE 3
- ------
Issuance of shares of GFB Stock at $11.50 per share:
Common stock, $1 par value $ 156,805 (i)
Additional Paid-In Capital(i) 1,646,450 (i)
-----------
Total increase in capital $ 1,803,255
===========
</TABLE>
NOTE 4
- ------
The following is a summary of the adjustments required to the pro forma combined
condensed unaudited statements of income assuming the adjustments above were
made as of the beginning of the periods presented.
(j) To reflect amortization of the excess of cost over fair value of net assets
acquired (see Note 2, item (h), above) over a seven-year period.
(l) To eliminate prior provisions and reflect anticipated tax on a pro forma
basis utilizing the established asset related to the net operating loss
carryforward (limited to approximately $110,000 per year).
30
<PAGE>
EXHIBIT INDEX
The document listed below is being filed as an Exhibit to the within amended
report on Form 8-K.
Exhibit Number Title
-------------- -----
23.1 Consent of KPMG
Peat Marwick LLP
31
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
-----------------------------
The Board of Directors
Great Falls Bancorp:
We consent to the inclusion of our report dated September 20, 1994, with respect
to the statements of financial condition of Family First Federal Savings Bank as
of June 30, 1994 and 1993 and the related statements of operations, changes in
shareholders' equity, and cash flows for the years then ended, which report
appears in Form 8-K of Great Falls Bancorp dated April 7, 1995.
Our report dated September 20, 1994 contains an explanatory paragraph that
states that Family First is "significantly undercapitalized," has failed to
comply with two of three regulatory capital requirements and had continued to
suffer recurring loan losses from operations. These matters raise substantial
doubt about the Bank's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
that uncertainty.
Our report dated September 20, 1994 refers to a change in the method of
accounting for investment securities to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Securities."
KPMG Peat Marwick LLP
Short Hills, New Jersey
June 16, 1995
