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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to ________
Commission file number 0-14294
GREAT FALLS BANCORP
(Name of small business issuer in its charter)
NEW JERSEY 22-2545165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Union Boulevard, Totowa, New Jersey 07512
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 942-1111
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange
on which registered
NONE
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Securities registered under section 12 (g) of the Exchange Act:
Common Stock, par value $1 per share
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(Title of class)
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
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Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any
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amendment to this Form 10-KSB. [ ]
State issuer's revenues for the most recent fiscal year.
$19,610,000
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specific date within the past 60
days. (See definition of affiliate in Rule 12b-2 of the Exchange Act).
$20,989,614.00 as of February 29, 1996. For purposes of this
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calculation, it is assumed that directors, executive officers and
beneficial owners of more than 5% of the registrant's outstanding voting
stock are affiliates.
The number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date, was as follows: 1,709,949 shares of
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common stock as of March 25, 1996.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe
them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1993 ("Securities Act"). The list
of documents should be clearly described for identification purposes (e.g.,
annual report to security holders for fiscal year ended December 24, 1990).
Information in the Corporation's Proxy Statement for its 1996 Annual
Meeting of Stockholders is incorporated by reference into Part III, Items 9
through 12, inclusive.
Transitional Small Business Disclosure Format (check one):
Yes _______ No X
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PART I
Item 1 - BUSINESS
THE HOLDING COMPANY
The Corporation is organized as a business corporation under the laws of the
State of New Jersey and registered as a bank holding company with the Board of
Governors of the Federal Reserve System ("Federal Reserve Board") under the Bank
Holding Company Act ("Holding Company Act"). The Corporation was incorporated
in 1984. In 1985, it obtained a charter for Great Falls Bank ("GFB") (see
"SUBSIDIARY BANKS" below).
It was reported last year that for several years the Corporation had been
considering ways to expand its banking operations in the communities served by
GFB and surrounding communities. These efforts resulted in two significant
acquisitions for the Corporation during 1995. First, during April, 1995, the
Corporation consummated the acquisition of Family First Federal Savings Bank
("Family First"), of Clifton, New Jersey. That acquisition took the form of a
merger of Family First into GFB, which was the survivor of the merger. Second,
as of the close of business on December 31, 1995 the Corporation acquired all of
the outstanding stock of Bergen Commercial Bank ("BCB") (see "SUBSIDIARY BANKS"
below) solely in exchange for the Corporation's common stock. As a result of
that second acquisition, the Corporation became the owner of two New Jersey-
chartered banks.
The Corporation's only substantive business activity is the ownership and
operation of GFB and BCB (the "Bank Subsidiaries").
During the last three years, the Corporation has demonstrated continued growth
in its business. As of December 31, 1995, the Corporation's consolidated assets
were $253.0 million, as compared with consolidated assets of $168.3 million at
December 31, 1994. Net income for the year ended December 31, 1995 was
$2,072,000 ($1.15 per share), up from $1,486,000 ($0.98 per share) in 1994 and
$1,301,000 ($.87 per share) in 1993. After declaring cash dividends totaling
$.15 per share during 1994, the Corporation declared total dividends of $.215
per share during 1995. Financial results for years prior to 1995 have been
restated to include BCB which was accounted for as a pooling of interests. The
financial results for periods prior to April 7, 1995 do not include Family First
since the acquisition of Family First was accounted for as a purchase.
Great Falls Financial Services, Inc. is a wholly-owned nonbank subsidiary of the
Corporation. Its original purpose was to lease financial data processing
equipment and software from a third party and sublease same at cost to the
Subsidiary Banks. This entity is currently inactive.
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SUBSIDIARY BANKS
GFB received its charter from the New Jersey Department of Banking (the
"Department") in 1985 and commenced operations as a commercial bank in January,
1986 at its main office located at 55 Union Boulevard, Totowa, New Jersey. GFB
has a total of five branches, all of which are located in Passaic County, New
Jersey. GFB has operated a branch at 150 Clove Road, Little Falls, New Jersey,
since March, 1988. During mid-1995 GFB opened a new branch in Totowa, New
Jersey, in addition to the two branches it acquired in the merger with Family
First during April, 1995.
GFB conducts a general commercial and retail banking business encompassing a
wide range of traditional deposits and lending functions. In the lending area,
the services offered by GFB are a broad variety of lending activities, including
commercial and residential real estate loans, short and medium term loans,
revolving credit arrangements, lines of credit, and consumer installment loans.
In the depository area, GFB offers a broad variety of deposit accounts,
including consumer and commercial checking accounts and NOW accounts. GFB also
offers other customary banking services.
BCB was incorporated in New Jersey in 1987 and commenced its banking operations
in February, 1988. BCB concentrates its operations in commercial lending and
loan origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. In addition to its
main office at Two Sears Drive in Paramus, New Jersey, BCB has two branch
offices in Hasbrouck Heights and Wood-Ridge, New Jersey. BCB also offers other
customary banking services.
Each of the Subsidiary Banks has a wholly-owned investment company subsidiary
whose function is to manages its securities portfolio. The investment companies
were formed to separate the Subsidiary Banks' investment portfolio functions and
responsibilities from their regular banking operations and to increase the net
yield of their respective investment portfolios.
COMPETITION
The Corporation, through the Subsidiary Banks, competes with other New Jersey
commercial banks, savings banks, savings and loan associations, finance
companies, insurance companies, and credit unions. A substantial number of
offices of competing financial institutions are located within the Subsidiary
Banks' respective market areas. The past trend toward consolidation of the
banking industry has continued in New Jersey in recent years. This trend may
make it more difficult for smaller banks such as the Subsidiary Banks to compete
with large, national and regional banking institutions. Several of the
Subsidiary Banks' competitors are
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affiliated with major banking and financial institutions which are substantially
larger and have far greater financial resources than the Subsidiary Banks.
Competitive factors between financial institutions can be classified into two
categories: competitive rates and competitive service. Rate competition is
intense, especially in the area of time deposits. The Subsidiary Banks compete
with larger institutions with respect to the rates of interest they offer. From
a service standpoint, the Subsidiary Banks' competitors, by virtue of their
superior financial resources, have substantially greater lending limits than the
Subsidiary Banks are able to provide. Such competitors also perform certain
functions for their customers, such as trust, brokerage, and international
services, which the Subsidiary Banks have chosen not to provide.
SUPERVISION AND REGULATION
The banking industry is highly regulated. Statutory and regulatory controls
increase a bank holding company's cost of doing business, limit its management's
options to deploy assets and maximize income, and may significantly limit the
activities of institutions which do not meet regulatory capital or other
requirements. Areas subject to regulation and supervision by the bank
regulatory agencies include, among others: minimum capital levels; dividends;
affiliate transactions; expansion of locations; acquisitions and mergers;
reserves against deposits; deposit insurance premiums; credit underwriting
standards; management and internal controls; investments; and general safety and
soundness of banks and bank holding companies. Supervision, regulation and
examination of the Corporation and the Subsidiary Banks by the bank regulatory
agencies are intended primarily for the protection of depositors, the
communities served by the institutions or other governmental interests, rather
than for holders of stock of the Corporation or the Subsidiary Banks.
The following is a brief summary of certain statutes, rules and regulations
affecting the Corporation and the Subsidiary Banks. A number of other statutes
and regulations and governmental policies have an impact on their operations.
The Corporation is unable to predict the nature or the extent of the effects on
its business and earnings that fiscal or monetary policies, economic control or
new federal or state legislation may have in the future. The following summary
of applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to such statutes and regulations.
Bank Holding Company Regulation
The Corporation is registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "Holding Company
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Act"). As such, it is subject to supervision and regulation by the Federal
Reserve. The Corporation is required to file reports with the Federal Reserve
and to furnish such additional information as the Federal Reserve may require
pursuant to the Holding Company Act. The Corporation also is subject to regular
examination by the Federal Reserve and is subject to regulation by the
Department.
A policy of the Federal Reserve requires the Corporation to act as a source of
financial and managerial strength to the Subsidiary Banks, and to commit
resources to support the Subsidiary Banks. In addition, any loans by the
Corporation to the Subsidiary Banks would be subordinate in right of payment to
deposits and certain other indebtedness of the Subsidiary Banks. At December
31, 1995, the Corporation had approximately $5.7 million in financial resources
in addition to its investment in the Subsidiary Banks. The Federal Reserve has
adopted guidelines regarding the capital adequacy of bank holding companies,
which require bank holding companies to maintain specified minimum ratios of
capital to total assets and capital to risk-weighted assets.
Holding Company Activities
With certain exceptions, the Holding Company Act prohibits a bank holding
company from acquiring direct or indirect ownership or control of more than 5%
of the voting shares of a company that is not a bank or a bank holding company,
or from engaging directly or indirectly in activities other than those of
banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by Federal Reserve regulation or order,
have been identified as activities closely related to the business of banking.
The activities of the Corporation are subject to these legal and regulatory
limitations under the Holding Company Act and the related Federal Reserve
regulations. Notwithstanding the Federal Reserve's prior approval of specific
nonbanking activities, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity, or to terminate its
ownership or control of any subsidiary, when it has reasonable cause to believe
that the continuation of such activity or such ownership or control constitutes
a serious risk to the financial safety, soundness or stability of any bank
subsidiary of that holding company. Bank holding companies and their
subsidiaries are also prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Acquisitions of Bank Holding Companies and Banks
Under the Holding Company Act, any company must obtain approval of the Federal
Reserve prior to acquiring control of the Corporation or the Subsidiary Banks.
For purposes of the Holding Company Act, "control" is defined as ownership of
more than 25% of any class of
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voting securities of the Corporation or a subsidiary bank, the ability to
control the election of a majority of the directors, or the exercise of a
controlling influence over management or policies of the Corporation or the
Subsidiary Banks.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the Federal Reserve before (i) acquiring direct or indirect
ownership or control of any voting shares of any bank or bank holding company
if, after such acquisition, the bank holding company would directly or
indirectly own or control more than 5% of such shares; (2) acquiring all or
substantially all of the assets of another bank or bank holding company; or (3)
merging or consolidating with another bank holding company. Satisfactory
financial condition, particularly with regard to capital adequacy, and
satisfactory Community Reinvestment Act ratings generally are prerequisites to
obtaining federal regulatory approval to make acquisitions. GFB was notified in
April, 1995, and BCB was notified in November, 1995, that they had received a
"Satisfactory" Community Reinvestment Act ("CRA") rating as a result of its most
recent CRA examination. This rating means that GFB has a satisfactory record of
ascertaining and helping to meet the credit needs of its entire delineated
community, including low- and moderate-income neighborhoods, in a manner
consistent with its resources. In addition, the Corporation is subject to
various requirements under New Jersey laws concerning future acquisitions, and a
company desiring to acquire the Corporation also may be subject to such laws,
depending upon the nature of the acquired and the means by which the acquisition
would be accomplished.
The Holding Company Act prohibits the Federal Reserve from approving an
application by a bank holding company to acquire voting shares of a bank located
outside the state in which the operations of the holding company's bank
subsidiaries are principally conducted, unless such an acquisition is
specifically authorized by state law. The State of New Jersey has enacted
reciprocal interstate banking statutes that authorize banks and their holding
companies in New Jersey to be acquired by banks or their holding companies in
states which also have enacted reciprocal banking legislation, and permits New
Jersey banks and their holding companies to acquire banks in such other states.
The Holding Company Act does not place territorial restrictions on the
activities of non-bank subsidiaries of bank holding companies.
The Change in Bank Control Act and the related regulations of the Federal
Reserve require any person or persons acting in concert (except for companies
required to make application under the Holding Company Act), to file a written
notice with the Federal Reserve before such person or persons may acquire
control of the Corporation or the Bank. The Change in Bank Control Act defines
"control" as the power, directly or indirectly, to vote 25% or more of any
voting securities or to direct the management or policies of a bank holding
company or an insured bank.
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Holding Company Dividends and Stock Repurchases.
The Federal Reserve has the power to prohibit dividends by bank holding
companies if their actions constitute unsafe or unsound practices. The Federal
Reserve has issued a policy statement on the payment of cash dividends by bank
holding companies, which expresses the Federal Reserve's view that a bank
holding company should pay cash dividends only to the extent that the company's
net income for the past year is sufficient to cover both the cash dividends and
a rate of earnings retention that is consistent with the company's capital
needs, asset quality, and overall financial condition.
As a bank holding company, the Corporation is required to give the Federal
Reserve prior written notice of any purchase or redemption of its outstanding
equity securities if the gross consideration for the purchase or redemption,
when combined with the net consideration paid for all such purchases or
redemptions during the preceding 12 months, is equal to 10% or more of the
Corporation's consolidated net worth. The Federal Reserve may disapprove such a
purchase or redemption if it determines that the proposal would violate any law,
regulation, Federal Reserve order, directive, or any condition imposed by, or
written agreement with, the Federal Reserve.
Bank Regulation
As state-chartered banks which are not members of the Federal Reserve System,
the Subsidiary Banks are subject to the primary federal supervision of the FDIC
under the Federal Deposit Insurance Act (the "FDIA"). Prior approval of the
FDIC is required for the Subsidiary Banks to establish or relocate a branch
office or to engage in any merger, consolidation or significant purchase or sale
of assets. The Subsidiary Banks are also subject to regulation and supervision
by the Department. In addition, the Subsidiary Banks are subject to numerous
federal and state laws and regulations which set forth specific restrictions and
procedural requirements with respect to the establishment of branches,
investments, interest rates on loans, credit practices, the disclosure of credit
terms and discrimination in credit transactions.
The FDIC and the Department regularly examine the operations of the respective
Subsidiary Banks and their condition, including but not limited to capital
adequacy, reserves, loans, investments and management practices. These
examinations are for the protection of the Subsidiary Banks' depositors and the
Bank Insurance Fund ("BIF") and not the Subsidiary Banks' stockholder. In
addition, the Subsidiary Banks are required to furnish quarterly and annual
reports to the FDIC. The FDIC's enforcement authority includes the power to
remove officers and directors and the authority to issue orders to prevent a
bank from engaging in unsafe or unsound practices or violating laws or
regulations governing its business.
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The FDIC has adopted regulations regarding the capital adequacy of banks
subject to its primary supervision, which require such banks to maintain
specified minimum ratios of capital to total assets and capital to risk-weighted
assets. See "--Regulatory Capital Requirements."
Statewide branching is permitted in New Jersey. Branch approvals are subject to
statutory standards relating to safety and soundness, competition, public
convenience and CRA performance.
Bank Dividends
New Jersey law permits the Subsidiary Banks to declare dividends only if, after
payment thereof, their capital would be unimpaired and their remaining surplus
would equal at least 50 percent of their capital. Under the FDIA, the
Subsidiary Banks are prohibited from declaring or paying dividends or making any
other capital distribution if, after that distribution, they would fail to meet
their regulatory capital requirements. At December 31, 1995, the Subsidiary
Banks met their regulatory capital requirements. The FDIC also has authority to
prohibit the payment of dividends by a bank when it determines such payment to
be an unsafe and unsound banking practice. The FDIC may prohibit bank holding
companies of banks which are deemed to be "significantly undercapitalized"
under the FDIA or which fail to properly submit and implement capital
restoration plans required thereby from paying dividends or making other capital
distributions without the permission of the FDIC. See "--Holding Company
Dividends and Stock Repurchases."
Restrictions Upon Intercompany Transactions
The Subsidiary Banks are subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, the Corporation
and other affiliates. Such restrictions prevent the Corporation and such other
affiliates from borrowing from the Subsidiary Banks unless the loans are secured
by specified collateral, and require such transactions to have terms comparable
to terms of arms-length transactions with third persons. Such secured loans and
other transactions by each of the Subsidiary Banks are generally limited in
amount as to the Corporation and as to any other affiliate to 10% of the
Subsidiary Bank's capital and surplus and as to the Corporation and all other
affiliates to an aggregate of 20% of the Subsidiary Bank's capital and surplus.
These regulations and restrictions may limit the Corporation's ability to obtain
funds from the Subsidiary Banks for its cash needs, including funds for
acquisitions and for payment of dividends, interest and operating expenses.
Real Estate Lending Guidelines
Under FDIC regulations, state banks must adopt and maintain written policies
that establish appropriate limits and standards for
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extensions of credit that are secured by liens on or interests in real estate or
are made for the purpose of financing permanent improvements to real estate.
These policies must establish loan portfolio diversification standards, prudent
underwriting standards (including loan-to-value limits that are clear and
measurable), loan administration procedures and documentation, approval and
reporting requirements. A bank's real estate lending policy must reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
(the "Interagency Guidelines") that have been adopted by the federal bank
regulators. The Interagency Guidelines, among other things, call upon
depository institutions to establish internal loan-to-value limits for real
estate loans that are not in excess of the loan-to-value limits specified in the
Guidelines for the various types of real estate loans. The Interagency
Guidelines state, however, that it may be appropriate in individual cases to
originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits.
Deposit Insurance
Since the Subsidiary Banks are FDIC member institutions, their respective
deposits are currently insured to a maximum of $100,000 per depositor through
the BIF, administered by the FDIC, and the Subsidiary Banks are required to pay
semi-annual deposit insurance premium assessments to the FDIC.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
included provisions to reform the federal deposit insurance system, including
the implementation of risk-based deposit insurance premiums, and permits the
FDIC to make special assessments on insured depository institutions in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury and other sources or for any other
purpose the FDIC deems necessary. Pursuant to FDICIA, the FDIC implemented a
transitional risk-based insurance premium system on January 1, 1993 which became
the permanent risk-based premium system on January 1, 1994. Generally, under
this system, banks are assessed insurance premiums according to how much risk
they are deemed to present the BIF. Such premiums currently range from 0.23% to
0.31% of insured deposits. Banks with higher levels of capital and involving a
low degree of supervisory concern are assessed lower premiums than banks with
lower levels of capital and/or involving a higher degree of supervisory concern.
Specifically, the assessment rate for an insured depository institution depends
upon the risk classification assigned to the institution by the FDIC based upon
the institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups--well-capitalized, adequately
capitalized or undercapitalized--based on the data reported to regulators for
the date closest to the last day of the seventh month preceding the semi-annual
assessment period. Well-capitalized institutions are institutions satisfying
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the following capital ratio standards: (i) total risk-based capital ratio of
10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and
(iii) Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized
institutions are institutions that do not meet the standards for well-
capitalized institutions but that satisfy the following capital ratio standards:
(i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based
capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or
greater. Undercapitalized institutions consist of institutions that do not
qualify as either "well-capitalized" or "adequately capitalized." Within each
capital group, institutions are assigned to one of three subgroups on the basis
of supervisory evaluations by the institution's primary supervisory authority
and such other information as the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
fund. Subgroup A consists of financially sound institutions with only a few
minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. The
assessment rates range from 0.23% of deposits for well-capitalized institutions
in Subgroup A to 0.31% of deposits for undercapitalized institutions in Subgroup
C.
The Subsidiary Banks are both deemed "well capitalized" institutions for deposit
insurance assessment purposes. The annual deposit insurance assessment rates
for 1995 and 1994 for both GFB and BCB were 0.23%.
Proposed Standards for Safety and Soundness
Under FDICIA, each federal banking agency is required to prescribe, by
regulation, non-capital safety and soundness standards for institutions under
its authority. The federal banking agencies, including the Federal Reserve and
the FDIC, have proposed standards covering internal controls, information
systems and internal audit systems, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, fees, benefits, and
standards for asset quality and earnings sufficiency. An institution which
fails to meet any of these standards, when they are established, would be
required to develop a plan acceptable to the agency, specifying the steps that
the institution will take to meet the standards. Failure to submit or implement
such a plan may subject the institution to regulatory sanctions. The
Corporation believes that the Subsidiary Banks meet the standards which have
been proposed, which require a maximum level of classified assets to total
capital and ineligible allowance no greater than 1.0, and earnings sufficiency,
which requires, among other things, that a bank be in compliance with its
regulatory capital standards and that it continue to comply with these capital
standards if it
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sustained a loss over the next four quarters equal to its net loss for the last
four quarters.
Enforcement Powers
The bank regulatory agencies have broad discretion to issue cease and desist
orders if they determine that the Corporation or its Subsidiary Banks are
engaging in "unsafe or unsound banking practices." In addition, the federal
bank regulatory authorities are empowered to impose substantial civil money
penalties for violations of certain federal banking statutes and regulations,
violation of a fiduciary duty, or violation of a final or temporary cease and
desist order, among other things. Financial institutions, and directors,
officers, employees, controlling shareholders, agents, consultants, attorneys,
accountants, appraisers and others associated with a depository institution are
subject to the imposition of fines, penalties, and other enforcement actions
based upon the conduct of their relationships with the institution.
Under the FDIA, the FDIC may be appointed as a conservator or receiver for a
depository institution based upon a number of events and circumstances,
including: (i) consent by the board of directors of the institution; (ii)
cessation of the institution's status as an insured depository institution;
(iii) the institution is undercapitalized and has no reasonable prospect of
becoming adequately capitalized when required to do so, fails to submit an
acceptable capital plan or materially fails to implement an acceptable capital
plan; (iv) the institution is critically undercapitalized or otherwise has
substantially insufficient capital; (v) appointment of a conservator or receiver
by a state banking authority, such as the Department; (vii) the institution's
assets are less than its obligations to its creditors and others; (viii)
substantial dissipation in the institution's assets or earnings due to violation
and statute or regulation or unsafe or unsound practice; (ix) a willful
violation of a cease and desist order that has become final; (x) an inability of
the institution to pay its obligations or meet its depositors' demands in the
normal course of business; or (xi) any concealment of the institution's books,
records or assets or refusal to submit to examination.
Under the FDIA, the FDIC as a conservator or receiver of a depository
institution has express authority to repudiate contracts with such institution
which it determines to be burdensome or if such repudiation will promote the
orderly administration of the institution's affairs. Certain "qualified
financial contracts", defined to include securities contracts, commodity
contracts, forward contracts, repurchase agreements, and swap agreements,
generally are excluded from the repudiation powers of the FDIC. The FDIC is
also given authority to enforce contracts made by a depository institution
notwithstanding any contractual provision providing for termination, default,
acceleration, or exercise of
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rights upon, or solely by reason of, insolvency or the appointment of a
conservator or receiver. Insured depository institutions also are prohibited
from entering into contracts for goods, products or services which would
adversely affect the safety and soundness of the institutions.
Regulatory Capital Requirements
The Federal Reserve and the FDIC have established guidelines with respect to the
maintenance of appropriate levels of capital by bank holding companies and
state-chartered banks that are not members of the Federal Reserve System ("state
non-member banks"), respectively. The regulations impose two sets of capital
adequacy requirements: minimum leverage rules, which require bank holding
companies and banks to maintain a specified minimum ratio of capital to total
assets, and risk-based capital rules, which require the maintenance of specified
minimum ratios of capital to "risk-weighted" assets.
The regulations of the Federal Reserve and the FDIC require bank holding
companies and state non-member banks, respectively, to maintain a minimum
leverage ratio of "Tier 1 capital" (as defined in the risk-based capital
guidelines discussed in the following paragraphs) to total assets of 3.0%.
Although setting a minimum 3.0% leverage ratio, the capital regulations state
that only the strongest bank holding companies and banks, with composite
examination ratings of 1 under the rating system used by the federal bank
regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the Federal Reserve has indicated that whenever
appropriate, and in particular when a bank holding company is undertaking
expansion, seeking to engage in new activities or otherwise facing unusual or
abnormal risks, it will consider, on a case-by-case basis, the level of an
organization's ratio of tangible Tier 1 capital (after deducting all
intangibles) to total assets in making an overall assessment of capital.
The risk-based capital rules of the Federal Reserve and the FDIC require bank
holding companies and state non-member banks to maintain minimum regulatory
capital levels based upon a weighting of their assets and off-balance sheet
obligations according to risk. The risk-based capital rules have two basic
components: a Tier 1 or core capital requirement and a Tier 2 or supplementary
capital requirement. Tier 1 capital consists primarily of common stockholders'
equity, certain perpetual preferred stock (which must be noncumulative with
respect to banks), and minority interests in
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the equity accounts of consolidated subsidiaries; less most intangible assets,
primarily goodwill. Tier 2 capital elements include, subject to certain
limitations, the allowance for losses on loans and leases; perpetual preferred
stock that does not qualify for Tier 1 and long-term preferred stock with an
original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-
weighted assets. Most loans are assigned to the 100% risk category, except for
first mortgage loans fully secured by residential property and, under certain
circumstances, residential construction loans, both of which carry a 50%
rating. Most investment securities are assigned to the 20% category, except for
municipal or state revenue bonds, which have a 50% risk-weight, and direct
obligations of or obligations guaranteed by the United States Treasury or United
States Government agencies, which have a 0% risk-weight. In converting off-
balance sheet items, direct credit substitutes, including general guarantees and
standby letters of credit backing financial obligations, are given a 100%
conversion factor. Transaction-related contingencies such as bid bonds, other
standby letters of credit and undrawn commitments, including commercial credit
lines with an initial maturity of more than one year, have a 50% conversion
factor. Short-term, self-liquidating trade contingencies are converted at 20%,
and short-term commitments have a 0% factor.
The risk-based capital regulations require all banks and bank holding companies
to maintain a minimum ratio of total capital to total risk-weighted assets of
8%, with at least 4% as core capital. For the purpose of calculating these
ratios, (i) supplementary capital is limited to no more than 100% of core
capital, and (ii) the aggregate amount of certain types of supplementary capital
is limited. In addition, the risk-based capital regulations limit the allowance
for loan losses which may be included as capital to 1.25% of total risk-weighted
assets.
FDICIA required the federal banking regulators to revise their risk-based
capital rules to take adequate account of interest rate risk, concentration of
credit risk, and the risks of non-traditional activities. The federal banking
regulators, including the Federal Reserve and the FDIC, have issued a proposed
rule that would add an interest rate risk component to the currently effective
risk-based capital standards. Under the proposal, bank holding companies and
banks with higher exposures to interest rate
12
<PAGE>
risk may be required to maintain higher levels of capital. In addition, the
federal banking regulators have proposed regulations which allow the FDIC to
increase regulatory capital requirements on a case-by-case basis based upon the
factors including the level and severity of problem and adversely classified
assets and loan portfolio and other concentrations of credit risk.
At December 31, 1995, the Corporation's total risk-based capital and leverage
capital ratios were 16.77% and 8.28%, respectively. The minimum levels
established by the regulators for these measures are 8.00% and 3.00%,
respectively.
FDICIA also required the federal banking regulators to classify insured
depository institutions by capital levels and to take various prompt corrective
actions to resolve the problems of any institution that fails to satisfy the
capital standards. The FDIC has issued final regulations establishing these
capital levels and otherwise implementing FDICIA's prompt corrective action
provisions. Under FDICIA and these regulations, all institutions, regardless of
their capital levels, are restricted from making any capital distribution or
paying any management fees that would cause the institution to fail to satisfy
the minimum levels for any of its capital requirements.
Under the FDIC's prompt corrective action regulation, a "well-capitalized" bank
is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately capitalized" bank is one that does
not qualify as "well-capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital ratio of 8%, a Tier 1 risk-based
capital ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the
bank has the highest composite examination rating. A bank not meeting these
criteria will be treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which to which the bank's capital levels are below these standards. A bank that
falls within any of the three "undercapitalized" categories established by the
prompt corrective action regulation will be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its
13
<PAGE>
capital restoration plan. A significantly undercapitalized institution, as well
as any undercapitalized institution that did not submit an acceptable capital
restoration plan, will be subject to regulatory demands for recapitalization,
broader application of restrictions on transactions with affiliates, limitations
on interest rates paid on deposits, asset growth and other activities, possible
replacement of directors and officers, and restrictions on capital distributions
by any bank holding company controlling the institution. Any company
controlling the institution may be required to divest the institution. The
senior executive officers of a significantly undercapitalized institution may
not receive bonuses or increases in compensation without prior approval. A
critically undercapitalized institution is prohibited from making payments of
principal or interest on its subordinated debt, except with respect to debt as
approved by the FDIC or, until July 15, 1996, with respect to subordinated debt
outstanding on July 15, 1991 and not extended or otherwise renegotiated after
July 15, 1991. If an institution's ratio of tangible capital to total assets
falls below a level established by the appropriate federal banking regulator,
which may not be less than 2%, nor more than 65% of the minimum tangible capital
level otherwise required (the "critical capital level"), the institution will be
subject to conservatorship or receivership within 90 days unless periodic
determinations are made that forbearance from such action would better protect
the deposit insurance fund. Unless appropriate findings and certifications are
made by the appropriate federal bank regulatory agencies, a critically
undercapitalized institution must be placed in receivership if it remains
critically undercapitalized on average during the calendar quarter beginning 270
days after the date it became critically undercapitalized.
EFFECT OF GOVERNMENT MONETARY POLICIES; POSSIBLE FURTHER LEGISLATION
The earnings of the Corporation, through the Subsidiary Banks, are and will be
affected by domestic and international economic conditions and the monetary and
fiscal policies of the United States and foreign governments and their agencies.
The Federal Reserve Board's monetary policies have had, and will probably
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The Federal Reserve
Board has a major effect upon the levels of bank loans, investments and deposits
through its open market operations in United States Government securities and
through its regulation of, among other things, the discount rate on borrowings
of banks and the imposition of non-earning reserve requirements against member
bank deposits. It is not possible to predict the nature and impact of future
changes in monetary and fiscal policies.
14
<PAGE>
From time to time, proposals are made in the United States Congress, the New
Jersey Legislature, and various bank regulatory authorities which would alter
the powers of, and place restrictions on, different types of banking
organizations. It is impossible to predict whether any of these proposals will
be adopted and any impact of such adoption on the business of the Corporation
and/or the Subsidiary Banks.
The Subsidiary Banks are also subject to various Federal and State laws such as
usury laws and consumer protection laws.
Employees
As of December 31, 1995, the Corporation employed a total of approximately 116
employees, including 99 full-time employees. Management considers relations
with employees to be satisfactory.
Item 2 - PROPERTIES
The Corporation does not own or lease any land, buildings or equipment. GFB
leases its main office banking facility and certain other office space at 55
Union Boulevard, Totowa, New Jersey. Such main office leased space is owned by
a general partnership of which the Corporation's chairman and vice chairman are
both partners. GFB also leases space for its four other branches in Totowa,
Little Falls and Clifton, New Jersey. GFB also leases its computer hardware and
software, through the Corporation's nonbank subsidiary Great Falls Financial
Services, Inc. BCB leases its main office as well as its two branch offices.
In the opinion of management, all such leased properties are adequately covered
by insurance and leased at fair rentals.
For further information regarding the Subsidiary Banks' lease obligations, see
Note 13 of the Corporation's Notes to Consolidated Financial Statements for the
year ended December 31, 1995, contained in its 1995 Annual Report to
Shareholders (see Exhibit 13.2 to this Form 10-KSB).
Item 3 - LEGAL PROCEEDINGS
The Corporation and its subsidiaries are from time to time parties to various
legal actions arising in the normal course of business. Management believes
that there is no proceeding threatened or pending against the Corporation,
which, if determined adversely, would have a material effect on the business,
financial position or results of operations of the Corporation.
15
<PAGE>
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
One matter was submitted to a vote of security holders during the fourth quarter
of the Corporation's fiscal year ended December 31, 1995. At a Special Meeting
of the Corporation's shareholders held on December 19, 1995, the shareholders
approved the Corporation's acquisition of the stock of Bergen Commercial Bank
("BCB") pursuant to the Acquisition Agreement and Plan of Acquisition dated
August 16, 1995. Approval by a majority of the Corporation's shares present at
the special meeting was required by law. The votes were cast as follows:
In favor of the Acquisition: 575,846 shares, constituting 99.5% of the shares
present, and 53.8% of shares outstanding.
Against the Acquisition: 1,477 shares.
Abstentions: 1,366 shares
Broker nonvotes: 0 shares
The Special Meeting did not involve the election of directors. However,
following the results of the Special Meeting the Corporation's Board of
Directors voted to expand the Board from seven to ten members and to add three
new directors affiliated with BCB, namely, Anthony M. Bruno, Jr., C. Mark
Campbell, and Charles J. Volpe, effective upon consummation of the acquisition,
which occurred at 11:59 p.m. on December 31, 1995.
The special meeting of shareholders and related vote were reported on Form 8-K
filed on December 28, 1995, which is incorporated herein by reference.
16
<PAGE>
PART II
Item 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation's Common Stock was held by approximately 935 holders of record
on December 31, 1995, and is traded in the over-the-counter market.
The following table indicates the range of high and low closing bid prices of
the Common Stock, as reported by Ryan, Beck & Co., a principal market maker in
the Corporation's stock, and the cash dividends declared per share on the Common
Stock, in each case for the quarterly periods indicated. The price quotations
represent inter-dealer quotations without adjustment for retail markups,
markdowns or commissions, and may not represent actual transactions. The stock
prices and cash dividends have been adjusted to take into account the effect of
stock dividends paid in 1995 and 1994.
<TABLE>
<CAPTION>
Cash
Dividends
Bid Price Declared(1)
-------------- ------------
High Low
------ ------
<S> <C> <C> <C>
Year Ended December 31, 1994:
First Quarter $ 9.50 $ 9.09 $.033
Second Quarter 9.71 9.30 .036
Third Quarter 10.68 10.23 .036
Fourth Quarter 12.50 11.14 .045
Year Ended December 31, 1995:
First Quarter 10.91 10.68 .045
Second Quarter 12.73 11.36 .050
Third Quarter 12.50 12.50 .050
Fourth Quarter 19.25 17.00 .070
- ---------------------
</TABLE>
(1) The 1995 and 1994 dividends were declared during the indicated quarters as
quarterly dividends.
The Corporation's ability to pay dividends on its Common Stock in the future is
subject to numerous regulatory restrictions which are potentially applicable.
(See above, Item 1--BUSINESS, "SUPERVISION AND REGULATION--Bank Holding Company
Regulation--Holding Company Dividends and Stock Repurchases"; and "Bank
Regulation-- Bank Dividends.") However, management does not expect any of such
17
<PAGE>
restrictions to become applicable so long as the Corporation and the Subsidiary
Banks continue to operate profitably.
Item 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The information required by Item 303 of Regulation S-B is incorporated by
reference to pages 2 through 13, inclusive, of the Corporation's 1995 Annual
Report to Shareholders.
Such information is also included as Exhibit 13.1 hereto.
Item 7A - FINANCIAL STATEMENTS
The information required by Item 301(a) of Regulation S-B is incorporated by
reference to pages 14 through 27, inclusive, of the Corporation's 1995 Annual
Report to Shareholders.
<TABLE>
<CAPTION>
Page of
Annual Report
to Shareholders
---------------
<S> <C>
Report of Independent Public Accountants 27
Great Falls Bancorp and Subsidiaries
Consolidated Statements of Condition as
of December 31, 1995 and 1994 14
Consolidated Statements of Income for the Years
Ended December 31, 1995, 1994 and 1993 15
Consolidated Statements of Changes in
Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 15
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993 16
Notes to Consolidated Financial Statements
(Notes 1-17) 17-26
</TABLE>
Such information is also included Exhibit 13.2 hereto.
Item 7B - SUPPLEMENTARY DATA
No supplementary data is included in this report as it is inapplicable, not
required, or the information is included elsewhere in the financial statements
or notes thereto.
Item 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
18
<PAGE>
PART III
Item 9 - DIRECTORS, OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
A. Directors and Executive Officers: Information required by Item 401 of
Reg. S-B is contained on pages 2-5 of the registrant's definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders to be furnished to the
Commission pursuant to Regulation 14A.
B. Other Significant Employees: Not applicable.
C. Family Relationships: John L. Soldoveri, Chairman and Chief Executive
Officer of the Corporation and Chairman of GFB, is the uncle of Anthony M.
Bruno, Jr., Vice Chairman and Executive Vice President of the Corporation and
Chairman of BCB. C. Mark Campbell, a director of the Corporation and President
of BCB, is Mr. Bruno's brother-in-law.
D. Involvement in Certain Legal Proceedings: Not applicable.
E. Compliance with Section 16(a) of the Exchange Act: Information
required by Item 405 of Reg. S-B is contained on page 26 of the registrant's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be
furnished to the Commission pursuant to Regulation 14A.
Item 10 - EXECUTIVE COMPENSATION
Information required by Item 402 of Reg. S-B is contained on pages 6-9 of
the registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be furnished to the Commission pursuant to Regulation 14A.
Item 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
A. Security Ownership of Certain Beneficial Owners: Information required
by Item 403(a) of Reg. S-B is contained on pages 2 and 10-11 of the registrant's
definitive Proxy Statement for its 1996 Annual Meeting of Stockholders to be
furnished to the Commission pursuant to Regulation 14A.
B. Security Ownership of Management: Information required by Item 403(b)
of Reg. S-B is contained on pages 10-11 of the registrant's definitive Proxy
Statement for its 1996 Annual Meeting of Stockholders to be furnished to the
Commission pursuant to Regulation 14A.
19
<PAGE>
C. Changes in Control: Not applicable. The registrant knows of no
contractual arrangements which may, at a future date, result in a change of
control of the registrant.
Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by Item 404 of Reg. S-B is contained on page 9 of the
registrant's definitive Proxy Statement for its 1996 Annual Meeting of
Stockholders to be furnished to the Commission pursuant to Regulation 14A.
Item 13 - EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits: The Exhibits listed below are filed with this report.
Exhibit No. Description
----------- -----------
11 Statement re computation of per share earnings
13.1 Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
13.2 Consolidated Financial Statements and Notes thereto, and
Report of Independent Public Accountants
21 Subsidiaries of Registrant
23 Consent of Arthur Andersen LLP
B. Reports on Form 8-K: The registrant filed the following reports on
Form 8-K with the Securities and Exchange Commission during the last quarter of
the fiscal year ended December 31, 1995:
The registrant filed a report on Form 8-K dated December 28 1995 with
respect to the approval of the acquisition of BCB by the Corporation's
shareholders. See Item 4 above.
The registrant also filed a report on Form 8-K on January 16, 1996
reporting the consummation of the acquisition of BCB as of 11:59 p.m. on
December 31, 1995. That Form 8-K was thereafter amended by Form 8-K/A filed on
March 15, 1996, in which pro forma financial information reflecting the
acquisition of BCB was presented.
20
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREAT FALLS BANCORP
Date: March 26, 1996
BY: /s/John L. Soldoveri
------------------------
John L. Soldoveri
Principal Executive Officer and
Chairman of the Board of Directors
Date: March 26, 1996 BY: /s/Naqi A. Naqvi
------------------------
Naqi A. Naqvi
Treasurer, Principal Accounting Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Date: March 26, 1996 BY: /s/ George E. Irwin
------------------------
George E. Irwin, President, Chief
Operating Officer and Director
Date: March 26, 1996 BY: /s/ Anthony M. Bruno, Jr.,
------------------------
Anthony M. Bruno, Jr., Vice Chairman
and Director
Date: March 26, 1996 BY: /s/ M. A. Bramante
------------------------
M.A. Bramante, Director
Date: March 26, 1996 BY: /s/ C. Mark Campbell
------------------------
C. Mark Campbell, Executive Vice
President and Director
Date: March 26, 1996 BY: /s/ Joseph A. Lobosco
------------------------
Joseph A. Lobosco, Director
Date: March 26, 1996 BY: /s/ John L. Soldoveri
------------------------
John L. Soldoveri, Principal Executive
Officer and Chairman of the Board
21
<PAGE>
EXHIBIT 11
Statement re Computation of Per Share Earnings
The Corporation's reported earnings of $1.15 per share for the year ended
December 31, 1995 takes into account the dilutive effect of the Corporation's
outstanding common stock equivalents, namely, stock options and mandatory stock
purchase contracts ("Equity Contracts").
The dilution results from the calculation of adjustments to both the
number of weighted shares outstanding and the Corporation's net income for
1995. Weighted average shares outstanding were computed using the Modified
Treasury Stock Method. The average market price of $12.88 per share for the
Corporation's common stock during 1995 exceeded the exercise prices of
outstanding stock options and Equity Contracts. Stock options to purchase a
total of 89,266 shares are exercisable at prices ranging from $5.91 to $11.75
per share. The Equity Contracts require the purchase of $5 million of common
stock on or before November 1, 1997, and contemplate the issuance of 465,549
shares of common stock at a price of $10.74 per share (number of shares and
price have been adjusted as a result of the 1994 and 1995 stock dividends).
Under the modified treasury stock method, the assumed aggregate proceeds,
from exercise are applied in two steps. First, the funds are applied to
repurchase common shares at the average market price during the period but not
to exceed 20 percent of the outstanding shares. Second, the remaining funds
were applied to reduce the Corporation's outstanding 8.5% subordinated
debentures due November 1, 1998 ("Debentures"). Interest foregone (net of tax
effect) was also calculated, utilizing the 8.5% rate payable on the debentures,
and added to the Corporation's 1995 net income.
Net income as so increased was divided by the increased number of weighted
shares outstanding to arrive at the reported earnings per share of $1.15.
Earnings per share for 1994 and 1993 were not affected by outstanding
Equity Contracts and stock options because the effect upon earnings per share
of considering those common stock equivalents would be immaterial or anti-
dilutive for those years.
22
<PAGE>
EXHIBIT 13.1
Management's discussion and analysis of consolidated financial condition and
results of operations
This section presents a review of the Corporation's consolidated financial
condition and results of operations. Data is presented for both the Corporation
and subsidiaries unless otherwise noted. The review should be read in
conjunction with the consolidated financial statements, including notes thereto,
and other financial data presented elsewhere herein. The consolidated statements
of condition for the years ended December 31, 1995 and 1994 and the
consolidated statements of operations for the years ended December 31, 1995,
1994 and 1993 have been audited by Arthur Andersen LLP. The term "Corporation"
as used herein refers to Great Falls Bancorp and subsidiaries, the term "GFB" as
used herein refers to Great Falls Bank and subsidiaries and the term "BCB" as
used herein refers to Bergen Commercial Bank and subsidiaries. All dollar
figures, except for per share data, are set forth in thousands. All per share
data is adjusted to reflect stock dividends paid.
Business
The Corporation is organized as a business corporation under the laws of the
State of New Jersey and registered with the Board of Governors of the Federal
Reserve System as a bank holding company. The Corporation is located in Passaic
County, New Jersey and its substantive business activity is the ownership and
operation of its banking subsidiaries (collectively, the "Subsidiary Banks"). As
of December 31, 1995, the Subsidiary Banks operated a general banking business
from 8 full service offices located in northern New Jersey. As of the same
date, the Corporation's subsidiaries employed approximately 99 persons on a
full-time equivalent basis.
Recent Transactions
During 1995, the Corporation entered into a variety of transactions which were
significant to its business, operations and structure, including the following:
(i) Bank acquisitions. The Corporation expanded its banking network through
the following acquisitions:
(a) As of close of business April 7, 1995, the Corporation, through its
subsidiary, GFB, acquired and began to operate the banking offices of Family
First Federal Savings Bank ("Family First") located in Clifton, New Jersey
under the name of GFB. In connection with the acquisition, GFB added two
full service banking offices. The acquisition was accounted for as a
purchase transaction and accordingly GFB recorded all assets and liabilities
of Family First onto its books.
The value assigned to assets acquired (primarily cash, securities and loans)
totalled $51.9 million and liabilities assumed (primarily deposits including
accrued interest) totalled $50.1 million. The purchase price exceeded the
fair market value of net assets acquired by approximately $734,000 which was
recorded as an intangible asset (goodwill).
(b) As of December 31, 1995, the Corporation acquired Bergen Commercial Bank
("BCB") as a banking subsidiary. BCB is headquartered in Paramus, New Jersey
with banking offices in Hasbrouck Heights, Paramus and Wood-Ridge, New
Jersey. The acquisition was accounted for as a pooling-of-interests, and,
accordingly, all prior period financial statements and notes thereto have
been restated.
In connection with the acquisition, the Corporation acquired all of the
outstanding Common Stock of BCB 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.
At December 31, 1995, BCB had total assets of $76.9 million, cash and cash
equivalents of $10.5 million, securities of $16.9 million, net loans of $46.9
million and other assets of $2.6 million. At the same date, BCB had total
deposits of $68.8 million, other liabilities of $1.2 million and total
shareholder's equity of $6.9 million.
(ii) Other transaction: In July 1995, GFB opened a de novo full service banking
office in Totowa, New Jersey.
Business of Corporation's Subsidiaries
BANK SUBSIDIARIES
The Subsidiary banks offer a broad range of lending, depository and related
financial services to individual consumers, businesses and governmental units
primarily in Bergen and Passaic Counties, New Jersey. Commercial lending
services provided by the Subsidiary banks include short and medium term loans,
loans secured by real estate and nonresidential properties, revolving lines of
credit and mortgage loans. Consumer banking services include various types of
deposit accounts, installment loans, mortgage loans, credit card loans and other
consumer-oriented services. Great Falls Investment Company, Inc. is a wholly-
owned subsidiary of GFB and BCB Investment Company, Inc. is a wholly-owned
subsidiary of BCB. The primary business of these subsidiaries is to own and
manage the investment portfolios of their respective parent companies.
NONBANK SUBSIDIARY
<PAGE>
Great Falls Financial Services, Inc. Is a wholly-owned nonbank subsidiary of the
Corporation. Its purpose is to lease financial data processing equipment and
software from a third party and sublease same at cost to the Subsidiary Banks.
This entity is currently inactive.
Results of Operations
The Corporation earned $2,072 or $1.15 per share in the year ending December 31,
1995 compared to $1,486 or $0.98 per share in 1994 and $1,301 in 1993 or $.87
per share. The earnings reported are after $191, $110 and $111 of amortization
expense of intangible assets on a pre-tax basis, for the years ended December
31, 1995, 1994 and 1993, respectively. The Corporation's earnings, as restated
to account for the acquisition of BCB, improved 39% in 1995 over 1994 and 14% in
1994 over 1993. Net interest income increased by $3,115 or 40% in 1995 compared
to 1994 and $1,435 in 1994 compared to 1993. Total other expenses showed an
increase of $3,275 or 54% in 1995 over the prior year and $1,037 in 1994
compared to 1993. The increases in both net interest income and other expenses
in 1995 are primarily attributable to the acquisition of Family First and in
part to the growth of the Corporation.
The increase in 1994 over 1993 is attributable, in part, to the increase in
investments which generated additional dividend and interest income and, in
part, to the overall growth of the Corporation. The provision for possible loan
losses increased by $242 in 1995 compared to 1994 primarily as a result of the
increase in the loan portfolio resulting from the acquisition of Family First.
However, in 1994, the provision for loan losses decreased by $306 compared to
1993, primarily due to the improved quality of the loan portfolio. The
Corporation's annual interest expense increased by $2,916 in 1995 compared to
1994 is primarily due to the acquisitions completed by the Corporation during
1995 which resulted in an increase in average deposits. The increase in interest
expense of $632 in 1994 over 1993 is primarily attributable to the increase in
interest on borrowing relative to the interest payable on Redeemable
Subordinated Debentures.
Average Balances and Net Interest Income
Net interest income, the primary source of the Corporation's results of
operations, is the difference between interest and fees earned on loans and
other earning assets, and interest paid on interest-bearing liabilities.
Interest earning assets include loans to businesses and individuals, investment
securities, interest-bearing deposits with banks and federal funds sold in the
inter-bank market. Interest-bearing liabilities include primarily interest-
bearing demand savings and time deposits. Net interest income is determined by
(I) the difference between the 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 non-performing assets.
The following table sets forth the Corporation's consolidated average balances
of assets, liabilities and shareholders' equity as well as the amount of
interest expense on related items, and the Corporation's average interest yield
for the years ended December 31, 1995 and 1994. The interest yields are shown
on a fully taxable basis and assume a 34% tax rate.
Average Balance Sheet, Interest Income and Expense and Average Interest Rates
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
---------------------------------- ----------------------------------
Average Interest Average Average Interest Average
Balance Earned/Paid Yield/Rate Balance Earned/Paid Yield/Rate
-------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Earning Assets:
Securities............................................ $ 74,751 $ 4,790 6.41% $ 52,813 $ 2,693 4.97%
Due from banks-interest-bearing....................... 1,271 54 4.23% 3,884 158 4.07%
Federal funds sold.................................... 11,178 658 5.89% 4,991 143 4.27%
Loans /1/............................................. 120,379 11,931 9.91% 92,978 8,408 9.04%
-------- ------- ---- -------- ------- ----
Total earning assets........................ 207,579 17,433 8.40% 154,666 11,402 7.37%
Less: Allowance for possible loan losses............. 2,427 -- -- 1,777 -- --
Unearned income - loans...................... 335 -- -- 262 -- --
All other assets...................................... 17,368 -- -- 10,546 -- --
-------- ------- -------- -------
Total Assets................................ $222,185 $17,433 $163,173 $11,402
======== ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing Liabilities:
Savings and money market accounts..................... $ 74,207 $ 1,890 2.55% $ 63,409 $ 1,388 2.19%
Time deposits......................................... 75,505 4,037 5.35% 45,458 1,755 3.86%
Federal funds and short term borrowings............... 2,934 185 6.31% 1,122 53 4.72%
Long term borrowings.................................. 4,969 438 8.82% 4,958 438 8.83%
-------- ------- ---- -------- ------- ----
Total interest-bearing liabilities.......... 157,615 6,550 4.16% 114,947 3,634 3.16%
Demand deposits......................................... 44,335 -- 32,446 --
Other liabilities....................................... 2,948 -- 1,200 --
Shareholders' equity.................................... 17,287 -- 14,580 --
-------- ------- -------- -------
Total liabilities and shareholders' equity.. $222,185 $ 6,550 $163,173 $ 3,634
======== ======= ======== =======
NET INTEREST INCOME (fully taxable basis)............... $10,883 $ 7,768
NET INTEREST MARGIN (fully taxable basis)............... ======= 5.24% ======= 5.02%
==== ====
</TABLE>
2
<PAGE>
/1/ Average balance includes non-performing loans.
3
<PAGE>
Net Interest Income
Interest income of $17,433 for the year ended December 31, 1995, represented a
$6,031, or 53%, increase over $11,402 reported for the comparable period in
1994. Compared to 1994, interest and fee income on loans during 1995 increased
by $3,523 or 42% due to an increase of 29% in average total loans. The average
yield on loans increased to 9.91% in 1995 compared to 9.04% in 1994. Interest
on securities increased by $2,097, or 78% for the same period. The increase in
interest on securities was primarily due to a 42% increase in average
investments for the year ended December 31, 1995 over the comparable period in
1994. The average yield on securities increased to 6.41% for the year December
31, 1995 compared to 4.97% for the same period in the prior year. Interest
income on federal funds sold and deposits with banks increased by $411 or 1.37%
as a result of an increase in average federal funds sold and deposits with banks
of $3,574 or 40%. All such increases are primarily attributable to the
acquisitions which occurred during 1995 and the overall growth of the
Corporation.
In 1994, total interest income increased by $2,067 or 22% compared to 1993.
Interest and fee income on loans increased by $1,327 or 19% in 1994 over 1993
primarily due to a combination of increases in both volume and interest rates.
Interest on securities increased by $960 or 55% in 1994 compared to 1993
primarily due to the increase in volume of securities. Interest income on
federal funds sold and deposits with banks decreased by $214 or 42% compared to
1993 primarily as a result of a decline in volume.
Interest expense for the year ended December 31, 1995 increased by $2,916 or 80%
from the level of interest expense for 1994. $2,784 of the total increase in
interest expense is related to the increase in interest expense on deposits from
1995 to 1994. The increase in total interest expense is related to the increase
in average interest-bearing liabilities of $42,668 due to the acquisitions which
occurred in 1995 and the overall growth of the Corporation.
Interest expense for the year ended December 31, 1994 increased by $632 or 21%
from the level of interest expense in 1993. Of the total increase, $451 or 71%
is related to the increase in interest on borrowings. The majority of such
increase is associated directly with the interest payable on Redeemable
Subordinated Debentures which the Corporation issued in the fourth quarter of
1993. $181 or 29% of the total increase is related to a combination of
increases in volume and interest rates on deposits from 1994 to 1993.
The Corporation's net interest margin, which measures net interest income as a
percentage of average earning assets, increased by 22 basis points to 5.24% for
the year ended December 31, 1995 compared to 5.02% in 1994.
Rate/Volume Analysis
The following table sets forth the changes in interest income and expenses as
they relate to changes in volume and rate for the twelve-month periods ended
December 31, 1995 and 1994. Because of numerous simultaneous balance and rate
changes during the periods indicated, it is difficult to allocate the changes
precisely between balances and rates. For purposes of this table, changes which
are not due solely to changes in balances or rates are allocated between such
categories based on the average percentage changes in average balances and
average rates.
<TABLE>
<CAPTION>
Full Year 1995 Full Year 1994
Compared to Full Year 1994 Compared to Full Year 1993
Increase (Decrease) Increase (Decrease)
--------------------------- -------------------------------------
Volume Rate Net Volume Rate Net
-------- -------- ------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNED ON:
Loans................................. $2,991 $ 532 $3,523 $ 986 $ 335 $ 1,321
Securities............................ 1,347 750 2,097 791 169 960
Other Earning Assets.................. 268 143 411 (301) 87 ( 214)
------ ------ ------ ------ ------ -------
Total earning assets................ $4,606 $1,425 $6,031 $1,476 $ 591 $ 2,067
====== ====== ====== ====== ====== =======
INTEREST PAID ON:
Savings & Money Market................ $ 262 $ 241 $ 503 $ 108 ($213) ($ 105)
Time Deposits......................... 1,507 774 2,281 215 71 286
Interest on borrowings................ 133 (1) 132 430 21 451
------ ------ ------ ------ ------ -------
Total interest-bearing Liabilities.. $1,902 $1,014 $2,916 $ 753 ($121) $ 632
====== ====== ====== ====== ====== =======
</TABLE>
Other Income
Total Other Income for the year ending December 31, 1995 was $2,177, an increase
of $1,322 or 155% compared to 1994. The $1,322 net increase was the result of
significant fluctuations in the major components of Other Income. More
specifically, fee on merchant credit card processing increased by $502 and
service charges on deposits increased by $352. Realized loss or gain on sale of
securities available-for-sale during 1995 increased by $293 compared to 1994.
The majority of such increases are attributable to the increase in
deposits related services during 1995.
Total Other Income for the year ending December 31, 1994 was $855, a net
decrease of $483 or 36% compared to 1993. Of the total net decrease in 1994,
other commissions and fee income decreased by $319 compared to 1993, primarily
due to a decline in activity in sale of mortgage loans coupled with rising
interest rates which made it difficult to compete in the secondary market.
Realized loss or gains on sale of securities available-for-sale during 1994
declined by $146 as a result of a decline in market rates during early 1994.
Service charges and other income showed a moderate increase in 1994 compared to
1993.
4
<PAGE>
Other Expenses
Total other expenses increased by $3,275 or 54% for the year ended December 31,
1995 over the comparable period in 1994. Of this increase, $955 was
attributable to salaries and benefits. The increase in salaries and employee
benefits is attributable to the acquisition of Family First, hiring of
additional employees and general increases in employee benefits. Occupancy and
equipment expense, which includes the costs of leasing office and branch space,
expenses associated with maintaining these facilities and depreciation of fixed
assets, increased by $499 primarily due to the addition of office space and
equipment.
During the past two years, the Corporation's results of operations were
substantially impacted by the amortization of the "premium" paid by GFB in
connection with the purchase of its main office in 1986. Amortization expense
totalled $110 and $111 for the years 1995 and 1994, respectively. Amortization
of the final intangible assets related to the 1986 acquisition was $110 in 1995.
In December 1993, the Corporation incurred costs of $106 relative to the sale of
the Debentures and Equity Contracts. These costs are being amortized over 4
years commencing in 1994 at an annual expense of $26. In addition, the
acquisition of Family First in early in the second quarter of 1995 resulted in
an increase in the amortization expense of $70 in 1995. The Corporation expects
amortized expenses relating to the acquisition of Family First to be $108 per
year for the next six years.
Other operating expenses totalled $4,091 or 44% of total non-interest expense
during 1995, an increase of $1,740 or 74% over 1994. Of the total
increase, $138, $170 and $668 are attributable to the increase in computer
services, regulatory, professional and other fees and all other expenses,
respectively, compared to 1994. Those increases were primarily due to the
acquisition of Family First and the Corporation's overall growth. Office
expense and other real estate operating expense for 1995 increased by $123 and
$259, respectively, compared to 1994, as a direct result of the acquisition of
Family First. Merchant credit card expense increased by $562 in 1995 over 1994
due to increased merchant processing activity assumed by the subsidiary bank.
Advertising expense and FDIC insurance assessment decreased by $82 and $98,
respectively, when compared to 1994.
Total other expenses increased by $1,037 or 20% for the year ended December 31,
1994 over the comparable period in 1993. Of this increase, $408 was
attributable to salaries and benefits, primarily due to the increased hiring of
additional personnel, coupled with a general increase in employee benefit
expense. Occupancy and equipment expense includes cost of leasing office and
branch space, expenses associated with maintaining facilities and fixed asset
depreciation. Other operating expenses increased by $418 in 1994 compared to
1993. Of the total increase, $93, $126 and $85, are related to increases in
advertising, regulatory, professional and other fees and general office
expenses, respectively, compared to 1993 primarily due to the overall growth of
the Subsidiary Banks' operations. Computer services, other real estate,
operating expenses and merchant credit card expense increased from 1993 to 1994
by $30, $49 and $54, respectively, coupled with a moderate decline in all other
expenses.
Federal Income Taxes
The Corporation recorded a current Federal income tax provision of $872, $796
and $645 for the years ended December 31, 1995, 1994 and 1993, respectively.
The increase in Federal income tax provision is attributable to increased
earnings for the comparable years.
Financial Condition
At December 31, 1995, the Corporation's total assets were $253,045, an increase
of $84,742 or 50% over the amount reported at December 31, 1994. Cash and non-
interest bearing due from banks and federal funds sold increased by $5,044 or
78% and $15,950 or 982%, respectively, as of December 31, 1995 compared to
December 31, 1994. All such increases are directly related to the acquisition
of Family First coupled with the growth in total deposits.
5
<PAGE>
Securities
Securities totalled $83,986 at December 31, 1995, an increase of $25,025 or 42%
over the amount reported at December 31, 1994. The increase is primarily due to
the acquisition of Family First. The following tables present the composition
of the securities portfolio along with the book and market values of those
components at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
AVAILABLE-FOR-SALE Amortized Cost Fair Market Value Amortized Cost Fair Market Value
-------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C>
U.S. Treasury securities................ $30,405 $30,759 $23,935 $23,299
U.S. Government and sponsored agencies.. 13,984 14,569 - -
State & political subdivisions.......... 101 101 250 250
Other debt and equity securities........ 2,423 2,406 2,069 1,854
------- ------- ------- -------
Total Available-for-sale........... $46,913 $47,835 $26,254 $25,403
------- ------- ------- -------
HELD-TO-MATURITY
U.S. Treasury securities................ $18,950 $19,156 $23,825 $23,344
U.S. Government and sponsored agencies.. 16,588 16,290 8,940 8,738
State and political subdivisions........ 613 615 424 420
Other debt and equity securities........ - - 369 359
------- ------- ------- -------
Total Held-to-maturity............. $36,151 $36,061 $33,558 $32,861
------- ------- ------- -------
Total securities.................. $83,064 $83,896 $59,812 $58,264
======= ======= ======= =======
</TABLE>
During 1995, the Corporation realized net gains of $209 compared to net losses
of $84 in 1994. The gains were realized through the sale of $16,619 of
securities from its available-for-sale portfolio. Included in shareholders'
equity at December 31, 1995, is an unrealized holding net gain on
available-for-sale securities, net of income taxes, in the amount of $553. The
Corporation has no securities held for trading purposes.
In the fourth quarter of 1995, the Financial Accounting Standards Board allowed
a one-time reassessment of the SFAS No. 115 classification of all securities
currently held. The Corporation took the opportunity and reclassified $6,192 in
U.S. Treasury securities from held-to-maturity to available-for-sale. In
connection with this reclassification, net unrealized gains of $18 were recorded
on available-for-sale securities.
The following table provides information concerning the available-for-sale and
held-to-maturity portions of the Corporation's securities portfolio held on
December 31, 1995:
<TABLE>
<CAPTION>
December 31, 1995
-------------------------------------------------------------------------------------
Due within One Year Due One to Five Years Due Five to Ten Years Total
------------------- --------------------- --------------------- ------------------
Fair Fair Fair Fair
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---------- ------- ----------- -------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities.......... $16,041 $16,124 $14,364 $14,635 $ - $ - $30,405 $30,759
U.S. Government agencies.......... 490 592 9,285 9,793 4,209 4,184 13,984 14,569
State and political subdivisions.. - - 101 101 - - 101 101
Other debt and equity securities.. 2,423 2,406 - - - - 2,423 2,406
------- ------- ------- ------- ------ ------ ------- -------
Total Available-for-sale........ 18,954 19,122 23,750 24,529 4,209 4,184 46,913 47,835
HELD-TO-MATURITY:
U.S. Treasury securities.......... 8,900 8,961 10,050 10,195 - - 18,950 19,156
U.S. Government agencies.......... 3,086 3,115 9,227 9,157 4,275 4,018 16,588 16,290
State and political subdivisions.. 486 486 127 129 - - 613 615
Other debt and equity securities.. - - - - - - - -
------- ------- ------- ------- ------ ------ ------- -------
Total Held-to-maturity.......... 12,472 12,562 19,404 19,481 4,275 4,018 36,151 36,061
------- ------- ------- ------- ------ ------ ------- -------
Total securities.............. $31,426 $31,684 $43,154 $44,010 $8,484 $8,202 $83,064 $83,896
======= ======= ======= ======= ====== ====== ======= =======
</TABLE>
6
<PAGE>
Maturity Schedule - Securities
The following tables show the average yields, book values and market values of
the Corporation's securities by maturity for the years ended December 31, 1995
and 1994.
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
AVAILABLE-FOR-SALE Average Amortized Fair Average Amortized Fair
Yield Cost Market Value Yield Cost Market Value
-------- --------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Due 0-1 Years....... 6.10% $16,531 $16,716 4.41% $ 3,249 $ 3,168
Due 1-5 Years....... 6.32% 23,750 24,529 6.11% 20,936 20,381
Due 5-10 Years...... 6.32% 4,209 4,184 - - -
Equity Securities... N/A 2,423 2,406 N/A 2,069 1,854
------- ------- ------- -------
$46,913 $47,835 $26,254 $25,403
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------------
1995 1994
--------------------------------- ---------------------------------
HELD-TO-MATURITY Average Amortized Fair Average Amortized Fair
Yield Cost Market Value Yield Cost Market Value
-------- --------- ------------- ------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Due 0-1 Years....... 4.99% $12,472 $12,562 4.19% $ 8,151 $ 8,108
Due 1-5 Years....... 5.49% 19,404 19,481 5.73% 25,238 24,584
Due 5-10 Years...... 5.39% 4,275 4,018 - - -
Equity Securities... N/A - - N/A 169 169
------- ------- ------- -------
36,151 36,061 33,558 32,861
Total Securities... ------- ------- ------- -------
$83,064 $83,896 $59,812 $58,264
======= ======= ======= =======
</TABLE>
Loan Portfolio
The Corporation's gross loan portfolio at December 31, 1995 totalled $131,742,
an increase of $35,078 or 36% compared to the amount reported at December 31,
1994. Such increase was primarily due to the acquisition of Family First
coupled with increased loan demand. The following table summarizes the
components of the loan portfolio as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31
-----------------
1995 1994
-------- -------
<S> <C> <C>
Loans secured by one to four family residential properties.. $ 43,328 $26,925
Loans secured by nonresidential properties.................. 51,133 41,891
Loans to individuals........................................ 8,661 6,688
Loans to depository institutions............................ 4,600 600
Commercial loans............................................ 14,823 10,320
Construction loans.......................................... 4,292 4,754
Other loans................................................. 4,905 5,486
-------- -------
Total Gross Loans...................................... $131,742 $96,664
======== =======
</TABLE>
7
<PAGE>
The following tables set forth the contractual maturity and interest rate
sensitivity of components of the loan portfolio at December 31, 1995 and
1994. Demand loans, having no stated schedule of repayment and no stated
maturity, and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
December 31, 1995
------------------------------------
<S> <C> <C> <C> <C>
Within 1 - 5 Over 5
LOANS WITH PREDETERMINED INTEREST RATES: 1 year Years Years Total
------- ------- ------ --------
Commercial.............................. $13,707 $20,299 $2,174 $ 36,180
Loans to depository institutions........ 4,000 - - 4,000
Real estate mortgage.................... 2,038 19,180 7,016 28,234
Consumer................................ 4,414 2,716 722 7,852
------- ------- ------ --------
24,159 42,195 9,912 76,266
LOANS WITH FLOATING INTEREST RATES:
Commercial.............................. 29,850 - - 29,850
Loans to depository institutions........ 600 - - 600
Real estate construction................ 3,848 - - 3,848
Lease financing......................... - 902 - -
Real estate mortgage.................... 13,243 - - 14,145
Consumer................................ 7,033 - - 7,033
------- ------- ------ --------
54,574 902 - 55,476
Total Loans.................. ------- ------- ------ --------
$78,733 $43,097 $9,912 $131,742
======= ======= ====== ========
December 31, 1994
------------------------------------
Within 1 - 5 Over 5
LOANS WITH PREDETERMINED INTEREST RATES: 1 year Years Years Total
------- ------- ------ --------
Commercial.............................. $ 9,335 $16,438 $ 267 $ 26,040
Real estate construction................ 23 15,175 2,250 17,448
Real estate mortgage.................... 3,815 514 432 4,761
Consumer................................ 3,387 2,056 411 5,854
------- ------- ------ --------
16,560 34,183 3,360 54,103
LOANS WITH FLOATING INTEREST RATES:
Commercial.............................. 26,210 393 - 26,603
Loans to depository institutions........ 600 - - 600
Real estate construction................ 4,572 - - 4,572
Lease financing......................... 3,234 647 - 3,881
Consumer................................ 6,905 - - 6,905
------- ------- ------ --------
41,521 1,040 - 42,561
Total Loans................ ------- ------- ------ --------
$58,081 $35,223 $3,360 $ 96,664
======= ======= ====== ========
</TABLE>
At the dates indicated in the foregoing loan tables, no loans were concentrated
within a single industry or group of related industries and the
Corporation had no foreign loans.
Asset Quality
Various degrees of risk are associated with substantially all investing
activities. The lending function, however, carries the greatest risk of loss.
The Corporation seeks to manage credit risk through diversification of the loan
portfolio and the application of policies and procedures designed to foster
sound underwriting and credit monitoring practices. The senior lending officer
of each Subsidiary Bank is charged with monitoring asset quality, establishing
credit policies and procedures and seeking consistent application of these
procedures. Non-performing assets include loans past due, nonaccrual,
renegotiated and other real estate. Since lending is concentrated within the
local market area, non-performing loans were also made primarily to customers
operating in the area. The degree of risk inherent in all lending activities is
influenced heavily by general economic conditions in the immediate market area.
Among the factors which tend to affect portfolio risks are changes in local or
regional real estate values, income levels and energy prices. These factors
coupled with high unemployment levels and tax rates, as well as governmental
actions and weakened market conditions which reduce the demand for credit among
qualified borrowers, are also important determinants of the risk inherent in
lending. Although economic conditions in the Corporation's market area
have shown signs of improvement over the past year, they continue to remain
unstable. Real estate values in the area are giving indication of leveling off,
and in some cases have shown an upward movement. Management is continuing to
respond to the changing market conditions and to meet the needs of borrowers,
while maintaining the integrity of the loan portfolio.
PAST DUE, NON-ACCRUING AND RENEGOTIATED LOANS. It is the Corporation's policy
to review monthly all loans which are past due as to principal or interest. The
accrual of interest income on loans is discontinued when it is determined that
such loans are
8
<PAGE>
either doubtful of collection or are involved in a protracted collection
process. The current year's uncollected interest is reversed on such non-
accrual loans. Management has also restructured the terms of certain loans to
accommodate changes in the financial condition of borrowers. A typical
concession would be a reduction in the currently payable interest rate to one
which is lower than the current market rate for new debt with similar risks;
interest foregone would be deferred until maturity. The following table
summarizes the composition of the Corporation's non-performing assets and
related asset quality ratios as of the dates indicated.
<TABLE>
<CAPTION>
At December 31
-----------------
1995 1994
-------- -------
<S> <C> <C>
Non-accruing loans................................. $ 1,422 $1,499
Renegotiated loans................................. 517 526
------- ------
Total non-performing loans.................... 1,939 2,025
Loans past due 90 days and accruing................ 1,125 10
Other real estate.................................. 2,070 1,184
------- ------
Total non-performing assets................... $ 5,134 $3,219
======= ======
Non-performing loans to total gross loans.......... 1.47% 2.09%
Non-performing assets to total gross loans......... 3.90% 3.33%
Non-performing assets to total assets.............. 2.03% 1.91%
Allowance for loan losses to non-performing loans.. 120.27% 90.07%
</TABLE>
Of the total non-performing loans at December 31, 1995 shown in the above table,
$1,641 were secured by real estate or other collateral. The $1,915 or 37%
increase in non-performing assets at December 31, 1995 compared to the same
period in 1994 is primarily the result of the loan portfolio associated with the
acquisition of Family First, while the increase in the percentage of the
allowance for loan losses to total non-performing loans of about 30% is
primarily the result of additional allowance in connection with their portfolio.
If the non-performing loans in 1995 had continued to pay interest, interest
income during 1995 would have increased by $135. If non-accruing loans in 1994
had continued to pay interest, interest income during 1994 would have increased
by $163.
POTENTIAL PROBLEM LOANS. As part of the loan review process, management
routinely identifies performing loans where there is a doubt as to whether the
borrowers will comply with the original loan repayment terms and thus allocates
specific reserves against them. At December 31, 1995, such loans totaled $5,368
million with an allowance of $1,002 specifically allocated to them. Due to
strong collateral coverage, management believes the future risk of loan losses
from such loans to be slight.
FOREIGN LOANS. The Corporation has no foreign loans or any other foreign
exposure.
LOAN CONCENTRATION. The Subsidiary Banks grant various commercial and consumer
loans, primarily within the State of New Jersey. Although the Subsidiary Banks
have diversified loan portfolios, a substantial portion of the ability of their
borrowers to honor their loan payment obligations in a timely fashion is
dependent on the success of the real estate industry.
Allowance for Possible Loan Losses
At December 31, 1995, the allowance for possible loan losses was $2,332, as
compared to $1,824 at December 31, 1994. The allowance for possible loan losses
is increased periodically through charges to earnings in the form of a provision
for possible loan losses. Additionally, during 1995, the allowance was further
strengthened through the transfer of $1,039 in allowance for possible loan
losses related to the acquisition of Family First. Loans that are deemed
uncollectible are charged against the allowance and any recoveries of such loans
are credited to it. Of the $1,035 charged-off during 1995, $391 were loans
related to Family First. It is management's belief that, although future
charge-offs will result from Family First's portfolio, there are adequate
reserves allotted. The level of the allowance is based on the ongoing
evaluation by management of the respective Subsidiary Banks of potential losses
in the loan portfolio. Such evaluation includes consideration of the current
financial status and credit standing of borrowers, prior loss experiences,
results of periodic regulatory examinations, comments and recommendations of the
Corporation's independent accountants, and management's judgment as to
prevailing and anticipated real estate values and other economic conditions in
the Subsidiary Banks market areas. Since future events that may affect these
financial conditions are unpredictable, there is uncertainty as to the final
outcome of the Subsidiary Banks loans and non-performing assets.
9
<PAGE>
The following table represents transactions affecting the allowance for possible
loan losses for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Balance-beginning of year.................................................................. $ 1,824 $1,771
Charge-offs:
Commercial, financial and agricultural................................................... (589) (164)
Real estate - mortgage................................................................... (364) (57)
Installment loans to individuals......................................................... (82) (43)
------- ------
(1,035) (264)
------- ------
Recoveries:
Commercial, financial and agricultural................................................... 87 100
Installment loans to individuals......................................................... 3 45
------- ------
90 145
------- ------
Net charge-offs............................................................................ (945) (119)
Provision for possible loan losses......................................................... 414 172
Adjustment (allowance for loan losses acquired from Family First).......................... 1,039 -
------- ------
Balance-end of year........................................................................ $ 2,332 $1,824
======= ======
Ratio of net charge-offs during the period to average loans outstanding during the period.. .79% .13%
</TABLE>
Allocation of the Allowance for Loan Losses
The following table sets forth the allocation of the allowance for loan losses
by loan category amounts, the percent of loans in each category to total loans
in the allowance, and the percent of loans in each category to total loans, for
each of the periods indicated.
<TABLE>
<CAPTION>
December 31
------------------------------------------------------------
1995 1994
----------------------------- ---------------------
% of Loans % of Loans
% of to Total % of to Total
BALANCE AT END OF PERIOD ALLOCABLE TO: Amount Allowance Loans Amount Allowance Loans
------ --------- ---------- ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Commercial.............................. $1,256 54 35 $ 876 48 34
Real estate-construction................ - - 3 - - 2
Real estate-mortgage.................... 662 28 48 457 25 46
Installment loans to individuals........ 296 13 14 215 12 18
Unallocated reserves.................... 118 5 - 276 15 -
------ --- --- ------ --- ---
Total allowance for loan losses....... $2,332 100 100 $1,824 100 100
====== === === ====== === ===
</TABLE>
Other Real Estate
As of December 31, 1995, other real estate totalled $2,070, an increase of $886
or 75% compared to December 31, 1994, primarily due to the transfer of $1,052 of
foreclosed properties acquired through the acquisition of Family First. Since
acquisition, properties totaling $364 have been sold, or further written down
to current net market values. The $2,070 includes collateral acquired through
foreclosure of loans, stated at the lower of the loan value or fair market
value, less estimated costs to sell. Management is actively seeking repayment
through sale of the underlying collateral.
10
<PAGE>
Deposits
Total deposits at December 31, 1995 were $222,766, an increase of $78,477 or 54%
over the amount reported at December 31, 1994. Of the total increase, $49,600
in deposits were assumed in the acquisition of Family First. The remaining
portion of the increase is due to the growth of the Corporation. The following
table summarizes the components of deposit liabilities as of December 31, 1995
and 1994.
<TABLE>
<CAPTION>
At December 31
------------------
1995 1994
-------- --------
<S> <C> <C>
Demand
Non-interest bearing.. $ 46,332 $ 32,426
Interest bearing...... 59,141 43,758
Savings................. 26,030 20,451
Time.................... 91,263 47,654
-------- --------
$222,766 $144,289
======== ========
</TABLE>
Listed below is a summary of time certificates of deposit $100,000 and over
categorized by time remaining to maturity at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
At December 31
----------------
1995 1994
------- -------
<S> <C> <C>
Three months or less..................... $16,633 $ 8,734
Over three months through twelve months.. 7,977 2,485
Over twelve months....................... 1,486 950
------- -------
$26,096 $12,169
======= =======
</TABLE>
Subordinated Debentures and Equity Contracts
In December 1993, the Corporation raised $5,000,000 by issuing Redeemable
Subordinated Debentures ("Debentures") (unsecured debt obligation of the
Corporation) due November 1, 1998 at an interest rate of 8.5% payable quarterly.
In addition, the Corporation issued Cancellable Mandatory Stock Purchase
Contracts ("Equity Contracts") to purchase $5,000,000 of the Corporation's
common stock at a predetermined price of $10.74 (as adjusted for stock
dividends) per share to be exercised no later than November 1, 1997. The
Corporation has reserved 465,549 shares of its common stock for future issuance
pursuant to the outstanding Equity Contracts.
Interest Rate Sensitivity
The following table summarizes, as of December 31, 1995, the repricing of
interest-earning assets and interest-bearing liabilities in accordance with
their contractual terms in given time periods.
<TABLE>
<CAPTION>
Due between Due between
Due within 91 Days and One Year and Due after Non-Interest
90 Days One Year Five Years Five Years Bearing Total
------------ ------------- ------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Securities................................... $ 15,176 $ 26,999 $38,655 $ 3,156 $ - $ 83,986
Federal funds sold and deposits with banks... 18,433 - 290 - - 18,723
Total loans.................................. 63,566 16,750 43,890 6,246 1,290 131,742
Non-interest earning assets.................. - - - - 18,594 18,594
-------- -------- ------- ------- -------- --------
Total Assets....................... $ 97,175 $ 43,749 $82,835 $ 9,402 $ 19,884 $253,045
======== ======== ======= ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits..................................... $107,909 $ 44,820 $23,718 - $ 46,319 $222,766
Other liabilities............................ 2,758 - - 4,976 2,950 10,684
Shareholders' equity......................... - - - - 19,595 19,595
-------- -------- ------- ------- -------- --------
Total Liabilities and $110,667 $ 44,820 $23,718 $ 4,976 $ 68,864 $253,045
Shareholders' Equity.............. ======== ======== ======= ======= ======== ========
Interest rate sensitivity gap.................. (13,492) (1,071) 59,117 4,426 (48,980)
Interest rate sensitivity gap as a percentage (5.33%) (.42%) 23.36% (1.75%) (19.36%)
of total assets...............................
Cumulative interest rate sensitivity gap....... (13,492) (14,563) 44,554 48,980
Cumulative interest rate sensitivity gap as a
percentage (5.33%) (5.76%) 17.61% 19.36%
of total assets..............................
</TABLE>
Certain shortcomings are inherent in the method of analysis presented in the
preceding table. While gap analysis is a general indicator of the potential
effect that changing interest rates may have on net interest income, the gap
itself does not present a complete picture of interest rate sensitivity. For
one, changes in general interest rates do not affect all categories of assets
and liabilities equally or simultaneously. Secondly, certain assets and
liabilities in the similar maturities or repricing intervals may react
differently to changes in
11
<PAGE>
interest rates. For instance, interest rates on loans tied to prime rate may be
affected immediately in a particular time interval whereas interest rates
payable on the deposits in the same interval may lag behind. Finally, management
has made certain assumptions in constructing the gap table which may be true of
the peer group as well. One of the most significant assumptions is the
classification of certain business loans, home equity lines of credit and credit
card loans into the due within 90 days interval based on the contractual
maturity or repricing opportunity. Similarly, money market, savings and NOW
account deposits, which have no contractual maturity, are placed into the due
within 90 days interval. Management can influence the actual repricing of these
deposits independent of the gap assumption.
The Corporation's requirements for an acceptable gap position under the
guidelines appearing in its asset/liability management policy are 10% to (25)%
at both six-month and one-year intervals. At December 31, 1995, the cumulative
gap at the 91-days to one-year interval was (14.6)%, which was within the
requirements of the asset/liability management policy. Despite the negative gap
profile for such interval shown in the above table at December 31, 1995, the
increasing interest rate environment which occurred during early 1995 was
favorable to the Corporation's earnings because the Corporation's interest
earning assets repriced more quickly than its interest bearing liabilities, a
factor which outweighed the negative gap position for such interval during 1995.
The Corporation primarily uses various simulation techniques to project future
net interest income, balance sheet mix and the spread relationship between
market rates and bank products under different interest rate scenarios. In
reviewing the simulation results at December 31, 1995, in a reinvest strategy,
interest rate increases or decreases of 300 basis points over a 12-month period
would not have a significant impact on either the Corporation's net interest
income or its liquidity.
Return on Equity and Assets
The following table shows the Corporation's returns on average total assets,
returns on average equity, and the ratios of average equity to average total
assets for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Return on average total assets................... .93% .91%
Return on average equity......................... 11.99% 10.19%
Ratio of average equity to average total assets.. 7.78% 8.94%
</TABLE>
Liquidity
The Corporation actively manages its liquidity under the direction of the Bank's
Asset/Liability Management Committee. During the last two years the Corporation
has been highly liquid and its liquid funds are more than sufficient to meet
future loan demand or the possible outflow of deposits in addition to being able
to adapt to changing interest rate conditions. Management expects that this
high liquidity trend will continue until such time that overall economic
conditions improve and loan demand rises.
Sources of liquidity at December 31, 1995 totalled $114,180 or 45% of total
assets, consisting of securities of $83,986 and $30,194 in cash and cash
equivalents and interest-bearing due from banks. By comparison, total liquidity
sources were $68,032 or 40% of total assets at December 31, 1994, consisting of
investment securities in the amount of $58,961 and cash and cash equivalents and
interest-bearing due from banks in the amount of $9,071.
Capital Resources
The Corporation's primary regulator, the Federal Reserve Board (which regulates
bank holding companies), has issued guidelines classifying and defining bank
holding company capital into the following components: (1) Tier I Capital, which
includes tangible shareholders' equity for common stock and certain qualifying
perpetual preferred stock, and (2) Tier II Capital, which includes a portion of
the allowance for possible loan losses, certain qualifying long-term debt and
preferred stock that does not qualify as Tier I Capital. The risk-based capital
guidelines require financial institutions to maintain specific defined credit
risk factors (risk-adjusted assets). As of December 31, 1995, the Tier I and
the combined Tier I and Tier II capital ratios required by the Federal Reserve
Board were 4.0% and 8.0%, respectively.
In addition to the risk-based guidelines discussed above, the Federal Reserve
Board requires that a bank holding company which meets that regulator's
highest performance and operating standards maintain a minimum leverage ratio
(Tier 1 capital as a percentage of tangible assets) of 3%. For those bank
holding companies anticipating significant growth, the minimum leverage ratio
will be increased. Minimum leverage ratios for each entity will be evaluated
through the ongoing regulatory examination process. Regulations have also been
issued by the Subsidiary Banks' primary regulator, the Federal Deposit Insurance
Corporation, establishing similar risk-based and leverage capital ratios which
apply to each bank as a separate entity.
12
<PAGE>
The following tables present the risk-based capital ratios for GFB, BCB and the
Corporation, respectively, as of December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Great Falls Bank Bergen Commercial Bank Great Falls Bancorp
December 31 December 31 December 31
------------------ ------------------------ ---------------------
1995 1994 1995 1994 1995 1994
-------- -------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tier I and Tier II......... 14.71% 15.95% 13.68% 11.01% 16.77% 19.30%
Tier I Core Capital Ratio.. 6.79% 7.86% 12.66% 10.30% 7.27% 9.06%
Tier I Leverage Ratio...... 7.90% 8.14% 9.11% 10.06% 8.28% 8.34%
</TABLE>
Impact of Inflation and Changing Prices
The Corporation's consolidated financial statements and notes thereto presented
in this annual report have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without considering the changes
in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of the Corporation's
operations. Unlike most industrial companies, nearly all of the Corporation's
assets and liabilities are monetary in nature. As a result, interest rates have
a greater impact on the Corporation's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Great Falls Bancorp:
We have audited the accompanying consolidated statements of condition of Great
Falls Bancorp (a New Jersey corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Corporation'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 Great Falls Bancorp and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 1994, the Corporation changed its method of accounting for debt and
equity securities.
ARTHUR ANDERSEN LLP.
Roseland, New Jersey
January 16, 1996
<PAGE>
EXHIBIT 13.2
GREAT FALLS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1995 and 1994 (in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
-------- ---------
<S> <C> <C>
CASH AND DUE FROM BANKS - Non-interest-bearing................................................ $ 11,471 $ 6,427
FEDERAL FUNDS SOLD............................................................................ 17,575 1,625
-------- --------
Total cash and cash equivalents........................................... 29,046 8,052
-------- --------
DUE FROM BANKS - Interest-bearing............................................................. 1,148 1,019
SECURITIES (Note 4): -------- --------
Available-for-sale, at fair value...........................................................
Held-to-maturity, at amortized cost (aggregate fair values of 47,835 25,403
$36,061 and $32,861 in 1995 and 1994, respectively).......................................
36,151 33,558
-------- --------
83,986 58,961
LOANS (Notes 5 and 6)......................................................................... 131,742 96,664
Less - Allowance for possible loan losses................................................... 2,332 1,824
Unearned income.................................................................... 303 290
-------- --------
Net loans................................................................. 129,107 94,550
-------- --------
PREMISES AND EQUIPMENT, net (Note 7).......................................................... 3,082 1,524
-------- --------
OTHER REAL ESTATE............................................................................. 2,070 1,184
-------- --------
ACCRUED INTEREST RECEIVABLE................................................................... 1,977 1,496
-------- --------
INTANGIBLE AND OTHER ASSETS (Note 2).......................................................... 2,629 1,517
-------- --------
Total assets.............................................................. $253,045 $168,303
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
DEPOSITS:
Demand:
Non-interest-bearing..................................................................... $ 46,332 $ 32,426
Interest-bearing......................................................................... 59,141 43,758
Savings.................................................................................... 26,030 20,451
Time (includes deposits $100 and over of $26,096 in 1995 and $12,169 in 1994).............. 91,263 47,654
-------- --------
Total deposits............................................................ 222,766 144,289
ACCRUED INTEREST AND OTHER LIABILITIES........................................................ 2,952 1,390
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE................................................ 2,756 2,700
REDEEMABLE SUBORDINATED DEBENTURES (Note 10).................................................. 4,976 4,963
-------- --------
Total Liabilities......................................................... 233,450 153,342
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY (Note 9):
Preferred stock, without par value: 1,000,000 shares authorized, none outstanding........... - -
Common Stock, par value $1 per share: 4,000,000 shares authorized, 1,709,451 and 1,444,736
shares outstanding in 1995 and 1994, respectively......................................... 1,709 1,443
Additional paid-in capital.................................................................. 15,231 12,209
Retained earnings........................................................................... 2,102 1,843
Unrealized holding gain (loss) on securities available-for-sale, net of income taxes........ 553 (534)
-------- --------
Total shareholders' equity................................................ 19,595 14,961
-------- --------
Total liabilities and shareholders' equity................................
$253,045 $168,303
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
1
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993 (in thousands, except per share data)
1995 1994 1993
-------- ------- ------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans, including fees................................... $11,931 $ 8,408 $7,087
Interest on securities.............................................. 4,790 2,693 1,733
Interest on Federal Funds sold and deposits with banks.............. 712 301 515
------- ------- ------
Total interest income............................... 17,433 11,402 9,335
INTEREST EXPENSE: ------- ------- ------
Interest on deposits...............................................
Interest on borrowings............................................. 5,927 3,143 2,962
623 491 40
Total interest expense.............................. ------- ------- ------
6,550 3,634 3,002
Net interest income................................. ------- ------- ------
10,883 7,768 6,333
-------
PROVISION FOR POSSIBLE LOAN LOSSES (Note 6)............................. 414 172 478
Net interest income after provision ------- ------- ------
for possible loan losses..........................
10,469 7,596 5,855
------- ------- ------
OTHER INCOME (Note 15).................................................. 2,177 855 1,338
------- ------- ------
OTHER EXPENSES:
Salaries and employee benefits....................................... 3,700 2,745 2,337
Occupancy and equipment.............................................. 1,418 919 708
Amortization of intangible assets and organizational costs........... 191 110 111
Other operating expenses (Note 16)................................... 4,091 2,351 1,932
------- ------- ------
Total other expenses................................ 9,400 6,125 5,088
------- ------- ------
Income before income taxes.......................... 3,246 2,326 2,105
PROVISION FOR INCOME TAXES (Note 8)..................................... 1,174 840 804
------- ------- ------
Net Income.......................................... $ 2,072 $ 1,486 $1,301
======= ======= ======
WEIGHTED AVERAGE SHARES OUTSTANDING..................................... 1,877 1,513 1,501
======= ======= ======
NET INCOME PER SHARE (Note 2)........................................... * $ 1.15 $.98 $.87
======= ======
</TABLE>
* In 1995, EPS includes the dilutive effect of stock purchase contracts (see
Note 10) and stock options which were either anti-dilutive or not significant
in the prior years presented.
GREAT FALLS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993 (in thousands, except per
share amounts)
<TABLE>
<CAPTION>
Unrealized
Holding
Gain(Loss)
Additional on Securities Total
Common Paid-in Retained Available- Shareholders'
Stock Capital Earnings -for-Sale Equity
------- ---------- --------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992......................... $1,227 $10,154 $ 1,546 $ - $12,927
Net Income - 1993................................ - - 1,301 - 1,301
10% stock dividend............................... 122 1,081 (1,210) - (7)
Cash dividend.................................... - - (194) - (194)
Exercise of stock options........................ 10 69 - - 79
Proceeds from issuance of mandatory stock
purchase contracts............................ - 50 - - 50
------ ------- ------- ------ -------
BALANCE, December 31, 1993......................... 1,359 11,354 1,443 - 14,156
Net Income - 1994................................ - - 1,486 - 1,486
10% stock dividend............................... 72 766 (841) - (3)
Cash dividend.................................... - - (245) - (245)
Exercise of stock options........................ 12 89 - - 101
Unrealized holding gain(loss) on securities
available-for-sale, net of income taxes....... - - - (534) (534)
------ ------- ------- ------ -------
BALANCE, December 31, 1994.........................
Net Income - 1995................................ 1,443 12,209 1,843 (534) 14,961
Stock issued in connection with acquisition of - - 2,072 - 2,072
Family First Federal Savings Bank (Note 3)..
10% stock dividend............................... 157 1,645 - - 1,802
Exercise of stock options........................ 100 1,293 (1,398) - (5)
Cash dividend.................................... 9 84 - - 93
Change in unrealized holding gain(loss) on - - (415) - (415)
securities available-for-sale,
net of income taxes.........................
- - - 1,087 1,087
BALANCE, December 31, 1995......................... ------ ------- ------- ------ -------
$1,709 $15,231 $ 2,102 $ 553 $19,595
====== ======= ======= ====== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
2
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993 (in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 2,072 $ 1,486 $ 1,301
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............................................. 626 449 327
Accretion of discount on securities, net.................................. (69) (19) (7)
Accretion of discount on debentures....................................... 13 13 -
Realization of discount on securities sold................................ 21 22 7
Loss (gain) on sale of securities, net.................................... (209) 84 (62)
Provision for possible loan losses........................................ 375 172 478
Deferred income tax provision (benefit)................................... 135 (65) 13
(Increase) decrease in accrued interest receivable........................ (481) (533) (90)
(Increase) decrease in other assets....................................... (1,998) (170) (217)
Increase (decrease) in accrued interest and other liabilities............. 1,560 466 (188)
-------- -------- --------
Net cash provided by operating activities............... 2,045 1,905 1,562
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities -
Purchases............................................................... (18,670) (24,694) (4,596)
Sales................................................................... 16,619 13,061 8,339
Maturities.............................................................. 2,550 - -
Held-to-maturity securities -
Purchases............................................................... (10,225) (13,367) (29,494)
Maturities.............................................................. 1,415 8,569 8,390
Net decrease in interest-bearing deposits with banks...................... 1,220 5,710 5,058
Net increase in loans..................................................... (4,668) (10,062) (4,720)
Capital expenditures...................................................... (1,994) (779) (460)
Decrease in other real estate............................................. 280 453 965
-------- -------- --------
Net cash used in investing activities.................... (13,473) (21,109) (16,518)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of redeemable subordinated debentures
and mandatory stock purchase contracts.................................. - - 5,000
Net increase in deposit accounts.......................................... 28,668 14,437 4,711
Increase in securities sold under agreement to repurchase................. 57 1,950 47
Dividends paid............................................................ (415) (245) (194)
Proceeds from exercise of stock options................................... 93 101 79
Cash acquired from purchase business combination.......................... 4,045 - -
Other, net................................................................ (26) (3) (7)
-------- -------- --------
Net cash provided by financing activities............. 32,422 16,240 9,636
Net increase (decrease) in cash and cash equivalents.. 20,994 (2,964) (5,320)
CASH AND CASH EQUIVALENTS, beginning of year................................. 8,052 11,016 16,336
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year....................................... $ 29,046 $ 8,052 $ 11,016
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year:
Interest................................................................ $ 5,616 $ 3,332 $ 3,138
Income taxes............................................................ 1,032 744 957
Redesignation of securities available-for-sale............................ 6,192 - -
Common stock issued in purchase business combination (Note 3)............. 1,802 - -
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements
3
<PAGE>
GREAT FALLS BANCORP AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share amounts)
Note 1 Nature of Operations
The Corporation is organized as a business corporation under the laws of the
State of New Jersey and registered with the Board of Governors of the Federal
Reserve System as a bank holding company. The Corporation is located in Passaic
County, New Jersey and its substantive business activity is the ownership and
operation of its two New Jersey chartered commercial banking subsidiaries, Great
Falls Bank (GFB) and Bergen Commercial Bank (BCB), collectively, the Banks. GFB
has five branches, two in Totowa, two in Clifton one in Little Falls, New
Jersey. GFB conducts a general commercial and retail banking business
encompassing a wide range of traditional deposits and lending functions along
with other customary banking services.
Great Falls Investment Company, Inc. is a wholly-owned nonbank subsidiary of GFB
whose primary business is to own and manage its securities portfolio. BCB was
incorporated in August 1987 and commenced its banking operations in February
1988. BCB concentrates its operations in commercial lending and loan
origination secured by real estate generally involving nonresidential
properties, primarily servicing Bergen County, New Jersey. BCB's main office is
located in Paramus and it has offices in Hasbrouck Heights and Wood-Ridge.
During 1993, BCB formed a wholly-owned investment subsidiary, BCB Investment
Co., Inc. incorporated in the State of New Jersey, whose function is to manage
its securities portfolio.
Note 2 SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting polices of the Corporation applied in the
preparation of the accompanying consolidated financial statements follows.
Principles Of Consolidation and Use of Estimates
The consolidated financial statements include the accounts of the Corporation
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Statements Of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, non-interest-bearing amounts due from banks and Federal funds sold.
Generally, Federal funds are sold for a one-day period.
Securities
Securities which the Corporation has the ability and intent to hold to maturity
are classified as held-to-maturity and are stated at cost, adjusted for premium
amortization and discount accretion. Securities which are held for indefinite
periods of time which management intends to use as part of its asset/liability
strategy, or that may be sold in response to changes in interest rates, changes
in prepayment risk, increased capital requirements or other similar factors, are
classified as available-for-sale and are carried at fair market value.
Differences between amortized cost and fair market value are charged/credited
directly to shareholders' equity, net of income taxes. The cost of the
securities sold is determined on a specific identification basis. Gains or
losses on securities are recognized upon sale. The Corporation has no
securities held for trading purposes at December 31, 1995 or 1994.
Allowance For Possible Loan Losses
The allowance for possible loan losses is maintained at a level considered by
management to be adequate to provide for potential loan losses inherent in the
loan portfolio at the reporting date. The allowance is increased by provisions
charged to expense and reduced by net charge-offs (see Note 6). The level of
the allowance is based on management's evaluation of potential losses in the
loan portfolio, after consideration of prevailing and anticipated economic
conditions, including estimates and appraisals, among other items, known or
anticipated at each reporting date. Credit reviews of the loan portfolio,
designed to identify potential charges to the allowance, are made on a periodic
basis during the year by management.
The Corporation adopted SFAS No. 114, "Accounting by Creditors for Impairment of
a Loan", as amended as of January 1, 1995. SFAS No. 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 rates. As a
practical expedient, impairment may be measured based on the loan's 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
these statements, no additional allowance for loan losses was required as of
January 1, 1995.
Premises and Equipment
4
<PAGE>
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed primarily on the straight-line method
over the estimated useful lives of the assets.
Intangible Assets
Intangible assets represent the excess of the cost over the fair value of net
assets acquired in business combinations in 1986 (fully amortized in 1995) and
1995 (see Note 3). Intangible assets at December 31, 1995, approximately $676,
are being charged to operations on a straight line basis over a seven-year
period which coincides with the average life of the assets acquired.
Other Real Estate
Other real estate includes loan collateral that has been formally repossessed
and collateral on loans which have been substantively repossessed, that is, when
the primary risks and rewards of collateral ownership have passed from the
debtor to the lender. All amounts have been transferred into and carried in
other real estate at the lower of the loan value or fair market value, less
estimated costs to sell the underlying collateral.
Interest And Fees On Loans
Interest on loans is credited to operations based upon the principal amount
outstanding. The net amounts of all loan origination fees, direct loan
origination costs and loan commitment fees are deferred and recognized over the
lives of the related loans as adjustments of yield. When management believes
there is sufficient doubt as to the ultimate collectibility of interest on any
loan, the accrual of applicable interest is discontinued.
Sale Of Mortgage Loans
The Banks sell mortgage loans to unrelated investors. Gains or losses on such
sales are recognized at the time of sale in an amount equal to the present value
of the difference between the effective interest rate to the Banks and the net
yield to the investor, excluding normal future loan servicing fees, over the
estimated remaining lives of the loans sold, adjusted for prepayments. Loans
not intended to be held for permanent investment are stated at the lower of cost
or market. Included in loans in the accompanying consolidated financial
statements is $228 in loans held for sale at December 31, 1995.
Federal Income Taxes
The Corporation and its subsidiaries file a consolidated Federal income tax
return. The provision for Federal income taxes is based on reported income
adjusted for the effect of nontaxable income and nondeductible costs and
expenses. The Corporation uses the liability method of computing deferred
income taxes. Deferred income taxes are recognized for tax consequences of
"temporary differences" by applying enacted statutory tax rates, applicable to
future years, to differences between the financial reporting and the tax basis
of existing assets and liabilities.
Dividend Restrictions
New Jersey state law permits the payment of dividends from subsidiary banks to
the Corporation to the extent that there is no impairment of the capital
accounts and they will have a surplus of not less than 50% of their capital
stock, or, if not, payment of the dividend will not reduce their surplus. As of
December 31, 1995, GFB had $5,880,000 and BCB had $1,387,000 of funds available
for the payment of dividends to their parent company.
Net Income Per Share
Net income per share is computed based on the weighted average number of common
and common equivalent shares outstanding during each year. All weighted average
actual share or per share information in the financial statements has been
adjusted retroactively for the effect of stock dividends. The effect of
outstanding dilutive options and equity contracts is considered in the 1995
computation, however, the effect of these common stock equivalents was either
not significant or anti-dilutive for 1994 and 1993.
Reclassifications
Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform to the classifications used in 1995.
Note 3 Acquisitions:
On April 7, 1995, the Corporation issued 156,645 shares of its common stock at a
cost of $1,802 in exchange for the common stock of Family First Federal Savings
Bank (Family First) of Clifton, New Jersey. The purchase price exceeded the
fair market value of net assets acquired by approximately $734, which is
reflected as goodwill (included in intangible assets) in the accompanying
statement of condition. The merger was accounted for using the purchase
method of accounting since Family First shareholders had an option to receive
either cash or stock, subject to certain limitations. Accordingly, the
consolidated financial statements include the results of operations and of
Family First subsequent to April 7, 1995 when it was merged into GFB. The pro
forma results of operations assuming Family First had been acquired as of
January 1, 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
------- ------
<S> <C> <C>
Net interest income. $11,372 $9,905
Net income.......... 2,079 1,102
Net income per share 1.13 .65
</TABLE>
5
<PAGE>
Effective December 31, 1995, the Corporation acquired BCB by an exchange of
stock. Each share of BCB common stock outstanding was exchanged for 1.7 shares
of the Corporation's common stock, resulting in the issuance of 629,298 shares.
The acquisition has been accounted for as a pooling of interests and as such,
the consolidated financial statements of the Corporation include the amounts of
BCB for all periods presented. Separate results of the combining companies are
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----- ------ -------
<S> <C> <C> <C>
Net interest income
Corporation.................... $ 7,110 $4,554 $ 4,003
BCB............................ 3,773 3,214 2,330
------- ------ -------
$10,883 $7,768 $ 6,333
Net income ======= ====== =======
Corporation.................... $ 1,533 $ 966 $ 835
BCB............................ 539 520 466
------- ------ -------
$ 2,072 $1,486 $ 1,301
======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
Note 4 Securities:
Information with regard to the Company's
securities portfolio at December 31,
1995 and 1994, is as follows:
December 31
-----------------------------------------------------------------------------------------
1995 1994
------------------------------------------- ---------------------------------------------
Gross Gross Fair Gross Gross Fair
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
U.S. Treasury securities............... $30,405 $362 $ (8) $30,759 $23,935 $ - ($636) $23,299
U.S. Government mortgage-backed
securities............................ 13,984 585 - 14,569 265 - 265
Other, primarily equity securities..... 2,524 - (17) 2,507 2,054 - (215) 1,839
------- ---- ----- ------- ------- ---------- ------ ------
$46,913 $947 $ (25) $47,835 $26,254 $ - ($851) $25,403
======= ==== ===== ======= ======= ========== ====== =======
HELD-TO-MATURITY:
U.S. Treasury securities............... $18,950 $206 $ - $19,156 $23,825 $13 ($494) $23,344
U.S. Government mortgage-backed
securities............................ 16,588 126 (424) 16,290 8,940 - (202) 8,738
State & Political...................... 613 2 - 615 424 - (4) 420
Other debt securities.................. - - - - 369 - (10) 359
------- ---- ----- ------- ------- ---------- ------ -------
$36,151 $334 $(424) $36,061 $33,558 $13 ($710) $32,861
======= ==== ===== ======= ======= ========== ====== =======
</TABLE>
Securities with an estimated market value of $16,640, previously held by Family
First and classified as held to maturity, were reclassified to the available for
sale category upon consummation of the acquisition in order to maintain GFB's
interest rate risk position.
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on SFAS No. 115, the Financial Accounting Standards Board
allowed a one-time reassessment of the SFAS No. 115 classifications of all
securities currently held. Any reclassifications would be accounted for at fair
value in accordance with SFAS No. 115 and any reclassifications from the held-
to-maturity portfolio that resulted from this one-time reassessment would not
call into question the intent of the Corporation to hold other debt
securities to maturity in the future. The Corporation used the opportunity
under this one-time reassessment to reclassify $6,192 in U.S. Treasury
securities from held-to-maturity to the available-for-sale portfolio. In
connection with this reclassification, gross unrealized gains of $30 and gross
unrealized losses of $12 were recorded on available-for-sale securities.
The amortized cost and estimated market value of securities at December 31,
1995, by contractual maturity, are show below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
December 31, 1995
-----------------------
AVAILABLE-FOR-SALE Amortized Fair
Cost Market Value
--------- ------------
<S> <C> <C>
Due in one year or less................. $16,531 $16,716
Due after one year through five years... 23,750 24,529
Due after five years through ten years.. 4,209 4,184
Equity securities....................... 2,423 2,406
------- -------
$46,913 $47,835
======= =======
HELD-TO-MATURITY
Due in one year or less................. $12,472 $12,562
Due after one year through five years... 19,404 19,481
Due after five years through ten years.. 4,275 4,018
------- -------
$36,151 $36,061
======= =======
</TABLE>
Proceeds from sales of available-for-sale securities during 1995, 1994 and 1993
were $16,619, $13,061 and $8,339, respectively, resulting in realized gains of
$209, losses of $84 and gains of $62, respectively. As of December 31, 1995,
securities having a total book value of $17,649 were pledged to secure public
deposits and repurchase agreements and for other purposes required by law.
6
<PAGE>
Note 5 Loans:
Loans are summarized as follows:
<TABLE>
<CAPTION>
December 31
------------------
1995 1994
-------- --------
<S> <C> <C>
Loans secured by one to four family residential properties.. $ 43,328 $26,925
Loans secured by nonresidential properties.................. 51,133 41,891
Loans to individuals........................................ 8,661 6,688
Loans to depository institutions............................ 4,600 600
Commercial loans............................................ 14,823 10,320
Construction loans.......................................... 4,292 4,754
Other loans................................................. 4,905 5,486
-------- -------
Total Gross Loans...................................... $131,742 $96,664
======== =======
</TABLE>
Loans made by the Banks are generally made in the local and surrounding
communities in which they operate. The subsidiary banks do not have any loan
concentrations in a single industry, however a substantial portion of the
ability of their borrowers to honor their payment obligations in a timely
fashion is dependent on the success of the real estate industry. The Banks
extended credit in the ordinary course of business to various directors,
executive officers and their associates. A summary of the changes in such loans
during 1995 is as follows:
<TABLE>
<S> <C>
Balance, beginning of year.. $ 4,261
Loans granted............... 1,426
Repayments of loans......... (1,215)
-------
Balance, end of year........ $ 4,472
=======
</TABLE>
All such loans are current as to principal and interest payments at December 31,
1995.
Note 6 Allowance for possible loan losses:
The allowance for possible loan losses is based on estimates, and ultimate
losses may vary from the current estimates. These estimates are reviewed
periodically and, as adjustments become necessary, they are reflected in
operations in the periods in which they become known. An analysis of the
allowance for possible loan losses is as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance - beginning of the year....................... $ 1,824 $1,771 $2,001
Balance resulting from purchase business combination.. 1,039 - -
Provision charged to operations....................... 414 172 478
Charge-offs........................................... (1,035) (264) (872)
Recoveries............................................ 90 145 164
------- ------ ------
Balance, end of year........................... $ 2,332 $1,824 $1,771
======= ====== ======
</TABLE>
The following table presents information related to loans which are on a non-
accrual basis, contractually past due ninety days or more as to interest or
principal payments, and loans which have been renegotiated to provide a
reduction or deferral of interest or principal for reasons related to the
debtor's financial difficulties.
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1995 1994
------------ --------
<S> <C> <C>
Non-accrual loans.......................................................... $1,422 $1,499
Renegotiated loans......................................................... 517 241
------ ------
Total non-performing loans................................ $1,939 $1,740
====== ======
Loans 90 days or more past due and still accruing.......................... * $1,125 $ 10
====== ======
Gross interest income which would have been recorded under original terms.. $ 135 $ 163
====== ======
</TABLE>
* Includes two related loans aggregating $1,002 acquired from Family First which
have contractually matured. Both loans continue to make principal and
interest payments in accordance with the original loan terms.
7
<PAGE>
Impaired loans - In accordance with SFAS No. 114, the Corporation utilizes the
following information when measuring its allowance for possible loan losses. A
loan is considered impaired when it is probable that the Corporation will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. These loans consist primarily of nonaccrual loans but may include
performing loans to the extent that situations arise which would reduce the
probability of collection in accordance with the contractual terms. As of
December 31, 1995, the Corporation's recorded investment in impaired loans and
the related valuation allowance calculated under SFAS No. 114 are as follows:
<TABLE>
<CAPTION>
Recorded Valuation
Investment Allowance
---------- ---------
<S> <C> <C>
Impaired loans-
Valuation allowance required..... $1,129 $588
No valuation allowance required.. 420 -
------ ----
$1,549 $588
====== ====
</TABLE>
This valuation allowance is included in the allowance for possible loan losses
on the accompanying statement of condition. The average recorded investment in
impaired loans for the period ended December 31, 1995 was $1,523. Interest
payments received on impaired loans are recorded as interest income unless
collection of the remaining recorded investment is doubtful, at which time
payments received are recorded as reductions of principal. The Corporation
recognized interest income on impaired loans of $59 for the year ended December
31, 1995.
Note 7 Premises and equipment:
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
December 31
---------------
1995 1994
------- ------
<S> <C> <C>
Land........................................... $ 124 $ 124
Buildings and improvements..................... 1,489 773
Furniture and equipment........................ 2,937 1,583
Leasehold improvements......................... 403 327
------ ------
4,953 2,807
Less-Accumulated depreciation and amortization. 1,871 1,283
------ ------
$3,082 $1,524
====== ======
</TABLE>
<TABLE>
<CAPTION>
Note 8 Income taxes:
The provision for income taxes is as follows:
Year ended December 31
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Federal:
Current...................................... $ 872 $ 796 $ 645
Deferred..................................... 135 (65) 13
State.......................................... 167 109 146
------ ------ ------
$1,174 $ 840 $ 804
====== ====== ======
</TABLE>
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Corporation's assets and
liabilities. The tax effects of cumulative temporary differences at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
December 31
---------------
1995 1994
------- ------
<S> <C> <C>
Allowance for possible losses on loans and other real estate.... $ 407 $ 451
Interest income on nonaccrual loans............................. 181 169
Depreciation and amortization................................... (10) (44)
Acquired net operating loss carryforward........................ 374 -
Difference between book and tax basis of assets acquired........ 346 -
Unrealized holding (gain)loss on securities available-for-sale.. (194) 317
Other........................................................... (103) (27)
------ -----
Total net deferred tax asset (included in other assets).. $1,001 $ 866
====== =====
</TABLE>
In order to fully realize the deferred tax asset, the Corporation will need to
generate future taxable income during periods in which existing deductible
temporary differences reverse. Based upon the Corporation's historical and
current pre-tax earnings, management believes it is more likely than not that
the Corporation will generate future net taxable income in sufficient amounts to
realize its net deferred tax asset at December 31, 1995. However, there can be
no assurance that the Corporation will generate any earnings or any specific
level of continuing earnings. The Corporation did not record any valuation
allowance against its deferred tax asset at December 31, 1995 and 1994. At
December 31, 1995, the Corporation had a net operating loss carryforward for
Federal income tax purposes
8
<PAGE>
of approximately $1.1 million. This net operating loss carryforward originated
from pre-acquisition losses at Family First (see Note 3). Prior to the
acquisition, Family First had provided a valuation allowance for this tax asset.
In its consolidated return, subject to certain yearly limitations, the
Corporation can utilize the pre-acquisition net operating loss carryforward to
offset future consolidated taxable income. The net operating loss
carryforwards, if unused, would expire in years ranging from 2008 - 2010.The
following is a reconciliation of the provision for income taxes as reported,
with the Federal income tax statutory rate.
<TABLE>
<CAPTION>
Year ended December 31
-------------------------
1995 1994 1993
--------- ------ ------
<S> <C> <C> <C>
At statutory rate (34%)...................... $1,104 $ 791 $ 716
Increase (reduction) in tax resulting from:
Tax-exempt income......................... (24) (8) (14)
Amortization of intangible assets......... 51 24 24
State income tax, net of Federal benefit.. 110 72 96
Acquisition expenses...................... 58 - -
Utilization of capital loss carryforward.. (99) - -
Other..................................... (26) (39) (18)
------ ----- -----
Provision for income taxes....... $1,174 $ 840 $ 804
====== ===== =====
</TABLE>
Note 9 Common Stock:
In 1985, the Corporation adopted an incentive stock option plan (the "1985
Plan") that allows for the granting to employees of options to acquire up to a
maximum of 33,431 shares (after adjustments for stock dividends) of the
Corporation's common stock. The exercise price of any options granted under the
1985 Plan will not be less than 100% of the fair market value per share of the
Corporation's common stock on the date such options are granted. Options
granted may have terms of not more than 10 years from the respective dates of
grant and outstanding options are exercisable over various periods
following the respective dates of grant in 25% increments commencing on
the first anniversary date on which the options vest following grant. Vesting
may be accelerated in the event of death of the employee or at the discretion of
the Board of Directors.
In 1988, the Corporation adopted a nonstatutory stock option plan that also
allows for the granting to employees of options to acquire up to a maximum of
101,185 shares (after adjustments for stock dividends) of the Corporation's
common stock. Such options may be granted and exercised on substantially the
same terms as the incentive stock options under the 1985 Plan.
During 1993, the Corporation adopted a nonstatutory stock option plan
authorizing the granting of options to purchase shares of the Corporation's
common stock to individuals who were then directors of GFB. All options
authorized by the 1993 plan were granted during 1993 and no further options are
available for grant under that plan. At December 31, 1995, options to purchase a
total of 3,330 shares were outstanding and will expire on December 31, 1996.
During December 1994, the Corporation's Board of Directors adopted a
nonstatutory stock option plan (the "1995 Plan") allowing for the Corporation's
board of directors to grant, to the individuals who were directors of GFB at
that time, options to purchase a total of 29,700 shares of the Corporation's
common stock. At December 31, 1995, options to purchase a total of 27,500 shares
were outstanding and will expire if not exercised by the end of 1997. Changes in
incentive and nonstatutory stock options during 1995, 1994 and 1993 were as
follows (adjusted to reflect stock dividends):
<TABLE>
<CAPTION>
Number of Price Range
Options Per Option
---------- ---------------
<S> <C> <C>
Outstanding - December 31, 1992....................... 40,922 $5.37 to $ 7.75
Granted during 1993.................................. 48,796 $7.75 to $11.75
Terminated during 1993............................... (9,739) $5.37 to $ 7.75
Exercised during 1993................................ (11,582) $5.37 to $ 7.75
------- ---------------
Outstanding - December 31, 1993....................... 68,397 $5.37 to $11.75
Granted during 1994.................................. 21,890 $7.75 to $11.75
Terminated during 1994............................... (5,201) $5.91 to $ 8.53
Exercised during 1994................................ (14,288) $5.91 to $ 8.53
------- ---------------
Outstanding - December 31, 1994....................... 70,798 $5.91 to $11.75
Granted during 1995................................. 29,700 $11.36
Exercised during 1995............................... (11,232) $7.51 to $11.75
------- ---------------
Outstanding - December 31, 1995 (exercisable 36,866).. 89,266 $5.91 to $11.75
======= ===============
</TABLE>
As of December 31, 1995, there were approximately 151,896 shares of common stock
reserved for issuance under the above stock option plans.
Note 10 Redeemable subordinated debentures and cancelable mandatory stock
purchase contracts:
In December 1993, the Corporation issued $5,000,000 of 8.5% Redeemable
Subordinated Debentures ("Debentures") due November 1, 1998, interest payable
quarterly. In addition to the Debentures, the Corporation issued Cancellable
Mandatory Stock Purchase Contracts ("Equity Contracts") requiring the purchase
of $5,000,000 in common stock at a price of $10.74 (as adjusted for stock
dividends) per share no later than November 1, 1997 and permitting the
purchase of common stock in that amount prior to that date.
9
<PAGE>
The purchase price under the Equity Contracts can be paid by the surrender of
debentures with a principal amount equal to the amount of common stock to be
purchased. The Debentures are redeemable and the Equity Contracts are
cancellable at the election of the Corporation upon 60 days written notice. At
December 31, 1995, 465,549 shares of common stock were reserved for future
issuance pursuant to the outstanding Equity Contracts.
Note 11 Employee benefit plan:
The Corporation has a 401(k) savings plan covering substantially all employees.
Under the plan, the Corporation matches 50% of employee contributions for all
participants with less than five years employment, not to exceed 2% of their
salary, and 75% of employee contributions for all participants with five or more
years of employment, not to exceed 3% of their salary. Contributions made by
the Corporation and BCB as part of a similar plan were approximately $142 in
1995, $91 in 1994 and $62 in 1993.
Note 12 Regulatory matters and capital requirements:
The Corporation's and the Banks' regulators have classified and defined capital
into the following components: (1) Tier I capital which is comprised of
tangible stockholders' equity for common stock and certain perpetual preferred
stock and (2) Tier II capital which includes a portion of the allowance for
possible loan losses, certain qualifying long-term debt and preferred stock,
which does not qualify for Tier I capital.
The Corporation's and the Banks' regulators have implemented risk-based capital
guidelines which require a bank holding company or a bank to maintain certain
minimum capital as a percent of such entity's assets and certain off-
balance sheet items adjusted for predefined credit risk factors (risk-adjusted
assets). As of December 31, 1995 a bank holding company or a bank is required
to maintain, at a minimum, Tier I capital as a percent of risk-adjusted assets
of 4.0% and combined Tier I and Tier II capital as a percent of risk-adjusted
assets of 8.0%. In addition to the risk-based guidelines discussed above, the
Corporation's and the Banks' regulators require that a bank holding company or a
bank which meets the regulators' highest performance and operating standards
maintain a minimum leverage ratio (Tier I capital as a percent of tangible
assets) of 3%. For those banks or bank holding companies with higher levels of
risk or that are experiencing or anticipating significant growth, the minimum
leverage ratio will be increased. Minimum leverage ratios for each entity will
be evaluated through the ongoing regulatory examination process. As of December
31, 1995 and 1994, the Banks and the Corporation had the following capital
ratios:
<TABLE>
<CAPTION>
Great Falls Bank Bergen Commercial Bank Great Falls Bancorp
December 31 December 31 December 31
------------------ ------------------------ ---------------------
1995 1994 1995 1994 1995 1994
-------- -------- ----------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Tier I and Tier II......... 14.71% 15.95% 13.68% 11.01% 16.77% 19.30%
Tier I Core Capital Ratio.. 6.79% 7.86% 12.66% 10.30% 7.27% 9.06%
Tier I Leverage Ratio...... 7.90% 8.14% 9.11% 10.06% 8.28% 8.34%
</TABLE>
Note 13 Commitments and contingencies:
Lease Obligations
The Corporation and its subsidiaries lease banking facilities and other office
space under operating leases which expire at various dates through 2007,
containing certain renewal options. Rent expenses charged to operations
approximated $307, $195 and $195, for 1995, 1994 and 1993, respectively.
Included in these amounts is $146 per year which is paid to a general
partnership that includes two directors of the Corporation.
As of December 31, 1995, future minimum annual rental payments under these
leases are as follows:
<TABLE>
<S> <C>
1996........ $ 540
1997........ 540
1998........ 526
1999........ 526
2000........ 457
Thereafter.. 2,311
------
Total..... $4,900
======
</TABLE>
The above amounts represent minimum rentals not adjusted for possible future
increases due to escalation provisions and assume that all available renewal
options will be exercised.
During 1995, the Corporation entered into a five-year license agreement with its
banking software provider. Minimum annual payments under this agreement are
expected to be approximately $46.
10
<PAGE>
LITIGATION
The Corporation and its subsidiaries may, in the ordinary course of business,
become a party to litigation involving collection matters, contract claims and
other legal proceedings relating to the conduct of their business. In
management's judgment, the consolidated financial position of the Corporation
will not be affected materially by the final outcome of any present legal
proceedings or other contingent liabilities and commitments.
COMMITMENTS WITH OFF-BALANCE SHEET RISK
The statement of condition does not reflect various commitments relating to
financial instruments which are used in the normal course of business.
Management does not anticipate that the settlement of those financial
instruments will have a material adverse effect on the Corporation's financial
position. These instruments include commitments to extend credit and letters of
credit. These financial instruments carry various degrees of credit risk, which
are defined as the possibility that a loss may occur from the failure of another
party to perform according to the terms of the contract.
Commitments to extend credit are legally binding loan commitments with set
expiration dates. They are intended to be disbursed, subject to certain
conditions, upon request of the borrower. The Banks receive a fee for providing
a commitment. The Banks were committed to advance $22,652 to borrowers as of
December 31, 1995. Such commitments generally expire within one year.
Standby letters of credit are provided to customers to guarantee their
performance, generally in the production of goods and services or under
contractual commitments in the financial markets. The Banks have entered into
standby letter of credit contracts with their customers, generally expiring
within one year, aggregating $1,908 as of December 31, 1995.
Note 14 Fair value of financial instruments:
The following is a summary of fair value versus the carrying value of the
Corporation's financial instruments. For the Corporation, as for most financial
institutions, the bulk of its assets and liabilities are considered financial
instruments. Many of the Corporation's financial instruments lack an available
trading market as characterized by a willing buyer and willing seller engaging
in an exchange transaction. It is also the Corporation's general practice and
intent to hold its financial instruments to maturity and not engage in trading
or sales activities. Therefore, significant estimations and present value
calculations were used by the Corporation for the purpose of this disclosure.
Estimated fair values have been determined by the Corporation using the best
available data and an estimation methodology suitable for each category of
financial instruments. The estimation methodologies use, the estimated fair
values, and the record book balances, were as follows as of December 31, 1995:
Financial instruments actively traded in the secondary market have been valued
using available market prices.
<TABLE>
<CAPTION>
Estimated
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
Cash and cash equivalents............... $29,046 $29,046
Securities available for sale (Note 4).. 47,835 47,835
Securities held to maturity (Note 4).... 36,151 36,061
</TABLE>
Financial instruments with stated maturities have been valued using a discounted
cash flow with a discount rate approximating current market for similar assets
and liabilities. For those loans and deposits with no stated maturities or
floating interest rates, it is assumed that estimated fair values generally
approximate the recorded book balances.
<TABLE>
<CAPTION>
Estimated
Carrying Value Fair Value
-------------- ----------
<S> <C> <C>
Loans, including accrued interest receivable.. $132,440 $132,563
Deposits, including accrued interest payable.. 224,984 225,369
Securities sold under agreements to purchase.. 2,757 2,759
</TABLE>
There is no material difference between the notional amount and the estimated
fair value of off-balance sheet unfunded loan commitments which totaled $22,652
at December 31, 1995. Standby letters of credit totaling $1,908 as of
December 31, 1995, are based on fees charged for similar agreements;
accordingly, the estimated fair value of standby letters of credit is nominal.
See also Note 13 for additional discussion relating to these off-balance sheet
activities.
11
<PAGE>
Note 15 Other Income:
The components of other income are summarized below:
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Fees on mortgages sold................ $ 51 $ 61 $ 171
Service charges on deposit accounts... 867 515 499
Credit card fee income................ 567 65 -
Other commissions and fees............ 190 136 455
Gain or (loss) on sale of securities.. 209 (84) 62
Other income.......................... 293 162 151
------ ----- ------
$2,177 $ 855 $1,338
====== ===== ======
</TABLE>
Note 16 Other operating expenses:
The components of other operating expenses are as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Advertising.............................. $ 106 $ 188 $ 95
Computer services........................ 390 252 222
Regulatory, professional and other fees.. 781 611 485
FDIC insurance assessment................ 262 360 355
Office expenses.......................... 494 371 286
Other real estate operating expenses..... 314 55 6
Merchant credit card expense............. 616 54 -
All other expenses....................... 1,128 460 483
------ ------ ------
$4,091 $2,351 $1,932
====== ====== ======
</TABLE>
Note 17 Condensed Financial Information, Great Falls Bancorp (Parent Company
Only):
Condensed financial statements of the parent company, Great Falls Bancorp, are
as follows:
CONDENSED STATEMENTS OF CONDITION
(in thousands)
<TABLE>
<CAPTION>
December 31
----------------
1995 1994
------- -------
<S> <C> <C>
ASSETS:
Cash and due from banks - Non-interest-bearing....... $ 632 $ 267
Securities - U.S. Treasury Notes..................... 2,979 2,797
Equity Securities................... 1,821 1,839
Accrued interest receivable.......................... 63 66
Investment in subsidiaries, on equity method......... 19,168 14,723
Other Assets......................................... 178 347
------- -------
Total assets................................ $24,841 $20,039
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Redeemable subordinated debentures................... $ 4,976 $ 4,963
Other liabilities.................................... 270 115
Shareholders' equity................................. 19,595 14,961
------- -------
Total liabilities and shareholders' equity.. $24,841 $20,039
======= =======
</TABLE>
CONDENSED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Income
Equity in undistributed income of subsidiary banks............... $ 2,069 1,646 $ 1,305
Interest income.................................................. 342 244 44
Non-interest income.............................................. 291 - 13
------- ----- -------
2,702 1,890 1,359
Other expenses...................................................... 735 528 80
------- ----- -------
Income before income taxes................................... 1,967 1,362 1,279
Income tax benefit.................................................. 105 124 22
------- ----- -------
Net income................................................... $ 2,072 1,486 $ 1,301
======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
(in thousands)
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................................... $ 2,072 $ 1,486 $ 1,301
Adjustments to reconcile net income to cash
(used in) provided by operating activities:
Discount accretion............................................ 22 22 -
Realized security losses (gains).............................. (291) 13 -
(Increase) decrease in other assets........................... 169 (252) (93)
(Increase) decrease in accrued interest receivable............ 3 (56) (5)
(Decrease) increase in other liabilities...................... 156 (27) 136
Equity in undistributed income of subsidiaries................ (2,069) (1,646) (1,302)
------- ------- -------
Net cash provided by (used by) operating activities.. 62 (460) 37
------- ------- -------
Cash flows from investing activities:
Proceeds from sale of securities............................... 509 680 -
Purchase of securities......................................... - (4,345) (612)
------- ------- -------
Net cash (used in) provided by investing activities.. 509 (3,665) (612)
------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of redeemable subordinated
debentures and mandatory stock purchase contacts............. - - 5,000
Proceeds from exercise of stock options........................ 93 87 37
Dividends paid................................................. (269) (134) (65)
Other, net..................................................... ( 30) (23) 10
------- ------- -------
Net cash (used in) provided by financing activities.. (206) (70) 4,982
------- ------- -------
Net increase(decrease) in cash and cash equivalents.. 365 (4,195) 4,407
Cash and cash equivalents, beginning of year........................ 267 4,462 55
------- ------- -------
Cash and cash equivalents, end of year.............................. $ 632 $ 267 $ 4,462
======= ======= =======
</TABLE>
13
<PAGE>
GREAT FALLS BANCORP
EXHIBIT 21
TO
1995 ANNUAL REPORT ON FORM 10-KSB
Subsidiaries of the Corporation
Great Falls Bancorp (the "Corporation") has two directly owned operating bank
subsidiaries, Great Falls Bank and Bergen Commercial Bank (the "Subsidiary
Banks"), both of which are New Jersey commercial banking corporations. The
Corporation owns 100% of the outstanding shares of the Subsidiary Banks. Each
of the Subsidiary Banks in turn has one wholly-owned subsidiary, Great Falls
Investment Company, Inc. and BCB Investment Company, Inc. (the "Investment
Companies"), both of which are New Jersey business corporations.
The Corporation also owns 100% of the outstanding shares of a second directly
owned subsidiary, Great Falls Financial Services, Inc., a New Jersey nonbanking
business corporation, which is currently inactive.
These relationships are indicated in the following chart.
GREAT FALLS BANCORP
(registrant)
(the "Corporation")
====================================================
Great Falls Great Falls Bergen
Financial Bank Commercial Bank
Services, Inc. (the "GFB") (the "BCB")
====================================================
. .
. .
. .
--------------- -----------------
Great Falls BCB Investment
Investment Co, Inc.
Company, Inc.
===================================
<PAGE>
EXHIBIT 23
Arthur Andersen LLP
Consent of Independent Public Accountants
-----------------------------------------
To Great Falls Bancorp:
As independent public accountants, we hereby consent to the incorporation by
reference in the Form 10-KSB of our report dated January 16, 1996 and to all
references to our Firm. It should be noted that we have not audited any
financial statements of Great Falls Bancorp subsequent to December 31, 1995 or
performed any audit procedures subsequent to the date of our report.
Arthur Andersen LLP
Roseland, New Jersey
March 26, 1996
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
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1709
0
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