UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-25808
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GREAT AMERICAN BANCORP, INC.
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Delaware 52-1923366
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State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1311 S. Neil St., P.O. Box 1010, Champaign, IL 61824-1010
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(Address of principal executive offices) (Zip Code)
(217) 356-2265
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.
(1) [X] Yes [ ] No
(2) [X] Yes [ ] No
At October 31, 1998, the Registrant had 1,359,683 shares of Common Stock
outstanding, for ownership purposes, which excludes 693,067 shares held as
treasury stock.
Table of Contents
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
(in thousands)
September 30, 1998 Dec. 31, 1997
(unaudited)
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ASSETS
Cash and due from banks $ 8,086 $ 5,285
Interest-bearing demand deposits 1,539 12,191
--------------------------------
Cash and cash equivalents 9,625 17,476
Investment securities
Available for sale 2,001 1,999
Held to maturity 1,650 1,300
--------------------------------
Total investment securities 3,651 3,299
Loans 125,754 112,312
Allowance for loan losses (590) (497)
--------------------------------
Net loans 125,164 111,815
Premises and equipment 7,597 7,090
Federal Home Loan Bank stock 698 580
Other assets 2,379 1,713
--------------------------------
Total assets $ 149,114 $ 141,973
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing $ 10,360 $ 5,463
Interest bearing 109,518 106,521
--------------------------------
Total deposits 119,878 111,984
Other borrowings 4,000 --
Other liabilities 1,972 1,695
--------------------------------
Total liabilities 125,850 113,679
--------------------------------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets (Continued)
As of September 30, 1998 and December 31, 1997
(in thousands)
September 30, 1998 Dec. 31, 1997
(unaudited)
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STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
Authorized and unissued --
1,000,000 shares -- --
Common stock, $0.01 par value
Authorized -- 7,000,000 shares
Issued and outstanding -- 2,052,750 shares 21 21
Paid-in-capital 19,842 19,655
Retained earnings -- substantially restricted 16,490 16,167
Net unrealized gain on securities
available for sale 1 2
--------------------------------
36,354 35,845
Less:
Treasury stock, at cost - 681,991 and
380,773 shares (11,814) (5,925)
Unallocated employee stock ownership plan
shares - 69,746 and 87,891 shares (697) (879)
Unearned incentive plan shares - 40,111 and
51,802 shares (579) (747)
--------------------------------
(13,090) (7,551)
--------------------------------
Total stockholders' equity 23,264 28,294
--------------------------------
Total liabilities and
stockholders' equity $ 149,114 $ 141,973
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands except share data)
1998 1997
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Interest income:
Loans $ 7,578 $ 6,416
Investment securities
Taxable 168 304
Tax exempt 11 10
Deposits with financial
institutions and other 464 777
--------------------------------
Total interest income 8,221 7,507
--------------------------------
Interest expense:
Deposits 3,712 3,329
Other 68 24
--------------------------------
Total interest expense 3,780 3,353
--------------------------------
Net interest income 4,441 4,154
Provision for loan losses 117 117
--------------------------------
Net interest income after
provision for loan losses 4,324 4,037
--------------------------------
Noninterest income:
Brokerage commissions 119 25
Insurance sales commissions 353 --
Service charges on deposit accounts 336 329
Loan servicing fees 19 24
Other customer fees 107 105
Net gains on loan sales 1 1
Other income 10 33
--------------------------------
Total noninterest income 945 517
--------------------------------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands except share data)
1998 1997
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Noninterest expense:
Salaries and employee benefits 2,157 1,881
Net occupancy expenses 426 351
Equipment expenses 280 225
Data processing fees 118 144
Deposit insurance expense 52 47
Printing and office supplies 187 209
Legal and professional fees 110 163
Directors and committee fees 78 76
Insurance expense 31 30
Marketing and advertising expenses 148 127
Other expenses 294 256
--------------------------------
Total noninterest expense 3,881 3,509
--------------------------------
Income before income tax 1,388 1,045
Income tax expense 609 433
--------------------------------
Net income $ 779 $ 612
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.54 $ 0.38
================================
Average number of shares 1,444,360 1,592,110
================================
Diluted:
Net income $ 0.50 $ 0.37
================================
Average number of shares 1,547,444 1,675,168
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Dividends $ 0.32 $ 0.30
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Quarter Ended September 30, 1998 and 1997
(unaudited, in thousands except share data)
1998 1997
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Interest income:
Loans $ 2,651 $ 2,261
Investment securities
Taxable 57 107
Tax exempt 7 3
Deposits with financial
institutions and other 93 211
--------------------------------
Total interest income 2,808 2,582
--------------------------------
Interest expense:
Deposits 1,265 1,155
Other 43 8
--------------------------------
Total interest expense 1,308 1,163
--------------------------------
Net interest income 1,500 1,419
Provision for loan losses 39 39
--------------------------------
Net interest income after
provision for loan losses 1,461 1,380
--------------------------------
Noninterest income:
Brokerage commissions 33 10
Insurance sales commissions 133 --
Service charges on deposit accounts 114 120
Loan servicing fees 6 8
Other customer fees 38 36
Net gain on loan sales 1 --
Other income -- 3
--------------------------------
Total noninterest income 325 177
--------------------------------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Quarter Ended September 30, 1998 and 1997
(unaudited, in thousands except share data)
1998 1997
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Noninterest expense:
Salaries and employee benefits 749 638
Net occupancy expenses 160 119
Equipment expenses 104 82
Data processing fees 19 48
Deposit insurance expense 17 17
Printing and office supplies 61 64
Legal and professional fees 31 43
Directors and committee fees 26 24
Insurance expense 10 11
Marketing and advertising expenses 54 37
Other expenses 96 91
--------------------------------
Total noninterest expense 1,327 1,174
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Income before income tax 459 383
Income tax expense 199 155
--------------------------------
Net income $ 260 $ 228
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.19 $ 0.15
================================
Average number of shares 1,381,859 1,563,412
================================
Diluted:
Net income $ 0.18 $ 0.14
================================
Average number of shares 1,476,148 1,647,483
================================
Dividends $ 0.11 $ 0.10
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands)
1998 1997
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Operating Activities:
Net income $ 779 $ 612
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 117 117
Depreciation 351 329
Amortization of deferred loan fees (25) (25)
Deferred income tax (67) 26
Investment securities accretion, net (1) (4)
Net gain on loan sales (1) (1)
Employee stock ownership plan
compensation expense 372 312
Incentive plan expense 165 167
Loans originated for sale (44) (72)
Proceeds from sales of loans
originated for resale 45 73
Net gain on sale of premises
and equipment -- (2)
Net change in:
Other assets (666) (406)
Other liabilities 360 273
--------------------------------
Net cash provided by
operating activities 1,385 1,399
--------------------------------
Investing Activities:
Net change in interest-bearing time deposits -- 2,000
Purchases of securities available for sale (1,000) (993)
Purchases of securities held to maturity (1,450) (2,995)
Proceeds from maturities of securities held
to maturity 1,100 3,098
Proceeds from maturities of securities
available for sale 997 --
Purchase of Federal Home Loan Bank stock (118) (126)
Net change in loans (13,441) (18,375)
Purchase of premises and equipment (858) (187)
Proceeds from sale of premises
and equipment -- 2
--------------------------------
Net cash used by
investing activities (14,770) (17,576)
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 30, 1998 and 1997
(unaudited, in thousands)
1998 1997
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Financing Activities:
Net change in:
Noninterest-bearing demand, interest-
bearing demand and savings deposits 3,671 478
Certificates of deposit 4,223 8,386
Other short-term borrowings 4,000 --
Cash dividends (471) (501)
Purchase of treasury stock (5,914) (2,561)
Issuance of treasury stock 25
--------------------------------
Net cash provided by
financing activities 5,534 5,802
--------------------------------
Net Change in Cash and Cash Equivalents (7,851) (10,375)
Cash and Cash Equivalents, Beginning
of Period 17,476 26,410
--------------------------------
Cash and Cash Equivalents, End of
Period $ 9,625 $ 16,035
================================
Additional Cash Flows Information
Interest paid $ 3,757 $ 3,344
================================
Income tax paid $ 666 $ 210
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Background Information
Great American Bancorp, Inc. (the "Company") was incorporated on February 23,
1995 and on June 30, 1995 acquired all of the outstanding shares of common
stock of First Federal Savings Bank of Champaign-Urbana, (the "Bank") upon the
Bank's conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank. The Company purchased 100% of the
outstanding capital stock of the Bank using 50% of the net proceeds from the
Company's initial stock offering which was completed on June 30, 1995. The
Company began trading on the NASDAQ Stock Market on June 30, 1995 under the
symbol "GTPS".
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310(b) of
Regulation S-B, and, in the opinion of management, contain all adjustments
necessary to present fairly the financial position as of September 30, 1998
and December 31, 1997, the results of operations for the nine months ended and
three months ended September 30, 1998 and 1997, and the cash flows for the
nine months ended September 30, 1998 and 1997. All adjustments to the
financial statements were normal and recurring in nature. These results have
been determined on the basis of generally accepted accounting principles.
Reclassifications of certain amounts in the 1997 financial statements have
been made to conform to the 1998 presentation. The results of operations for
the nine months ended September 30, 1998 are not necessarily indicative of the
results to be expected for the entire fiscal year.
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," ("SFAS No. 130") in 1998. At September 30,
1998 and September 30, 1997, the amounts to be disclosed by the Company under
SFAS No. 130 are considered immaterial and are therefore not shown in the
accompanying financial statements.
The consolidated financial statements are those of the Company and the Bank.
These consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 1997
Annual Report to Shareholders.
PART I -- Item 2.
GREAT AMERICAN BANCORP, INC.
Management's Discussion and Analysis
or Plan of Operation
The Company is the holding company for the Bank. The Bank operates a wholly
owned subsidiary, Park Avenue Service Corporation ("PASC"). PASC offers full
service brokerage activities through Scout Brokerage Services, Inc., a
subsidiary of United Missouri Bank, and also engages in the sale of fixed-rate
and variable-rate tax deferred annuities. In September, 1997, PASC also
established the GTPS Insurance Agency which offers a variety of insurance
products, including life, health, automobile, and property and casualty
insurance. At the inception of GTPS Insurance Agency, PASC hired two
insurance agents to provide these services to customers. Effective March 1,
1998, GTPS Insurance Agency merged with another local insurance agency, the
Cox Lowry and Marsh Insurance Agency, and added four additional insurance
agents. The merged entity assumed the GTPS Insurance Agency name.
In addition to historical information, this 10-QSB may include certain
forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies
of the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business
are included in detail under the captions: Liquidity and Capital Resources
and Year 2000 compliance.
Financial Condition
The Company's total assets increased from $141.97 million at December 31, 1997
to $149.11 million at September 30, 1998, an increase of $7.14 million, or
5.0%. This growth was primarily in loans offset by a decrease in cash and
cash equivalents. Net loans increased by $13.34 million, or 11.9%, from
$111.82 million at December 31, 1997 to $125.16 million at September 30, 1998.
This increase was mostly in mortgage loans, with increases in residential
real estate loans of $7.50 million, or 13.0%, commercial real estate loans of
$4.38 million, or 42.6%, and construction loans of $2.28 million, or 141.4%,
over December 31, 1997 balances. Cash and cash equivalents declined by $7.85
million from $17.48 million at December 31, 1997 to $9.63 million at September
30, 1998, due to providing part of the funding for new loans.
Total deposits increased $7.90 million, or 7.1%, from $111.98 million at
December 31, 1997 to $119.88 million at September 30, 1998. Total
noninterest-bearing demand, interest-bearing demand and savings deposits
increased $3.67 million, or 8.8%, from $41.52 million at December 31, 1997 to
$45.19 million at September 30, 1998. This increase was mainly due to
fluctuations that occur in the ordinary course of business. Total
certificates of deposit increased $4.22 million, or 5.9%, from $70.46 million
at December 31, 1997 to $74.68 million at September 30, 1998. The growth in
certificates of deposit was primarily in certificates maturing in two years
and greater. The company has borrowed $4.0 million since December 31, 1997.
In June 1998, the Company engaged in a short term repurchase agreement in the
amount of $2.0 million. In September 1998, the company borrowed $2.0 million
from the Federal Home Loan Bank ("FHLB") for a term of two years. Prior to
the filing of this report, in October, 1998, the company also borrowed an
additional $5.0 million from the FHLB for a term of ten years. The $5.0
million advance is non-callable by the FHLB for a period of three years. The
increase in deposits and other borrowings assisted in funding the growth in
loans.
Total stockholders' equity decreased $5.03 million, or 17.8%, from $28.29
million at December 31, 1997 to $23.26 million at September 30, 1998. Book
value per outstanding voting share increased from $16.92 at December 31, 1997
to $16.97 at September 30, 1998. The decrease in stockholders' equity is
summarized as follows (in thousands):
Stockholders' equity, December 31, 1997 $ 28,294
Net income 779
Purchase of treasury stock (5,914)
Dividends declared (456)
Treasury stock issued 25
Incentive plan shares allocated 165
ESOP shares allocated 372
Decrease in unrealized gain on securities
available for sale, net of income tax effect (1)
------
Stockholders' equity, September 30, 1998 $ 23,264
======
On September 1, 1998, the Company announced that its Board of Directors had
authorized the repurchase of up to 10%, or 151,076 shares, of the Company's
common stock. This common stock repurchase was completed in October, prior to
the date of this filing, at an average price of $17.24 per share. The
repurchased shares will be held as treasury shares to be used for general
corporate purposes.
Results of Operations
Comparison of nine Month Periods Ended September 30, 1998 and 1997
Net income was $779,000 for the nine months ended September 30, 1998, compared
to $612,000 for the nine months ended September 30, 1997. This represents a
$167,000, or 27.3% increase. Basic earnings per share were $0.54 for the nine
months ended September 30, 1998, compared to $0.38 for the nine months ended
September 30, 1997, and diluted earnings per share were $0.50 in 1998,
compared to $0.37 in 1997.
Net income in 1998 was higher than net income in 1997 due to increases in net
interest income and noninterest income, offset by an increase in noninterest
expense.
Net interest income was $4,441,000 for the nine months ended September 30,
1998, compared to $4,154,000 for the same period in 1997, an increase of
$287,000, or 6.91%. Interest income was $8,221,000 for the nine months ended
September 30, 1998, compared to $7,507,000 for the same period in 1997, an
increase of $714,000, or 9.51%, primarily the result of increased interest
income from loans. Interest income on loans in 1998 was $7,578,000,
$1,162,000, or 18.1%, greater than the $6,416,000 recorded in 1997.
The increase in interest income on loans was due to higher average total loans
in 1998. Average total net loans for the nine months ended September 30, 1998
were $117.90 million, compared to $100.56 million for the same period in 1997,
an increase of $17.34 million, or 17.24%. The average total balance of all
loan categories increased in 1998, with the majority of the increase in
mortgage loans. Total mortgage loans averaged $94.29 million for the nine
months ended September 30, 1998, compared to $79.52 million for the nine
months ended September 30, 1997, an increase of $14.77 million, or 18.58%.
This growth occurred in one-to four-family and multifamily residential loans
and in commercial mortgage loans.
Average total commercial loans were $12.29 million in 1998, compared to $9.26
million in 1997, an increase of $3.03 million, or 32.7%. Average total
consumer loans were $11.87 million during the nine months ended September 30,
1998, an increase of $.78 million, or 7.03%, over the $11.09 million average
total balance during 1997. The increase in loans is due to continued
strategies management began implementing during 1996 and 1997 which were
designed to promote loan growth. A decline in long-term interest rates during
1998 also contributed to the growth in residential mortgage loans. The average
yield on loans was 8.59% for the nine months ended September 30, 1998, and
8.53% for the same period in 1997.
Interest income on investment securities declined from $314,000 for the nine
months ended September 30, 1997 to $179,000 for the same period in 1998, due
to a decrease in average total investment securities. Total investment
securities averaged $6.79 million in 1997, compared to $3.93 million in 1998,
a decline of $2.86 million, or 42.1%. Interest income on deposits with
financial institutions and other decreased from $777,000 for the nine months
ended September 30, 1997 to $464,000 for the nine months ended September 30,
1998. The average total balance of deposits with financial institutions and
other declined from $19.81 million for the nine months ended September 30,
1997 to $11.70 million for the nine months ended September 30, 1998, a
decrease of $8.1 million, or 40.9%. The declines in total average investment
securities and total average deposits with financial institutions and other
were due to these funds being used to partially fund loan growth and also to
fund the purchase of treasury stock. The average yield on investment
securities decreased from 6.18% for the nine months ended September 30, 1997
to 6.09% for the same period in 1998. The average yield on deposits with
financial institutions and other increased from 5.24% for the nine months
ended September 30, 1997 to 5.30% for the same period in 1998.
Interest expense increased by $427,000, or 12.73% from $3,353,000 for the nine
months ended September 30, 1997 to $3,780,000 for the same period in 1998.
The increase was mainly attributable to growth in interest-bearing deposits
during 1997 and continuing into 1998 and the addition of $4,000,000 in other
borrowings in 1998. Average total interest-bearing deposits increased from
$102.36 million in the first nine months of 1997 to $109.84 million during
1998, an increase of $7.48 million, or 7.31%. Most of this growth occurred in
certificates of deposit, primarily in certificates maturing in two years and
greater. The average rates on deposits were 4.60% and 4.38% for the nine
months ended September 30, 1998 and 1997, respectively.
Net interest income as a percent of average interest earning assets was 4.45%
for the nine months ended September 30, 1998 versus 4.39% for the same period
in 1997. The spread between the yield on interest earning assets and the rate
on interest bearing liabilities was 3.72% and 3.56% for the nine months ended
September 30, 1998 and 1997, respectively.
The provision for loan losses was $117,000 for both the nine months ended
September 30, 1998 and the nine months ended September 30, 1997. There were
$32,000 in loans charged-off in the nine months ended September 30, 1998 and
recoveries totaled $8,000. Total charge-offs in the first nine months of 1997
were $26,000, with $3,000 in recoveries.
Non-performing loans, which are loans past due 90 days or more and
non-accruing loans, totaled $178,000 at September 30, 1998, compared to
$369,000 at September 30, 1997. Non-performing loans at September 30, 1998
consisted of five residential mortgage loans totaling $177,000 and one
commercial loan of $1,000. All of these loans are past due 90 days or more
with none of the balance in non-accrual status.
The ratio of the Company's allowance for loan losses to total loans was .47%
at September 30, 1998 and .44% at September 30, 1997. Management assesses the
adequacy of the allowance for loan losses based on evaluating known and
inherent risks in the loan portfolio and upon management's continuing analysis
of the factors underlying the quality of the loan portfolio. Management
believes that, based on information currently available, the allowance for
loan losses is sufficient to cover losses inherent in its loan portfolio at
this time. However, no assurance can be given that the level of the allowance
for loan losses will be sufficient to cover future possible loan losses
incurred by the Company or that future adjustments to the allowance for loan
losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. Management may
in the future increase the level of the allowance for loan losses as a
percentage of total loans and non-performing loans in the event it increases
the level of commercial real estate, multifamily, or consumer lending as a
percentage of its total loan portfolio. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. Such agencies may require the Company to
provide additions to the allowance based upon judgements different from
management.
Noninterest income totaled $945,000 for the nine months ended September 30,
1998, compared to $517,000 for the same period in 1997, an increase of
$428,000, or 82.8%. Insurance sales commissions, which totaled $353,000 in
1998 with no commissions being recorded in 1997, accounted for the majority of
the increase in noninterest income. These commissions were generated by GTPS
Insurance Agency, the division of PASC formed in September, 1997. Brokerage
commissions also increased in 1998 by a total of $94,000, from $25,000 for the
nine months ended September 30, 1997 to $119,000 for the nine months ended
September 30, 1998.
Noninterest expense was $3,881,000 for the nine months ended September 30,
1998, compared to $3,509,000 recorded for the nine months ended September 30,
1997, an increase of $372,000, or 10.6%. The majority of this increase was in
salaries and employee benefits, which increased by $276,000, or 14.7%.
Salaries and employee benefits expense was higher in 1998 due partly to
additional salaries and related benefits paid to employees hired for GTPS
Insurance Agency. Also, expenses related to stock based benefit plans were
higher in 1998 due to the growth in the price of the Company's stock during
most of 1998. Net occupancy expenses, equipment expenses and other expenses
were all higher in 1998 due to the expansion of staff for the GTPS Insurance
Agency.
Total income taxes increased by $176,000, or 40.7% from $433,000 for the nine
months ended September 30, 1997 to $609,000 for the same period in 1998 due to
the increase in pretax net income. The effective tax rates for the nine
months ended September 30, 1998 and 1997, were 43.9% and 41.4%, respectively.
The effective tax rate was lower in 1997 due to a higher level of state tax-
exempt interest income from U.S. Treasury and qualified Federal agency
securities.
Results of Operations
Comparison of Three Month Periods Ended September 30, 1998 and 1997.
Net income for the three months ended September 30, 1998 was $260,000, an
increase of $32,000, or 14.04%, over the $228,000 recorded for the three
months ended September 30, 1997. Basic earnings per share increased from
$0.15 for the three months ended September 30, 1997 to $0.19 for the same
period in 1998, and diluted earnings per share were $0.18 and $0.14 for the
three months ended September 30 1998 and 1997, respectively.
Net income for the third quarter of 1998 was higher due to increases in net
interest income and noninterest income offset by an increase in noninterest
expense.
Net interest income was $1,500,000 for the quarter ended September 30, 1998
and $1,419,000 for the quarter ended September 30, 1997, an increase of
$81,000 or 5.7%. Interest income rose 8.8%, or $226,000, from $2,582,000 for
the quarter ended September 30, 1997 to $2,808,000 for the third quarter of
1998.
The increase in interest income was derived from interest on loans offset by
declines in interest on investments and deposits with financial institutions
and other. Interest income on loans increased $390,000, or 17.3%, from
$2,261,000 for the quarter ended September 30, 1997 to $2,651,000 for the same
quarter in 1998. The majority of the increase was in interest income from
mortgage loans due to growth in these loans. Total average mortgage loans for
the third quarter increased by $16.51 million, or 19.8%, from $83.34 million
in 1997 to $99.85 million in 1998. This growth occurred in both one-to-four
family and multifamily residential loans and in commercial mortgage loans.
Average total commercial loans for the three months ended September 30, 1998
and September 30, 1997 were $12.58 million and $9.98 million, respectively.
This represents an increase of $2.60 million, or 26.0%. Average total
consumer loans were only slightly higher in 1998. The average yield on loans
decreased from 8.59% for the three months ended September 30, 1997 to 8.50%
for the same period in 1998.
Interest income on investment securities declined from $110,000 for the three
months ended September 30, 1997 to $64,000 for the same period in 1998, due to
a decrease in average total investments. Average total investments for the
third quarter of 1998 were $4.35 million, down $2.68 million, or 38.1%, from
$7.03 million for the third quarter of 1997. Interest income on deposits with
financial institutions and other decreased $118,000, or 55.9%, from $211,000
for the three months ended September 30, 1997 to $93,000 for the three months
ended September 30, 1998. The average balance for the quarter ending
September 30, 1998 for deposits with financial institutions and other was
$7.07 million compared to $15.72 million for the same time period in 1997,
down $8.65 million, or 55.0%. The average yield on investment securities for
the three months ending September 30 1998 was 5.84%, while the average yield
was 6.21% for the same time period in 1997. The average yield on deposits
with financial institutions and other was 5.22% for the three months ending
September 30, 1998 and 5.32% for the three months ending September 30, 1997.
Interest expense increased $145,000, or 12.5%, from $1,163,000 for the three
months ended September 30, 1997 to $1,308,000 for the same period in 1998.
The increase was mainly due to higher average total deposits in 1998. Average
total interest-bearing deposits increased from $104.02 million for the quarter
ended September 30, 1997 to $111.08 million for the quarter ended September
30, 1998, with the biggest increases in certificates maturing in two years or
greater. Average total certificates of deposit grew $7.34 million, or 10.9%,
from $67.37 million for the three months ended September 30, 1997 to $74.71
million for the same time period in 1998. The average yield on total
interest-bearing deposits for the three months ended September 30, 1998 was
4.67% and 4.44% for the three months ended September 30, 1997. Interest
expense on other borrowings increased by $35,000 due to repurchase agreements
and FHLB advances entered into by the Company during 1998.
Net interest income as a percent of interest earning assets was 4.40% for the
three months ended September 30, 1998 versus 4.41% for the same period in
1997. The spread between the yield on interest earning assets and the rate on
interest bearing liabilities was 3.76% and 3.61% for the three months ended
September 30, 1998 and 1997, respectively.
The provision for loan losses was $39,000 for the three months ended September
30, 1998 and the three months ended September 30, 1997. There was $29,000 in
loans charged-off in the three months ended September 30, 1998 and recoveries
totaled $2,000. Total charge-offs in the three months ended September 30,
1997 were $20,000, with $3,000 in recoveries.
Noninterest income was up $148,000, or 83.6%, from $177,000 for the quarter
ended September 30, 1997 to $325,000 for the three months ended September 30,
1998. The increase was due to the higher commission income from brokerage and
insurance activities. Insurance sales commissions were $133,000 for the
quarter ended September 30, 1998 with no amount being recorded for the same
period in 1997. Brokerage commissions were $33,000 for the three months ended
September 30, 1998 and $10,000 for the three months ended September 30, 1997,
resulting in an increase of $23,000.
Noninterest expense was $1,327,000 for the three months ending September 30,
1998, compared to $1,174,000 for the same period in 1997, an increase of
$153,000, or 13.0%. The increase was mostly attributable to higher salaries
and employee benefits expense, net occupancy expenses, and equipment expenses
and occurred primarily as a result of the creation of the GTPS Insurance
Agency.
Total income taxes for the three months ended September 30, 1998 were
$199,000, compared to $155,000 recorded for the same period in 1997, an
increase of $44,000, or 28.4%. The effective tax rates for the three months
ended September 30, 1998 and 1997, were 43.36% and 40.47%, respectively.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and principal and interest
payments on loans. While maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. The Office of Thrift Supervision ("OTS"), the Company's and the
Bank's primary regulator, requires the Bank to maintain minimum levels of
liquid assets. Currently, the required ratio is 4%. The Bank's liquidity
ratios were 8.70% and 15.38% at September 30, 1998 and December 31, 1997,
respectively, well above the required minimum.
A review of the Consolidated Statements of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") decreased $7,851,000 for the nine months ended September
30, 1998, compared to a decrease of $10,375,000 for the nine months ended
September 30, 1997. During the nine months ended September 30, 1998, cash was
primarily provided from earnings, maturities of securities, increases in
noninterest-bearing, interest-bearing demand and savings deposits and
certificates of deposit, and an increase in short-term borrowings. During
1998, cash was primarily used to fund security purchases and loan growth,
purchase treasury stock, and to pay dividends.
During the nine months ended September 30, 1997, cash was primarily provided
from earnings, and increases in certificates of deposit. During this period,
cash was primarily used to fund loan originations, purchase securities held to
maturity and available for sale, purchase treasury stock and to pay dividends.
The Company's primary investment activities during the nine months ended
September 30, 1998 was the origination of loans and the purchase of securities
held to maturity and available for sale. During the nine months ended
September 30, 1998 and September 30, 1997, the Company originated mortgage
loans in the amounts of $26.3 million and $28.5 million, respectively,
commercial loans in the amounts of $16.9 million and $11.2 million,
respectively, and consumer loans in the amounts of $7.6 million and $9.3
million, respectively. Approximately $8.8 million of the total mortgage loans
originated in 1997 was participated to other financial institutions at the
time of origination.
As of September 30, 1998, the Company had outstanding commitments (including
undisbursed loan proceeds) of $5.0 million. The Company anticipates it will
have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in
one year or less from September 30, 1998 totaled $49.9 million. Management
believes a significant portion of such deposits will remain with the
Company.
The OTS capital regulations require savings institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital)
ratio and an 8% risk-based capital standard. The core capital requirement is
effectively 4%, since the OTS prompt corrective action regulations stipulate
that, effective December 19, 1992, an institution with less than 4% core
capital will be deemed to be "undercapitalized." As of September 30, 1998,
the Bank's capital percentages for tangible capital of 8.09%, core capital of
8.09%, and risk-based capital of 13.71% exceeded the regulatory requirement
for each category.
Current Accounting Issues
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income," which establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is defined as
"the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources. It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners." The comprehensive income
and related cumulative equity impact of comprehensive income items are
required to be disclosed prominently as part of the notes to the financial
statements. Only the impact of unrealized gains or losses on securities
available for sale would be disclosed as an additional component of the
Company's income under the requirements of SFAS No.130. The statement is
effective for fiscal years beginning after December 31, 1997. The Company
adopted SFAS No. 130 in 1998. At September 30, 1998 and September 30, 1997,
the amounts to be disclosed by the Company under SFAS No. 130 are considered
immaterial and are therefor not shown in the accompanying financial
statements.
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and
reporting standards for derivative instruments. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for all periods beginning after June 15, 1999. The
Company will adopt SFAS No. 133 during fiscal year 2000 and does not
anticipate any impact to its financial statements.
YEAR 2000 Compliance
The Company has contracted with a software company to provide the Company with
software to process the majority of the Company's financial transactions in-
house and converted to this software in October, 1998. Although year 2000
compliance was a major factor in the selection of a software company, the
Company had to convert to a new system because the prior data provider, a
service bureau, would not renew its contract with the Company. This contract
was due to expire in March, 1998. The new software provider has pledged in
its contract with the Company that its software is already year 2000
compliant, meaning that the date fields in its software are already capable of
handling the change to the year 2000. The Company will begin year 2000
testing on the new software in late 1998.
The Company has also completed identification of other computer applications
that may be affected by the year 2000 date change. All vendors and service
providers have been contacted, and the majority of these vendors have assured
the Company that their software is or will be year 2000 compliant by June 30,
1999. The Company is also in the process of developing a contingency plan in
the event computer applications fail to handle the year 2000 date change
properly. The Company does not expect that the cost of its year 2000
compliance program will be material to its financial condition or results of
operations and believes that it will be able to satisfy such compliance
program by the end of the first quarter of 1999 without any material
disruption to its operations. There can be no assurances, however, that such
contingency plan or the performance by the Company's vendors will be effective
to remedy all potential problems. To the extent the Company's systems are not
fully Year 2000 compliant, there can be no assurance that potential systems
interruptions or the cost necessary to update software would not have a
materially adverse effect on the Company's business, financial condition,
results of operations and business prospects. Further, any Year 2000 failure
on the part of the Company's customers could result in additional expense or
loss to the Company.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions incident to
its business, none of which is believed by management to be
material to the financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Great American
Bancorp, Inc.*
3.2 By-laws of Great American Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule
b. Report on Form 8-K
On July 21, 1998 the Company filed an 8-K to announce its
earnings for the six months ended June 30, 1998. The
press release announcing the Company's second quarter
earnings was filed by exhibit.
On August 7, 1998 the Company filed an 8-K to announce
that it had completed a common stock repurchase program.
The press release relating to the completion of a common
stock repurchase program was filed by exhibit.
On September 10, 1998 the Company filed an 8-K to announce
that it had authorized the repurchase of up to 151,076
shares of its common stock. The press release relating
to this repurchase program was filed by exhibit.
_______________
* Incorporated herein by reference into this document from Form
S-1 Registration Statement, as amended, filed on March 24, 1995,
Registration No. 33-90614.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Great American Bancorp, Inc.
Dated: November 13, 1998 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: November 13, 1998 /s/ Jane F. Adams
-------------------------- ----------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
Exhibit 11.0
Earnings per share (unaudited)
Earnings per share (EPS) were computed as follows
(dollar amounts in thousands except share data):
Nine Months Ended
September 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 779 1,444,360 $ 0.54
Effect of Dilutive Securities
Stock options 59,091
Unearned incentive plan shares 43,993
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 779 1,547,444 $ 0.50
===============================
Nine Months Ended
September 30, 1997
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 612 1,592,110 $ 0.38
Effect of Dilutive Securities
Stock options 24,014
Unearned incentive plan shares 59,044
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 612 1,675,168 $ 0.37
===============================
Three Months Ended
September 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 260 1,381,859 $ 0.19
Effect of Dilutive Securities
Stock options 54,064
Unearned incentive plan shares 40,225
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 260 1,476,148 $ 0.18
===============================
Three Months Ended
September 30, 1997
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 228 1,563,412 $ 0.15
Effect of Dilutive Securities
Stock options 33,480
Unearned incentive plan shares 50,591
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 228 1,647,483 $ 0.14
===============================
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,086
<INT-BEARING-DEPOSITS> 1,539
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,001
<INVESTMENTS-CARRYING> 1,650
<INVESTMENTS-MARKET> 1,661
<LOANS> 125,754
<ALLOWANCE> 590
<TOTAL-ASSETS> 149,114
<DEPOSITS> 119,878
<SHORT-TERM> 4,000
<LIABILITIES-OTHER> 1,972
<LONG-TERM> 0
0
0
<COMMON> 21
<OTHER-SE> 23,243
<TOTAL-LIABILITIES-AND-EQUITY> 149,114
<INTEREST-LOAN> 7,578
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<INTEREST-TOTAL> 8,221
<INTEREST-DEPOSIT> 3,712
<INTEREST-EXPENSE> 3,780
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<INCOME-PRETAX> 1,338
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<EXTRAORDINARY> 0
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<NET-INCOME> 779
<EPS-PRIMARY> 0.54
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<YIELD-ACTUAL> 4.45
<LOANS-NON> 0
<LOANS-PAST> 178
<LOANS-TROUBLED> 147
<LOANS-PROBLEM> 1,865
<ALLOWANCE-OPEN> 497
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<ALLOWANCE-CLOSE> 590
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