U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year ended December 31, 1997
-----------------
Commission file number 000-25808
----------
GREAT AMERICAN BANCORP, INC.
---------------------------------------
(Name of small business issuer in its charter)
Delaware 52-1923366
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1311 S. Neil St., P.O. Box 1010, Champaign, Illinois 61824-1010
- ---------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuers's telephone number, including area code (217) 356-2265
-------------
Securities registered under Section 12(b)
of the Exchange Act: None
-------
Securities registered under Section 12(g)
of the Exchange Act:
Common Stock: par value $0.01 per share
---------------------------------------
(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 [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation SB 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
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
$10,938,000
-----------
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, i.e., persons other than directors and executive officers of the
Registrant, at December 31, 1997 was $24,415,000. For purposes of this
determination only, directors and executive officers of the Registrant have
been presumed to be affiliates. The market value is based upon $19.00 per
share, the last sales price as quoted on The Nasdaq Stock Market for December
31, 1997.
The Registrant had 1,588,378 shares of Common Stock outstanding, for ownership
purposes, at February 28, 1997 which excludes 464,372 shares held as treasury
stock.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The Exhibit Index is located at pages 52-53.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1997 are incorporated by reference into Part II of this Form 10-KSB. Portions
of the Proxy Statement for the 1998 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-KSB.
INDEX
PART I
PAGE
Item 1. Description of Business . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . . . . . 49
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 51
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . . . 51
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . 51
Item 6. Management's Discussion
and Analysis . . . . . . . . . . . . . . . . . . . . . . . 51
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . 51
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 51
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act. . . . . . . . . . . . . . . . . 51
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . 52
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . 52
Item 12. Certain Relationships and Related Transactions. . . . . . . 52
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 52
SIGNATURES
PART I
Item 1. Description of Business.
General
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, Illinois, (the
"Bank") upon the Bank's conversion from a federally chartered mutual savings
bank to a federally chartered stock savings bank (the "Conversion"). 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 sold 2,052,750 shares of common stock
in the initial offering at $10 per share. The Company began trading on The
Nasdaq Stock Market on June 30, 1995 under the symbol "GTPS".
In November 1995, the Company and the Bank each changed their fiscal year
end from September 30 to December 31, and accordingly, the three months ended
December 31, 1995 are included in the audit of the fiscal year ending December
31, 1996.
The Company's assets at December 31, 1997 consist primarily of the
investment in the Bank of $18.9 million, multifamily real estate loans of $6.0
million, commercial loans totaling $1.6 million which were purchased from the
Bank and short-term marketable securities of $549,000. Other than its
investment in loans, the Company does not transact any material business other
than through its subsidiary, the Bank.
Business of the Bank
The Bank was originally chartered in 1908 and became a federally chartered
mutual savings institution in 1938. Prior to changing its name to First
Federal Savings Bank of Champaign-Urbana in January, 1995, the Bank operated
as First Federal Savings and Loan Association of Champaign. The Bank's
primary market area consists of Champaign County, Illinois, which includes the
cities of Champaign and Urbana. The economy in the Bank's primary market area
is predominantly related to the University of Illinois, medical and health
care related businesses, a major food processing operation and agriculture.
The Bank maintains three offices, two in Champaign and one in Urbana, and
provides a full range of retail banking services at each office, with emphasis
on one- to four-family residential mortgage loans and consumer and commercial
loans. At December 31, 1997, the Bank had total assets, liabilities and
stockholders' equity of approximately $133.6 million, $114.7 million, and
$18.9 million, respectively.
The Bank's principal business consists of the acceptance of retail
deposits from the residents and small businesses surrounding its branch
offices and the investment of those deposits, together with funds generated
from operations, primarily in one- to four-family residential mortgage loans.
The Bank also invests in multifamily mortgage loans, commercial real estate
loans, construction loans, land development loans and commercial and consumer
loans. The Bank, from time to time, originates loans for sale during certain
designated periods and, to a lesser extent, may sell loans from its portfolio.
The Bank retains virtually all the servicing rights of loans sold. At
December 31, 1997, the Bank's gross loan portfolio totaled $104.8 million or
78.4% of total assets. In addition to its lending activities, the Bank also
invests in U.S. Treasury and Agency securities and local municipal securities.
At December 31, 1997, the Bank's securities portfolio totaled $3.3 million.
Securities totaling $2.0 million were designated as available for sale and the
remaining $1.3 million was classified as held to maturity. The Bank also had
$10.0 million invested in overnight marketable securities and $1.6 million
invested in interest-bearing demand deposits at December 31, 1997. The
majority of overnight securities and interest-bearing demand deposits
originated from the approximate $9.68 million the Bank received from the
holding company as part of the Conversion and from the growth in deposits
exceeding loan growth during 1996 and 1997.
The Bank's revenues are derived principally from interest on its mortgage,
consumer and commercial loans, and, to a lesser extent, interest and dividends
on its securities. The Bank's primary sources of funds are deposits,
principal and interest payments and principal prepayments on loans, and to a
lesser extent, proceeds from the sale of loans. Through its wholly-owned
service corporation, Park Avenue Service Corporation ("PASC"), the Bank
engages in brokerage services through a third party broker-dealer, Scout
Brokerage Services, Inc. and also sells tax deferred annuities to the Bank's
customers and members of the public. In September 1997, PASC formed GTPS
Insurance Agency ("Agency") to provide insurance related products to
customers. The Agency sells a variety of insurance products including life,
health, auto, property and casualty insurance.
Lending Activities
General. Historically, the principal lending activity of the Bank has
been the origination of long-term fixed-rate mortgage loans for the purpose of
constructing, financing or refinancing one- to four-family residential
properties. In recent years, the Bank has also emphasized the origination of
balloon, adjustable-rate, and short-term fixed-rate mortgage loans, and has
also increased the origination of consumer loans, commercial and commercial
real estate loans.
Prior to 1996, the Company had not originated any loans. During fiscal
1996, the Company originated one multifamily real estate loan totaling $2.4
million. During fiscal 1997, the Company originated one multifamily real
estate loan totaling $3.5 million. Also in 1997, the Company purchased a
commercial loan totaling $1.6 million from the Bank.
Loan Portfolio Composition. The following table sets forth the
composition of the consolidated loan portfolio in dollar amounts and in
percentages of the respective portfolios at the dates indicated:
<TABLE>
<CAPTION>
Amount of Loans Outstanding at
------------------------------------------------------
December December September September September
31, 1997 31, 1996 30, 1995 30,1994 30, 1993
-------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
One- to four-family residential $ 57,698 $ 51,710 $ 41,724 $ 38,362 $ 38,796
Multifamily residential 18,174 9,446 5,736 4,580 5,379
Commercial 10,296 9,363 11,261 11,312 12,798
Construction 2,994 2,799 447 2,948 278
Land 559 495 275 722 800
Commercial business 15,134 9,861 10,491 9,909 9,930
Consumer 12,088 10,667 10,112 7,200 6,002
------- ------- ------- ------- ------
Total loans 116,943 94,341 80,046 75,033 73,983
Less:
Undisbursed loan funds (4,574) (2,447) (2,324) (2,136) (1,599)
Deferred loan fees, net (57) (77) (79) (99) (127)
------- ------- ------- ------- ------
Total loans, gross 112,312 91,817 77,643 72,798 72,257
Allowance for loan losses (497) (374) (231) (217) (224)
------- ------- ------- ------- ------
Total loans, net $ 111,815 $ 91,443 $ 77,412 $ 72,581 $ 72,033
======= ======= ======= ======= ======
<CAPTION>
Percentage of Loans Outstanding at
-------------------------------------------------------
December December September September September
31, 1997 31, 1996 30, 1995 30,1994 30, 1993
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate:
One- to four-family 49.34% 54.81% 52.13% 51.13% 52.44%
Multifamily residential 15.54 10.01 7.17 6.10 7.27
Commercial 8.80 9.92 14.06 15.07 17.30
Construction 2.56 2.97 .56 3.93 .38
Land .48 .53 .34 .96 1.08
Commercial business 12.94 10.45 13.11 13.21 13.42
Consumer 10.34 11.31 12.63 9.60 8.11
------- ------- ------- ------- -------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
</TABLE>
There were no loans held for sale at December 31, 1997. At that same
date, 44.8% of total mortgage loans had adjustable interest rates, excluding
consumer loans secured by second mortgages on real property.
The types of loans that the Company and Bank may originate are subject to
federal and state law and regulations. Interest rates charged on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies
of the federal government, including the Federal Reserve Board and legislative
tax policies.
Loan Maturity
The following table shows the maturity of consolidated loans at December
31, 1997, and includes principal repayments. Principal repayments totaled
$38.9 million, $46.4 million and $31.8 million for the year ended December 31,
1997, the fifteen month period ended December 31, 1996 and the year ended
September 30, 1995, respectively. At December 31, 1997, all loans were
classified as held for investment. While future loan prepayment activity
cannot be projected, management anticipates that in periods of stable interest
rates, prepayment activity would be lower than prepayment activity experienced
in periods of declining interest rates. In general, the Bank originates
adjustable and fixed-rate one- to four-family loans with maturities from 15 to
30 years, one-to-four family loans with balloon features which mature from 5
to 7 years, multifamily loans with maturities from 10 to 20 years,
adjustable-rate commercial real estate loans with maturities of 15 to 25
years, commercial loans with maturities of from 1 to 5 years, and consumer
loans with maturities of 1 to 5 years.
<TABLE>
<CAPTION>
December 31, 1997
(in thousands)
------------------------------------------------------------------------------------------
One- to Multi Real Total
Four- Family Estate Loans
Family Residential Commercial Construction Land Commercial Consumer Receivable
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less $ 2,760 3,656 799 2,994 414 9,848 3,841 24,312
After one year:
More than one year to
three years 5,256 406 1,004 -- 35 1,707 2,998 11,406
More than three years
to five years 20,237 1,407 3,038 -- 18 357 2,422 27,479
More than five years
to 10 years 8,811 2,029 1,833 -- 46 707 782 14,208
More than 10 years
to 20 years 13,011 9,756 2,948 -- 46 1,652 1,218 28,631
More than 20 years 7,623 920 674 -- -- 863 827 10,907
-----------------------------------------------------------------------------------------
Total due after
December 31, 1997 54,938 14,518 9,497 -- 145 5,286 8,247 92,631
-----------------------------------------------------------------------------------------
Total amount due 57,698 18,174 10,296 2,994 559 15,134 12,088 116,943
Less:
Undisbursed loan funds (28) -- -- (1,379) -- (3,167) -- (4,574)
Deferred Loan fees, net (57) -- -- -- -- -- -- (57)
-----------------------------------------------------------------------------------------
Total loans, gross 57,613 18,174 10,296 1,615 559 11,967 12,088 112,312
Allowance for loan losses (64) (20) (11) (3) (1) (194) (204) (497)
-----------------------------------------------------------------------------------------
Total loans, net $ 57,549 18,154 10,285 1,612 558 11,773 11,884 111,815
=========================================================================================
</TABLE>
The following table sets forth, at December 31, 1997, the dollar amount of
gross loans receivable, contractually due after December 31, 1997, and whether
such loans have fixed interest rates or adjustable interest rates.
Due After December 31, 1997
--------------------------------------
Fixed Adjustable Total
--------------------------------------
(in thousands)
Real estate:
One- to four-family residential $ 37,629 $ 17,309 $ 54,938
Multifamily residential 5,287 9,231 14,518
Commercial real estate 628 8,869 9,497
Construction -- -- --
Land 17 128 145
Commercial business 5,070 216 5,286
Consumer 8,247 -- 8,247
------------------------------------
Total loans $ 56,878 $ 35,753 $ 92,631
====================================
Origination, Purchase, Sale and Servicing of Loans. The Bank's lending
activities are conducted primarily through its home office and two branch
offices. The Bank, from time to time, also sells mortgage loans that it
originates during certain designated periods and sells loans from its
portfolio and purchases participations in mortgage loans originated by other
institutions. The Bank has sold one- to four-family mortgage loans during
periods in which management believes market interest rates are not conducive
to the Bank holding such loans in its portfolio. Additionally, the Bank may
sell loans from its portfolio to, among other things, fund its commitments for
loan sales when circumstances result in the Bank's inability to close loans
which have been committed for sale. Historically, the substantial majority of
loans sold by the Company have been sold to the Federal Home Loan Mortgage
Corporation ("FHLMC"). The determination to purchase participations in
specific loans or pools of loans is based upon criteria substantially similar
to the Bank's underwriting policies which consider the financial condition of
the borrower, the location of the underlying property and the appraised value
of the property, among other factors.
The Bank recognizes, at the time of sale, the cash gain or loss on the sale
of the loans based on the difference between the net cash proceeds received
and the carrying value of the loans sold. Mortgage servicing rights on loans
sold are capitalized by allocating the total cost of the mortgage loans
between the mortgage servicing rights and the loans based on their relative
fair values. Capitalized servicing rights are amortized in proportion to and
over the period of estimated servicing revenues.
The following table sets forth consolidated loan originations, purchases,
sales and principal repayments information for the periods indicated.
Year Fifteen Year
Ended Months Ended Ended
December 31, December 31, September 30,
------------------------------------------------
1997 1996 1995
------------------------------------------------
(in thousands)
Gross Loans (1)
Beginning balance $ 91,817 $ 77,643 $ 72,798
Loans originated:
One- to four-family 12,099 21,819 8,149
Multifamily residential 16,843 4,426 180
Commercial real estate 3,493 4,288 3,517
Construction 4,067 4,374 1,125
Land -- 845 1,332
Commercial business 15,364 15,082 12,396
Consumer 12,164 15,683 12,981
----------------------------------------------
Total loans originated 64,030 66,517 39,680
----------------------------------------------
Total 155,847 144,160 112,478
Less:
Transfer to real
estate owned -- -- --
Principal repayments (38,889) (46,400) (31,770)
Sales of loans ( 72) ( 3,496) ( 741)
Loans in process ( 4,574) ( 2,447) ( 2,324)
----------------------------------------------
Total loans, gross $ 112,312 $ 91,817 $ 77,643
==============================================
(1) Gross loans include loans receivable, net of loan origination fees,
deferred loan fees, and unamortized premiums and discounts.
One- to Four-Family Mortgage Lending. The Bank offers both fixed rate
and adjustable rate mortgage loans secured by one- to-four-family residences,
primarily owner-occupied, located in the Bank's primary market area, with
maturities up to thirty years. Substantially all of such loans are secured
by property located in Champaign County, Illinois. Loan originations are
generally obtained from existing or past customers and members of the local
community.
At December 31, 1997, total consolidated gross loans outstanding were
$112.3 million, of which $57.6 million or 51.3% were one- to four-family
residential mortgage loans. Of the one- to four-family residential mortgage
loans outstanding at that date, 69.4% were fixed-rate loans, and 30.6% were
adjustable-rate mortgage loans. The interest rate for the majority of the
Bank's adjustable-rate mortgage loans adjusts periodically based upon a
spread above the one year U.S. Treasury index. The Bank currently offers a
number of adjustable-rate mortgage loan programs with interest rates which
adjust annually, either from the outset of the loan or after a 3, 5 or 7-year
initial period in which the loan has a fixed rate. Such interest rate
adjustments are limited to a 2% annual adjustment cap and a 6%
life-of-the-loan cap. The Bank also offers mortgage loans with balloon
features. In general, these loans may be rolled over on the balloon date if
the customer completes a new loan application and meets all of the
underwriting criteria required of new customers. The Bank currently has no
mortgage loans that are subject to negative amortization but may consider
introducing such loans in the future. Negative amortization involves a
greater risk to the Bank because during a period of high interest rates the
loan principal may increase above the amount originally advanced.
The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing
the potential for default. At the same time, the marketability of the
underlying property may be adversely affected. Periodic and lifetime caps on
adjustable-rate mortgage loans help to reduce these risks but also limit the
interest rate sensitivity of such loans.
The Bank's policy is to originate one- to four-family residential mortgage
loans in amounts up to 80% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value
or selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the
Bank's consent. Due-on-sale clauses are an important means of adjusting the
rates on the Bank's fixed-rate mortgage loan portfolio and the Bank has
generally exercised its rights under these clauses.
Multifamily Lending. The Company and the Bank originate fixed- and
adjustable-rate multifamily residential mortgage loans generally secured by
multiple unit apartment and university housing buildings located in the
Company's and Bank's primary market area. At December 31, 1997, the
consolidated multifamily loan portfolio was $18.2 million, or 16.2% of total
gross loans. In reaching its decision on whether to make a multifamily loan,
management considers the qualifications of the borrower as well as the
underlying property. The factors considered include: the net operating
income of the mortgaged premises before debt service and depreciation; the
debt service ratio (the ratio of net earnings to debt service); and the ratio
of loan amount to appraised value. Pursuant to the Company's and the Bank's
underwriting policies, an adjustable-rate multifamily mortgage loan may only
be made in an amount up to 80% of the appraised value of the underlying
property. In addition, the Company and the Bank generally require a debt
service ratio of 1.2% to 1.5% and the personal guarantee of the borrower.
Properties securing a loan are appraised by an independent appraiser and
title insurance is required on all loans.
When evaluating the qualifications of the borrower for a multifamily
loan, management considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property
and the previous lending experience with the borrower. The Company and the
Bank's underwriting policies require that the borrower be able to demonstrate
strong management skills and the ability to maintain the property from
current rental income. The borrower should also present evidence of the
ability to repay the mortgage and a history of making mortgage payments on a
timely basis. In making its assessment of the creditworthiness of the
borrower, management generally reviews the financial statements, employment
and credit history of the borrower, as well as other related documentation.
The largest multifamily loan at December 31, 1997 is a ten year fixed rate
loan with an outstanding balance of $3.7 million which is secured by an
apartment complex.
Loans secured by apartment buildings and other multifamily residential
properties generally involve larger principal amounts and a greater degree of
risk than one- to four-family residential mortgage loans. Because payments
on loans secured by multifamily properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market
or the economy. The Company and the Bank seek to minimize these risks
through their underwriting policies, which require such loans to be qualified
at origination on the basis of the property's income and debt coverage ratio.
As part of its operating strategy, the Bank intends to increase its
multifamily lending in its primary market area.
Commercial Real Estate Lending. The Bank originates commercial real
estate loans that are generally secured by properties used for business
purposes such as small office buildings or a combination of residential and
retail facilities located in the Bank's primary market area. The Bank's
underwriting procedures provide that commercial real estate loans may
generally be made in amounts up to 80% of the appraised value of the
property, subject to the Bank's current loans-to-one-borrower limit.
These loans may be made with terms up to 30 years, fully amortized, and
are generally offered at interest rates which adjust in accordance with the
prime rate as reported in the Wall Street Journal. The Bank's underwriting
standards and procedures are similar to those applicable to its multifamily
loans, whereby the Bank considers the net operating income of the property
and the borrower's expertise, credit history and profitability. The Bank has
generally required that the properties securing commercial real estate loans
have debt service coverage ratios of at least 1.2% to 1.5%. The largest
commercial real estate loan in the Bank's portfolio at December 31, 1997, was
a $1.1 million, six month adjustable rate, loan which was originated in
October, 1991 and is secured by an office building. At December 31, 1997,
the Bank's commercial real estate loan portfolio totaled approximately $10.3
million or 9.2% of total consolidated gross loans. As part of its operating
strategy, the Bank intends to increase its commercial real estate lending in
its primary market area.
Loans secured by commercial real estate properties, like multifamily
loans, usually involve larger principal amounts and, generally, the interest
rate on these loans adjusts every five years. The Bank also offers mortgage
loans with balloon features. In general, these loans may be rolled over on
the balloon date if the customer completes a new loan application and meets
all of the underwriting criteria required of new customers. The Bank
currently has no mortgage loans that are subject to negative amortization but
may consider introducing such loans in the future. Negative amortization
involves a greater risk to the Bank because during a period of high interest
rates the loan principal may increase above the amount originally advanced.
Because payments on loans secured by commercial real estate properties
are often dependent on successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks through
its underwriting standards, which require such loans to be qualified on the
basis of the property's income and debt service ratio.
Construction and Land Development Lending. The Bank originates loans for
the acquisition and development of property to contractors and individuals in
its primary market area. The Bank has made construction loans primarily to
finance the construction of one- to four-family, owner-occupied residential
properties and multifamily properties. These loans generally have maturities
of one year or less. Loans for the construction of one-to four-family
residences may be made in amounts up to 80% of the appraised value of the
property or up to 95% of the appraised value of the property with private
mortgage insurance. Loans for the construction of commercial and multifamily
properties may be made in amounts up to 80% of the appraised value of the
property, subject to the Bank's current limitation on loans-to-one-borrower.
The Bank generally requires personal guarantees and may require an
irrevocable takeout commitment from a generally recognized lender for an
amount equal to or greater than the amount of the loan. Loan proceeds are
disbursed in increments as construction progresses and as inspections
warrant. Land development loans are determined on an individual basis, but
generally they do not exceed 70% of the actual cost or current appraised
value of the property, whichever is less. The largest construction loan in
the Bank's portfolio at December 31, 1997 was a $249,000 loan originated in
September, 1997. The interest rate on this loan is 9.0%, and the term one
year. The loan is secured by a single family dwelling. At December 31,
1997, the Bank had $2.2 million of construction and land development loans,
which amounted to 2.0% of the consolidated total loan portfolio.
Construction and land development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Bank may be confronted with a project, when completed, having
a value which is insufficient to assure full repayment.
Commercial Lending. The Company and Bank also offer secured and unsecured
commercial business loans. At December 31, 1997, consolidated commercial
business loans totaled $12.0 million, or 10.7% of the total loan portfolio.
Commercial business loans consist of credit lines to support fluctuations in
accounts receivable and inventory, conventional term loans, including both
"owner-occupied" and "investment" real estate loans, working capital loans,
business acquisition loans and small business loans. The Bank's policy is to
generally make fixed-rate and variable rate commercial loans with terms of
from 1 to 5 years. In making commercial loans, management considers primarily
the value of the collateral if the loan is secured, the financial history and
resources of the borrower, the borrower's ability to repay the loan out of net
operating income and the lending history with the borrower. The Company's and
Bank's policies have been generally to require the personal guarantee of all
principal shareholders or partners for loans to corporations or partnerships,
and an annual personal financial statement from all guarantors. The largest
commercial loan or commercial credit relationship consists of unsecured
commercial loans to one borrower which aggregated $1.6 million at December 31,
1997.
As part of its overall strategy, management intends to increase the level
of commercial lending in the primary market area. Unsecured commercial
business lending is generally considered to involve a higher degree of risk
than secured commercial and real estate lending. Risk of loss on an unsecured
commercial business loan is dependent largely on the borrower's ability to
remain financially able to repay the loan out of ongoing operations. If
management's estimate of the borrower's financial ability is inaccurate, the
Company or Bank may be confronted with a loss of principal on the loan.
Consumer Lending. The Bank has developed a consumer loan program to offer
loans on a short term basis, generally up to five years, thereby reducing its
interest rate risk exposure. The Bank's portfolio of consumer loans includes
a combination of automobile, marine, home improvement, recreation and home
equity loans. Beginning in 1997, the Bank began to offer credit cards loans
and overdraft protection loans. As of December 31, 1997, the Bank's consumer
loans amounted to $12.1 million or 10.8% of the total loan portfolio.
Consumer loans are generally originated in the Bank's primary market area and
generally have maturities of one to five years. Consumer loans may be
collateralized by personal property or secondary encumbrances on real estate.
Unsecured consumer loans are generally made with a maximum maturity of 48
months.
Consumer loans are shorter in term and generally contain higher interest
rates than residential loans. Management believes the consumer loan market
has been helpful in improving its spread between average loan yield and costs
of funds and at the same time improving the matching of its rate sensitive
assets and liabilities.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Consumer loans entail greater risks than one- to four-family residential
mortgage loans, particularly consumer loans that are secured by rapidly
depreciable assets such as automobiles or that are unsecured. In such cases,
repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrower's continuing
financial stability, and therefore are more likely to be adversely affected
by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal bankruptcy
and insolvency laws, may limit the amount which can be recovered on such
loans in the event of a default. At December 31, 1997, consumer loans 90
days or more delinquent totaled $24,000 or 0.20% of consumer loans. As part
of its operating strategy, the Bank intends to increase the level of its
consumer lending in its primary market area.
Loan Approval Procedures and Authority. The respective Boards of
Directors authorize the lending activities of the Company and the Bank and
establish the lending policies. The Board of Directors of the Bank has
authorized the following persons to approve loans up to the amounts
indicated: Loans in the amount of $150,000 for secured loans and $75,000 for
unsecured loans may be approved by the President or Senior Vice President of
Lending. One-to four-family residential mortgage loans in an amount not
exceeding the maximum amount saleable to the secondary market (such amount
currently is $214,000) may be approved by specified officers within the
lending department. All other loan commitments or renewals must be referred
to and approved by the Bank's Loan Committee, which is made up of four
directors, the President and the Senior Vice President of Lending.
For all loans originated, upon receipt of a completed loan application from
a prospective borrower, a credit report is ordered and certain other
information is verified by an independent credit agency. If necessary,
additional financial information may be required. An appraisal of real estate
intended to secure a proposed loan generally is required to be performed by an
appraiser designated and approved by the Company or Bank. For proposed
mortgage loans, each Board annually approves independent appraisers to be used
and approves the appraisal policy. The Company's and the Bank's policies are
to obtain title and hazard insurance on all mortgage loans. If private
mortgage insurance is required, the borrower will be required to make payments
to a mortgage impound account from which the Company or Bank makes
disbursements for property taxes and mortgage insurance.
Loan Servicing. The Bank also services mortgage loans for others. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections as required of mortgaged premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain insurance
and tax payments on behalf of the borrowers and generally administering the
loans. At December 31, 1997 the Bank was servicing $10.7 million of loans
for others.
Delinquencies and Classified Assets. Management and the Board of
Directors perform a monthly review of all delinquent loans. The procedures
taken by management with respect to delinquencies vary depending on the
nature of the loan and period of delinquency. The Company and the Bank
generally require that delinquent mortgage loans be reviewed and that a
written late charge notice be mailed no later than the 15th day of
delinquency. The Company's and Bank's policies provide that telephone
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, management will attempt to obtain full payment or work
out a repayment schedule with the borrower to avoid foreclosure. It is the
general policy to continue to accrue interest on all loans which are past due
unless ultimate collection of principal and interest is in doubt. Property
acquired as a result of foreclosure on a mortgage loan is classified as "real
estate owned", and is recorded at the lower of the unpaid principal balance
or fair value less costs to sell at the date of acquisition and thereafter.
Upon foreclosure, it is the Company's and Bank's policy generally to require
an appraisal of the property and, thereafter, appraisal of the property on an
annual basis and external inspections on at least a quarterly basis.
Federal regulations and the Bank's Classification of Assets Policy require
that the Bank utilize an internal asset classification system as a means of
reporting non performing and potential problem assets. The Bank has
incorporated the asset classifications used by the Office of Thrift
Supervision ("OTS"), the Bank's primary regulator, as part of its credit
monitoring system. The Bank currently classifies non performing and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered Substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as Doubtful have all of the weaknesses
inherent in those classified Substandard with the added characteristic that
the weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Watch."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies one or more assets, or portions thereof, as Loss, it is
required either to establish a specific allowance for losses equal to 100% of
the amount of the asset so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment
of adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management
has established acceptable allowance evaluation processes that meet the
objectives set forth in the policy statement. As a result of declines in
local and regional real estate market values and significant losses
experienced by many financial institutions, there has been a greater level of
scrutiny by regulatory authorities of the loan portfolios of financial
institutions undertaken as part of the examination of institutions by the OTS
and the Federal Deposit Insurance Corporation ("FDIC"). While the Bank
believes that it has established an adequate allowance for loan losses, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to materially increase at that time its allowance
for loan losses, thereby negatively affecting the Bank's financial condition
and earnings at that time. Although management believes that, based on
information currently available, adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future
events and, as such, further additions to the level of specific and general
loan loss allowances may become necessary.
The Bank's Loan Committee reviews and classifies the Bank's loans on a
monthly basis and reports the results of its reviews to the Board of
Directors. The Bank classifies loans in accordance with the management
guidelines described above. At December 31, 1997, the Bank had no other real
estate as a result of foreclosure, which is generally classified as
Substandard. At December 31, 1997, the Bank had $538,000 in assets classified
as Substandard, $228,000 classified as Doubtful, zero classified as Loss, and
$374,000 classified as Watch.
The following table sets forth delinquencies in the Bank's loan portfolio
as of the dates indicated.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
--------------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------------------------------------------------------------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
--------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family residential 5 $ 129 4 $ 91 10 $ 221 4 $ 53
Multifamily residential -- -- -- -- -- -- -- --
Commercial real estate 4 373 -- -- 1 16 -- --
Construction and land -- -- -- -- -- -- -- --
Commercial business -- -- 2 277 -- -- 1 57
Consumer 1 3 3 24 3 6 6 67
--------------------------------------------------------------------------------------
Total 10 $ 505 9 $ 392 14 $ 243 11 $ 177
Delinquent loans to total ======================================================================================
gross loans 0.45% 0.35% 0.26% 0.19%
======================================================================================
<CAPTION>
At September 30, 1995
-------------------------------------------------
60-89 Days 90 Days or More
-------------------------------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family residential 10 $ 288 9 $ 103
Multifamily residential -- -- -- --
Commercial real estate 1 16 -- --
Construction and land -- -- -- --
Commercial business 2 42 -- --
Consumer 6 10 7 41
-------------------------------------------------
Total 19 $ 356 16 $ 144
Delinquent loans to total =================================================
gross loans 0.46% 0.19%
=================================================
</TABLE>
Two loans, totaling approximately $60,000 at December 31, 1997, were
delinquent greater than 90 days at both December 31, 1997 and December 31,
1996. One loan totaling $16,000 at December 31, 1997 was delinquent 60-89
days at both December 31, 1997 and 1996. The majority of the delinquent
borrowers have been making their monthly or periodic required payments;
however, the borrowers delinquent at both December 31, 1997 and 1996 are
habitually delinquent.
Nonaccrual and Past Due Loans. The following table sets forth information
regarding loans contractually past due 90 days or more. At December 31, 1997,
there were no troubled-debt restructured loans within the meaning of Statement
of Financial Accounting Standards No. 15 and no foreclosed properties
classified as real estate owned. Total nonaccruing loans were $20,000 at
December 31, 1997. At December 31, 1997, there were 9 accruing loans past due
90 days or more. The Bank continues to accrue interest on loans which are
past due unless ultimate collection of all principal and interest is in doubt.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Dec 31, Dec 31, Sep 30, Sep 30, Sep 30,
1997 1996 1995 1994 1993
-----------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans contractually past due 90 days or more $ 392 $ 177 $ 144 $ 156 $ 291
=================================================================
Allowance for loan losses as a percent
of loans (1) 0.44% 0.41% 0.30% 0.30% 0.31%
Allowance for loan losses as a percent of
non-performing loans 126.79% 211.30% 160.42% 139.10% 76.98%
Non-performing loans as a percent of loans (1) 0.35% 0.13% 0.19% 0.21% 0.40%
Non-performing assets as a percent of total
assets 0.28% 0.09% 0.13% 0.15% 0.27%
</TABLE>
---------------------------
(1) Loans include gross loans less loans in process, undisbursed loan
proceeds and deferred loan origination fees and discounts.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the loan portfolio and the general economy. The allowance
for loan losses is maintained at an amount management considers adequate to
cover estimated losses in loans receivable which are deemed probable and can
be estimated based on information available to management at such time.
While management believes the allowance for loan losses is sufficient to
cover losses inherent in its loan portfolio at this time, no assurances can
be given that the level of the allowance for loan losses will be sufficient
to cover future loan losses incurred 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. The allowance is based upon a number of factors, including asset
classifications, economic trends, industry experience and trends, industry
and geographic concentrations, estimated collateral values, management's
assessments of the credit risk inherent in the portfolio, historical loan
loss experience, and the Bank's underwriting policies. As of December 31,
1997 and 1996, the allowance for loan losses was 0.44% and 0.41%,
respectively, of total loans. Management will continue to monitor and modify
the allowance for loan losses as conditions dictate. Various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. These agencies may require additional
valuation allowances, based on their judgments of the information available
at the time of the examination.
It is the policy of the Bank to charge off consumer loans when it is
determined that they are no longer collectible. The policy for loans secured
by real estate, which comprise the bulk of the loan portfolio, is to establish
loss reserves in accordance with the loan classification process, based on
generally accepted accounting practices. It is the Company's and Bank's
policies to obtain an appraisal on all real estate acquired through
foreclosure at the time of foreclosure.
The following table sets forth activity in the allowance for loan losses
for the periods set forth in the table.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Dec 31, Dec 31, Sep30, Sep 30, Sep 30,
1997 1996 1995 1994 1993
---------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 374 $ 231 $ 217 $ 224 $ 190
Provision for loan losses 156 325 132 74 48
Charge-offs:
One to four-family residential -- -- -- -- --
Multifamily residential -- -- -- -- --
Commercial real estate -- -- -- -- --
Construction and land -- -- -- -- --
Commercial business 20 35 102 80 --
Consumer 18 151 24 3 14
--------------------------------------------------------------
Total charge-offs 38 186 126 83 14
--------------------------------------------------------------
Recoveries:
One- to four-family residential -- -- -- -- --
Multifamily residential -- -- -- -- --
Commercial real estate -- -- -- -- --
Construction and land -- -- -- -- --
Commercial business -- -- -- -- --
Consumer 5 4 8 2 --
--------------------------------------------------------------
Total recoveries 5 4 8 2 --
--------------------------------------------------------------
Net charge-offs 33 182 118 81 14
--------------------------------------------------------------
Balance at end of period $ 497 $ 374 $ 231 $ 217 $ 224
==============================================================
</TABLE>
The following table sets forth the Bank's allocation of the allowance for
loan losses by loan category and the percent of the allocated allowance to
the total allowance for each specific loan category. The portion of the
allowance for loan losses allocated to each loan category does not represent
the total available for future losses which may occur within the loan
category since the total allowance for loan losses is a valuation reserve
applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Amount of Allowance and Percentage of Allowance to Total Allowance
-------------------------------------------------------------------------------------
Dec 31, 1997 Dec 31, 1996 Sep 30, 1995 Sep 30, 1994 Sep 30, 1993
-------------- -------------- -------------- -------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-
family residential $ 64 12.88% $ 61 16.31% $ 31 13.42% $ 23 10.60% $ 18 8.04%
Multifamily residential 20 4.02 11 2.94 27 11.69 27 12.44 20 8.93
Commercial real estate 11 2.21 11 2.94 14 6.06 10 4.61 10 4.46
Construction and land 4 0.81 4 1.07 -- -- -- -- --
Commercial business 194 39.03 141 37.70 46 19.91 52 23.96 94 41.96
Consumer 204 41.05 146 39.04 113 48.92 105 48.39 82 36.61
---- ----- ---- ----- ---- ----- ---- ----- ---- -----
$ 497 100.00% $ 374 100.00% $ 231 100.00% $ 217 100.00% $ 224 100.00%
====================================================================================
</TABLE>
Investment Activities
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury and Agency
obligations, securities of various federal agencies, FHLB term deposits
certificates of deposit of insured banks and savings institutions, bankers'
acceptances, repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
Additionally, the Bank must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Historically, the Bank has
maintained liquid assets above the minimum OTS requirements and at a level
considered to be adequate to meet its normal daily activities.
The investment policies of the Company and the Bank, as established by
the respective Boards of Directors, attempt to provide and maintain liquidity,
generate a favorable return on investments without incurring undue interest
rate and credit risk and complement lending activities. The investment
policies generally limit investments to government and federal agency-backed
securities and other non-government guaranteed securities, including corporate
debt obligations, that are investment grade. The investment policies provide
authority to invest in U.S. Treasury and U.S. Government guaranteed
securities, securities backed by federal agencies such as Federal National
Mortgage Association ("FNMA"), FHLMC and the Federal Farm Credit Bureau,
mortgage-backed securities with maximum average maturities of 10 years which
are backed by federal agency securities, obligations of state and political
subdivisions with at least an "A" rating, term deposits purchased through the
FHLB and securities issued by mutual funds which invest in securities
consistent with the Company's or Bank's allocable investments. The policies
generally limit investments in each category to the lesser of $5,000,000 or
50% of the Company's or Bank's equity. The investment policies provide that
the President is authorized to execute all transactions within specified
limits which are reviewed by the Board of Directors on a monthly basis. From
time to time the Board of Directors may authorize the President to exceed the
policy limitations. The Bank's Asset/Liability Committee monitors compliance
with the Bank's investment policy and generally meets on a quarterly basis.
At December 31, 1997, the Bank had $3.3 million in investment securities
consisting of $3.0 million invested in Federal agency securities ($1.0
million classified as held to maturity and $2.0 million classified as
available for sale) and $300,000 invested in local municipal securities.
The following table sets forth certain information regarding the carrying
and market value of the Company's and the Bank's short-term investments and
securities at the dates indicated.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Dec 31, 1997 Dec 31, 1996 Sep 30, 1995
--------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federated Liquid Cash Fund $10,549 $10,549 $10,715 $10,715 $16,568 $16,568
====================================================================
FHLB term deposits -- -- $ 2,000 $ 2,000 -- --
====================================================================
Securities:
Held to maturity:
U.S. Treasury and
Agency obligations $ 1,000 $ 1,002 $ 3,000 $ 2,994 $ 992 $ 992
Obligations of states and
political subdivisions 300 303 400 402 400 403
--------------------------------------------------------------------
Total held to maturity 1,300 1,305 3,400 3,396 1,392 1,395
--------------------------------------------------------------------
Available for sale:
U.S. Treasury and
Agency obligations 1,996 1,999 -- -- 6,000 5,835
--------------------------------------------------------------------
Total available for sale 1,996 1,999 -- -- 6,000 5,835
--------------------------------------------------------------------
Total $ 3,296 $ 3,304 $ 3,400 $ 3,396 $ 7,392 $ 7,230
====================================================================
</TABLE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Company's and
the Bank's short-term investments and securities as of December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
---------------------------------------------------------------------------------------------------------
More than One More than Five More than Ten
One Year or Less Year to Five Years Years to Ten Years Years Total
---------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
---------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federated Liquid Cash
Fund $ 10,549 6.42% $ -- --% $ -- --% $ -- --% $ 10,549 6.42%
=========================================================================================================
Securities:
Held to maturity:
U.S. Treasury and
Agency obligations $ 1,000 6.00% $ -- --% $ -- --% $ -- --% $ 1,000 6.00%
Obligations of states
and political
subdivisions 100 4.40 200 4.65 -- -- -- -- 300 4.57
Available for sale:
U.S. Treasury and
Agency obligations 999 6.48 1,000 6.06 -- -- -- -- 1,999 6.27
---------------------------------------------------------------------------------------------------------
Total securities $ 2,099 6.15% $ 1,200 5.83% $ -- --% $ -- --% $ 3,299 6.03%
=========================================================================================================
</TABLE>
Source of Funds
General. Deposits, loan repayments and prepayments, proceeds from sales of
loans, cash flows generated from operations and FHLB advances are the primary
sources of the Bank's funds for use in lending, investing and for other
general purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. For the fiscal year ended December 31, 1997,
average certificates of deposit were $66.4 million and were 61.7% of total
average deposits of $107.6 million. Average deposits were $85.8 million for
the fifteen months ended December 31, 1996. The flow of deposits is
influenced significantly by general economic conditions, changes in money
market rates, prevailing interest rates and competition. The Bank's deposits
are obtained predominately from the areas in which its branch offices are
located. The Bank relies primarily on customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. From
time to time, the Bank solicits certificate accounts in excess of $100,000.
The Bank's current deposit products include savings, demand deposit, NOW
accounts, money market and certificate of deposit accounts ranging in terms
from thirty days to eight years. Included in the Bank's certificate of
deposit accounts are certificates of deposit with balances in excess of
$100,000, and Individual Retirement Accounts ("IRAs").
Deposits are obtained primarily from residents of Champaign County,
Illinois. The Bank seeks to attract deposit accounts by offering a variety
of products, competitive rates and convenient locations and service hours.
The Bank uses traditional methods of advertising to attract new customers and
deposits, including radio and print media advertising. The Bank does not
generally advertise outside of its market area or utilize the services of
deposit brokers. Management believes that an insignificant number of deposit
accounts are held by nonresidents of the Bank's primary market area.
The Bank sets interest rates on its deposits on a weekly basis, based
upon a number of factors including: the previous week's deposit flow; a
current survey of a selected group of competitors' rates for similar
products; external data which may influence interest rates; investment
opportunities and loan demand; and scheduled maturities.
At December 31, 1997, the Bank had $8.2 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
Amount Weighted
Maturity Period (in thousands) Average Rate
---------------- ------- ------------
Three months or less $ 2,099 5.33%
Over three through six months 845 5.74%
Over six months through 12 months 3,703 5.92%
Over 12 months 1,504 6.47%
-------
Total $ 8,151 5.85%
========================
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category presented.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996 September 30, 1995
---------------------------------------------------------------------------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- --------- -------- -------- --------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market deposits $ 7,199 6.70% 2.47% $ 6,590 7.68% 2.01% $ 8,509 9.94% 1.97%
Passbook deposits 15,116 14.05 2.00 15,991 18.64 1.99 18,388 21.47 1.98
NOW and other demand deposits 14,060 13.07 1.73 12,552 14.63 1.73 12,054 14.08 1.72
Non-interest bearing deposits 4,788 4.45 0.00 3,432 4.00 0.00 2,935 3.43 0.00
------- ------ ------ ------ ------- ------
Total 41,163 38.27 1.76% 38,565 44.95 1.73% 41,886 48.92 1.77%
------- ------ ====== ------ ------ ===== ------- ------ =====
Certificates accounts:
Three months or less 198 .19 3.46% 337 .39 3.50% 691 .81 3.43%
Over three through six months 14,048 13.06 5.31 12,364 14.41 5.01 12,453 14.54 4.99
Over six through 12 months 14,332 13.33 5.49 15,935 18.57 5.40 10,922 12.75 4.93
Over one to three years 28,719 26.70 5.92 13,800 16.09 5.51 15,457 18.05 4.66
Over three to five years 5,209 4.84 5.90 3,423 4.00 5.43 3,699 4.31 5.54
Over five to ten years 3,886 3.61 6.83 1,364 1.59 6.95 530 0.62 7.32
------- ------ ------- ------ ------- ------
Total certificates 66,392 61.73 5.72% 47,223 55.05 5.35% 43,752 51.08 4.87%
------- ------ ====== ------- ------ ===== ------- ------ =====
Total average deposits $107,555 100.00% $85,788 100.00% $85,638 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table presents, by various categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1997
------------------------------------------------------------
At At At
Less than One to Two to Three to Over Four Dec 31, Dec 31, Sep 30,
One Year Two Years Three Years Four Years Years 1997 1996 1995
--------- --------- ----------- ---------- --------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00% $ 156 $ -- $ -- $ -- $ -- $ 156 $ 340 $ 2,132
4.01% to 5.00% 1,704 26 -- -- -- 1,730 9,144 8,715
5.01% to 6.00% 38,640 7,163 868 14 -- 6,685 38,347 28,679
6.01% to 7.00% 8,224 3,534 2,301 2,202 5,487 21,748 12,534 2,790
7.01% to 8.00% 42 -- -- -- 100 142 164 160
------- ------- ------- ------- ------- ------- ------- -------
Total $48,766 $10,723 $ 3,169 $ 2,216 $ 5,587 $70,461 $60,529 $42,476
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
At December 31, 1997, the Bank had no outstanding advances from the FHLB
and had no other borrowings. The Bank may obtain advances from the FHLB as
part of its operating strategy. The maximum amount that the FHLB will advance
to member institutions, including the Bank, fluctuates from time to time in
accordance with the policies of the OTS and the FHLB.
The following table sets forth certain information regarding the Bank's
borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or for the Year At or for the Fifteen At or for the Year
Ended December 31, Months Ended December 31, Ended September 30,
------------------- ------------------------- -------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
FHLB advances:
Average balance outstanding $ -- $ -- $ 827
===== ====== ======
Maximum amount outstanding at any
month-end during the period $ -- $ -- $2,000
===== ====== ======
Balance outstanding at end of period $ -- $ $ --
===== ====== ======
Weighted average interest rate
during the period --% --% 12.00%
===== ====== ======
Weighted average interest rate
at end of period --% --% --%
===== ====== ======
</TABLE>
Subsidiary Activities
The Bank's wholly-owned subsidiary, PASC, is currently engaged in an
agency basis in brokerage services through a third-party broker dealer, Scout
Brokerage Services, Inc. and in the sale of tax-deferred annuity products,
primarily to customers of the Bank and members of the local community. PASC
was also engaged in joint venture real estate development activities until
the last lots were developed and sold in 1997. In September 1997, PASC
formed GTPS Insurance Agency ("Agency") to provide insurance related products
to customers. The Agency sells a variety of insurance products including
life, health, auto, property and casualty insurance. As of December 31,
1997, PASC had assets of $586,000 and for the year ended December 31, 1997
had net income of $4,000.
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's competitors are the financial institutions
operating in its primary market area, many of which are significantly larger
and have greater financial resources than the Bank. The Bank's competition
for loans comes principally from commercial banks, savings and loan
associations, mortgage banking companies, credit unions and insurance
companies. Its most direct competition for deposits has historically come
from savings and loan associations and commercial banks. As of December 31,
1997, the Bank ranked fourth in loans and deposits out of the five largest
banks and savings and loans associations located in Champaign-Urbana. The
largest banks do not include branches of two regional banks located in
Champaign-Urbana because loan and deposit information for those branches was
unavailable. At December 31, 1997, the Bank's market share of loans and
deposits was 7.98% and 6.63%, respectively, among the five institutions
combined. In addition, the Bank faces increasing competition for deposits
from nonbank institutions such as brokerage firms and insurance companies in
such areas as short-term money market funds, corporate and government
securities funds, mutual funds and annuities. Competition may also increase
as a result of the lifting of restrictions on the interstate operations of
financial institutions.
The Bank serves its market area with a variety of residential loan
products and other retail financial services. Management considers the
Bank's reputation for financial strength and competitive deposit and loan
products as its major competitive advantage in attracting and retaining
customers in its market area.
Personnel
As of December 31, 1997, the Bank, including PASC, had 57 full-time
employees and 17 part-time employees. The employees are not represented by a
collective bargaining unit, and the Bank considers its relationship with its
employees to be good.
REGULATION AND SUPERVISION
General
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of
the Office of Thrift Supervision ("OTS") under the Home Owners' Loan Act, as
amended (the "HOLA"). In addition, the activities of savings institutions,
such as the Bank, are governed by the HOLA and the Federal Deposit Insurance
Act ("FDI Act").
The Bank is subject to extensive regulation, examination and supervision
by the OTS, as its primary federal regulator, and the FDIC, as the deposit
insurer. The Bank is a member of the Federal Home Loan Bank ("FHLB") System
and its deposit accounts are insured up to applicable limits by the Savings
Association Insurance Fund ("SAIF") managed by the FDIC. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition in addition to obtaining regulatory approvals prior to entering
into certain transactions such as mergers with, or acquisitions of, other
savings institutions. The OTS and/or the FDIC conduct periodic examinations
to test the Bank's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and
is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulatory requirements and
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank and their operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are
referred to below or elsewhere herein. The description of statutory
provisions and regulations applicable to savings institutions and their
holding companies set forth in this Form 10-KSB does not purport to be a
complete description of such statutes and regulations and their effects on
the Bank and the Company.
Holding Company Regulation
The Company is a non-diversified unitary savings and loan holding company
within the meaning of the HOLA. As a unitary savings and loan holding
company, the Company generally is not restricted under existing laws as to
the types of business activities in which it may engage, provided that the
Bank continues to be a qualified thrift lender ("QTL"). See "Federal Savings
Institution Regulation - QTL Test." Upon any non-supervisory acquisition by
the Company of another savings institution or savings bank that meets the QTL
test and is deemed to be a savings institution by the OTS, the Company would
become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan
holding company and its non-insured institution subsidiaries primarily to
activities permissible for bank holding companies under Section 4(c)(8) of
the Bank Holding Company Act ("BHC Act"), subject to the prior approval of
the OTS, and certain activities authorized by OTS regulation, and no multiple
savings and loan holding company may acquire more than 5% of the voting stock
of a company engaged in impermissible activities.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5%
of the voting stock of another savings institution or holding company
thereof, without prior written approval of the OTS or acquiring or retaining
control of a depository institution that is not insured by the FDIC. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance funds, the convenience and needs of
the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings institutions
in more than one state, subject to two exceptions: (i) the approval of
interstate supervisory acquisitions by savings and loan holding companies and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, HOLA does prescribe such restrictions on
subsidiary savings institutions as described below. The Bank must notify the
OTS 30 days before declaring any dividend to the Company. In addition, the
financial impact of a holding company on its subsidiary institution is a
matter that is evaluated by the OTS and the agency has authority to order
cessation of activities or divestiture of subsidiaries deemed to pose a
threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 3% leverage (core) capital ratio and an 8% risk-based
capital ratio. In addition, the prompt corrective action standards discussed
below also establish, in effect, a minimum 2% tangible capital standard, a 4%
leverage (core) capital ratio (3% for institutions receiving the highest
rating on the CAMEL financial institution rating system), and, together with
the risk-based capital standard itself, a 4% Tier I risk-based capital
standard. Core capital is defined as common stockholders' equity (including
retained earnings), certain non-cumulative perpetual preferred stock and
related surplus, and minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain purchased mortgage servicing
rights and credit card relationships. The OTS regulations also require that,
in meeting the tangible, leverage (core) and risk-based capital standards,
institutions must generally deduct investments in and loans to subsidiaries
engaged in activities as principal that are not permissible for a national
bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight
factor of 0% to 100%, as assigned by the OTS capital regulation based on the
risks OTS believes are inherent in the type of asset. The components of Tier
I (core) capital are equivalent to those discussed earlier. The components
of supplementary capital currently include cumulative preferred stock,
long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock and the allowance for loan
and lease losses limited to a maximum of 1.25% of risk-weighted assets.
Overall, the amount of supplementary capital included as part of total
capital cannot exceed 100% of core capital.
The OTS regulatory capital requirements also incorporate an interest rate
risk component. Savings institutions with "above normal" interest rate risk
exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value of
its assets (i.e., the difference between incoming and outgoing discounted
cash flows from assets, liabilities and off-balance sheet contracts) that
would result from a hypothetical 200 basis point increase or decrease in
market interest rates divided by the estimated economic value of the
institution's assets. In calculating its total capital under the risk-based
capital rule, a savings institution whose measured interest rate risk
exposure exceeds 2% must deduct an amount equal to one-half of the difference
between the institution's measured interest rate risk and 2%, multiplied by
the estimated economic value of the institution's assets. The Director of
the OTS may waive or defer a savings institution's interest rate risk
component on a case-by-case basis. A savings institution with assets of less
than $300 million and risk-based capital ratios in excess of 12% is not
subject to the interest rate risk component, unless the OTS determines
otherwise. For the present time, the OTS has deferred implementation of the
interest rate risk component. At December 31, 1997, the Bank met each of its
capital requirements, in each case on a fully phased-in basis and it is
anticipated that the Bank will not be subject to the interest rate risk
component.
The following table presents the Bank's capital position at December 31,
1997 relative to fully phased-in regulatory requirements.
Tangible Core Risk Based
Capital Capital Capital
----------------------------------
(in thousands)
Regulatory capital $ 18,366 $ 18,366 $ 18,863
Minimum capital requirement 1,991 3,983 6,408
----------------------------------
Regulatory capital excess $ 16,375 $ 14,383 $ 12,455
==================================
Computed capital ratio 13.8% 13.8% 23.6%
Minimum ratio 1.5 3.0 8.0
----------------------------------
Regulatory capital excess 12.3% 10.8% 15.6%
==================================
Prompt Corrective Regulatory Action. Under the OTS prompt corrective
action regulations, the OTS is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution's degree of undercapitalization. Generally, a savings
institution is considered "well capitalized" if its ratio of total capital to
risk-weighted assets is at least 10%, its ratio of Tier I (core) capital to
risk-weighted assets is at least 6%, its ratio of core capital to total
assets is at least 5%, and it is not subject to any order or directive by the
OTS to meet a specific capital level. A savings institution generally is
considered "adequately capitalized" if its ratio of total capital to risk-
weighted assets is at least 8%, its ratio of Tier I (core) capital to risk-
weighted assets is at least 4%, and its ratio of core capital to total assets
is at least 4% (3% if the institution receives the highest CAMEL rating). A
savings institution that has a ratio of total capital to risk weighted assets
of less than 8%, a ratio of Tier I (core) capital to risk-weighted assets of
less than 4% or a ratio of core capital to total assets of less than 4% (3%
or less for institutions with the highest examination rating) is considered
to be "undercapitalized." A savings institution that has a total risk-based
capital ratio less than 6%, a Tier 1 capital ratio of less than 3% or a
leverage ratio that is less than 3% is considered to be "significantly
undercapitalized" and a savings institution that has a tangible capital to
assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
required to appoint a receiver or conservator for an institution that is
"critically undercapitalized." The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date a
savings institution receives notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized."
Compliance with the plan must be guaranteed by any parent holding company.
In addition, numerous mandatory supervisory actions become immediately
applicable to an undercapitalized institution, including, but not limited to,
increased monitoring by regulators and restrictions on growth, capital
distributions and expansion. The OTS could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Bank are presently insured
by the SAIF. On September 30, 1996, the President signed into law the Deposit
Insurance Funds Act of 1996 (the "Funds Act") which, among other things,
imposed a special one-time assessment on SAIF member institutions, including
the Bank, to recapitalize the SAIF. The SAIF was undercapitalized due
primarily to a statutory requirement that SAIF members make payments on bonds
issued in the late 1980s by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF. As required by the Funds Act, the
FDIC imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996 (the "SAIF
Special Assessment"). The SAIF Special Assessment was recognized by the Bank
as an expense in the quarter ended September 30, 1996 and was generally tax
deductible. The SAIF Special Assessment recorded by the Bank amounted to
$572,000 on a pre-tax basis and $350,000 on an after-tax basis.
The Funds Act also spreads the obligations for payment of the FICO bonds
across all SAIF and Bank Insurance Fund ("BIF") members. The BIF is the fund
which primarily insures commercial bank deposits. Beginning on January 1,
1997, BIF deposits were assessed for FICO payment of 1.3 basis points, while
SAIF deposits will pay 6.48 basis points. Full pro rata sharing of the FICO
payments between BIF and SAIF members will occur on the earlier of January 1,
2000 or the date the BIF and SAIF are merged. The Funds Act specifies that
the BIF and SAIF will be merged on January 1, 1999, provided no savings
associations remain as of that time.
As a result of the Funds Act, the FDIC recently voted to effectively lower
SAIF assessments to 0 to 27 basis points as of January 1, 1997, a range
comparable to that of BIF members. SAIF members will also continue to make
the FICO payments described above. Management cannot predict the level of
FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated or whether the BIF and SAIF will
eventually be merged.
The Bank's assessment rate for fiscal 1997 was 6.48 basis points and the
premium paid for this period was $64,000. A significant increase in SAIF
insurance premiums would likely have an adverse effect on the operating
expenses and results of operations of the Bank.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or condition imposed by
the FDIC or the OTS. The management of the Bank does not know of any
practice, condition or violation that might lead to termination of deposit
insurance.
Thrift Rechartering Legislation. The Funds Act provides that the BIF and
SAIF will merge on January 1, 1999 if there are no more savings associations
as of that date. Various proposals to eliminate the federal thrift charter,
create a uniform financial institutions charter and abolish the OTS have been
introduced in Congress. Some bills would require federal savings institutions
to convert to a national bank or some type of state charter by a specified
date under some bills, or they would automatically become national banks.
Under some proposals, converted federal thrifts would generally be required
to conform their activities to those permitted for the charter selected and
divestiture of nonconforming assets would be required over a two year period,
subject to two possible one year extensions. State chartered thrifts would
become subject to the same federal regulation as applies to state commercial
banks. A more recent bill passed by the House Banking Committee would allow
savings institutions to continue to exercise activities being conducted when
they convert to a bank regardless of whether a national bank would engage in
the activity. Holding companies for savings institutions would become
subject to the same regulation as holding companies that control commercial
banks, with some limited grandfathering, including savings and loan holding
company activities. The grandfathering would be lost under certain
circumstances such as a change in control of the Company. The Bank is unable
to predict whether such legislation would be enacted or the extent to which
the legislation would restrict or disrupt its operations.
Loans to One Borrower. Under the HOLA, savings institutions are generally
subject to the limits on loans to one borrower applicable to national banks.
Generally, savings institutions may not make a loan or extend credit to a
single or related group of borrowers in excess of 15% of its unimpaired
capital and surplus. An additional amount may be lent, equal to 10% of
unimpaired capital and surplus, if such loan is secured by readily-marketable
collateral, which is defined to include certain financial instruments and
bullion. At December 31, 1997, the Bank's limit on loans to one borrower was
$2.8 million. At December 31, 1997, the Bank's largest aggregate outstanding
balance of loans to one borrower was $3.7 million. At the time this loan was
originated, the Bank's limit on loans to one borrower exceeded the original
balance of the loan.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the QTL test, a savings and loan association either must qualify as a
"domestic building and loan association" or is required to maintain at least
65% of its "portfolio assets" (total assets less: (i) specified liquid assets
up to 20% of total assets; (ii) intangibles, including goodwill; and (iii)
the value of property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including certain mortgage-backed securities) in at least 9 months out of
each 12 month period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As
of December 31, 1997, the Bank maintained 85.0% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test. Recent
legislation has expanded the extent to which education loans, credit card
loans and small business loans may be considered "qualified thrift
investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments
to shareholders of another institution in a cash-out merger and other
distributions charged against capital. The rule establishes three tiers of
institutions, which are based primarily on an institution's capital level.
An institution that exceeds all fully phased-in capital requirements before
and after a proposed capital distribution ("Tier 1 Bank") and has not been
advised by the OTS that it is in need of more than normal supervision, could,
after prior notice but without obtaining approval of the OTS, make capital
distributions during a calendar year equal to the greater of (i) 100% of its
net earnings to date during the calendar year plus the amount that would
reduce by one-half its "surplus capital ratio" (the excess capital over its
fully phased-in capital requirements) at the beginning of the calendar year
or (ii) 75% of its net income for the previous four quarters. Any additional
capital distributions would require prior regulatory approval. In the event
the Bank's capital fell below its regulatory requirements or the OTS notified
it that it was in need of more than normal supervision, the Bank's ability to
make capital distributions could be restricted. In addition, the OTS could
prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. In December
1994, the OTS proposed amendments to its capital distribution regulation that
would generally authorize the payment of capital distributions without OTS
approval provided that the payment does not cause the institution to be
undercapitalized within the meaning of the prompt corrective action
regulation. However, institutions in a holding company structure would still
have a prior notice requirement. At December 31, 1997, the Bank was a Tier 1
Bank.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement was 5% for fiscal 1997, but is
subject to change from time to time by the OTS to any amount within the range
of 4% to 10% depending upon economic conditions and the savings flows of
member institutions. In 1997, OTS regulations also required each savings
institution to maintain an average daily balance of short-term liquid assets
of at least 1% of the total of its net withdrawable deposit accounts and
borrowings payable in one year or less. Monetary penalties may be imposed
for failure to meet these liquidity requirements. The OTS has recently
lowered the liquidity requirement from 5% to 4% and eliminated the 1% short
term liquid asset requirement. The Bank's liquidity for December 31, 1997
was 18.73%, which exceeded the applicable requirements. The Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest
quarterly thrift financial report. The assessments paid by the Bank for the
fiscal year ended December 31, 1997 totaled $39,000.
Branching. OTS regulations permit nationwide branching by federally
chartered savings institutions to the extent allowed by federal statute.
This permits federal savings institutions to establish interstate networks
and to geographically diversify their loan portfolios and lines of business.
The OTS authority preempts any state law purporting to regulate branching by
federal savings institutions.
Transactions with Related Parties. The Bank's authority to engage in
transactions with related parties or "affiliates" (e.g., any company that
controls or is under common control with an institution, including the
Company and its non-savings institution subsidiaries) is limited by Sections
23A and 23B of the Federal Reserve Act ("FRA"). Section 23A limits the
aggregate amount of covered transactions with any individual affiliate to 10%
of the capital and surplus of the savings institution. The aggregate amount
of covered transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
Section 23A and the purchase of low quality assets from affiliates is
generally prohibited. Section 23B generally provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of
any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
governed by Sections 22(g) and 22(h) of the FRA and Regulation O thereunder.
Among other things, such loans are required to be made on terms substantially
the same as those offered to unaffiliated individuals and do not involve more
than the normal risk of repayment. Recent legislation created an exception
for loans made pursuant to a benefit or compensation program that is widely
available to all employees of the institution and does not give preference to
insiders over other employees. Regulation O also places individual and
aggregate limits on the amount of loans the Bank may make to insiders based,
in part, on the Bank's capital position and requires certain board approval
procedures to be followed.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
actions against the institution and all institution-affiliated parties,
including stockholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an
adverse effect on an insured institution. Formal enforcement action may
range from the issuance of a capital directive or cease and desist order to
removal of officers and/or directors to institution of receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or even $1
million per day in especially egregious cases. Under the FDI Act, the FDIC
has the authority to recommend to the Director of the OTS enforcement action
to be taken with respect to a particular savings institution. If action is
not taken by the Director, the FDIC has authority to take such action under
certain circumstances. Federal law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines Prescribing Standards for Safety and Soundness
("Guidelines") and a final rule to implement safety and soundness standards
required under the FDI Act. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The standards set forth in the Guidelines address internal
controls and information systems; internal audit system; credit underwriting;
loan documentation; interest rate risk exposure; asset growth; asset quality;
earnings; and compensation, fees and benefits. If the appropriate federal
banking agency determines that an institution fails to meet any standard
prescribed by the Guidelines, the agency may require the institution to
submit to the agency an acceptable plan to achieve compliance with the
standard, as required by the FDI Act. The final rule establishes deadlines
for the submission and review of such safety and soundness compliance plans
when such plans are required.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally required for most of 1997 that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$49.3 million or less (subject to adjustment by the Federal Reserve Board)
the reserve requirement was 3%; and for accounts aggregating greater than
$49.30 million, the reserve requirement was $1.48 million plus 10% (subject
to adjustment by the Federal Reserve Board between 8% and 14%) against that
portion of total transaction accounts in excess of $49.3 million. The first
$4.4 million of otherwise reservable balances (subject to adjustments by the
Federal Reserve Board) were exempted from the reserve requirements. The Bank
maintained compliance with the foregoing requirements. For 1998, the Federal
Reserve Board has decreased from $49.3 to $47.8 million the amount of
transaction accounts subject to the 3% reserve requirement and to increase
the amount of exempt reservable balances from $4.4 million to $4.7 million.
The balances maintained to meet the reserve requirements imposed by the
Federal Reserve Board may be used to satisfy liquidity requirements imposed
by the OTS.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank report their income on a consolidated
basis and the accrual method of accounting, and are subject to federal income
taxation in the same manner as other corporations with some exceptions,
including particularly the Bank's reserve for bad debts discussed below. The
following discussion of tax matters is intended only as a summary and does
not purport to be a comprehensive description of the tax rules applicable to
the Bank or the Company. Neither the Company or the Bank have been audited
by the IRS during the last six years. For its 1997 taxable year, the Company
and the Bank are subject to a maximum federal income tax rate of 39%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and
other conditions of the Internal Revenue Code of 1986 (the "Code") were
permitted to use certain favorable provisions to calculate their deductions
from taxable income for annual additions to their bad debt reserve. A
reserve could be established for bad debts on qualifying real property loans
(generally secured by interests in real property improved or to be improved)
under (i) the Percentage of Taxable Income Method (the "PTI Method") or (ii)
the Experience Method. The reserve for nonqualifying loans was computed
using the Experience Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, required savings institutions to recapture (i.e.,
take into income) certain portions of their accumulated bad debt reserves.
The 1996 Act repeals the reserve method of accounting for bad debts effective
for tax years beginning after 1995. Thrift institutions that would be
treated as small banks are allowed to utilize the Experience Method
applicable to such institutions, while thrift institutions that are treated
as large banks (those generally exceeding $500 million in assets) are
required to use only the specific charge-off method. Thus, the PTI Method of
accounting for bad debts is no longer available for any financial
institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS.
Any Section 481(a) adjustment required to be taken into income with respect
to such change generally will be taken into income ratably over a six-taxable
year period, beginning with the first taxable year beginning after 1995,
subject to the residential loan requirement.
Under the residential loan requirement provision, the recapture required
by the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's taxable year ending December 31, 1996, in which the
Bank originates a minimum of certain residential loans based upon the average
of the principal amounts of such loans made by the Bank during its six
taxable years preceding the taxable year ending December 31, 1996.
Under the 1996 Act, for its current and future taxable years, the Bank is
permitted to make additions to its tax bad debt reserves. In addition, the
Bank is required to recapture (i.e., take into income) over a six year period
the excess of the balance of its tax bad debt reserves as of December 31,
1995, other than its supplemental reserve for losses on loans over the
balance of such reserves as of September 30, 1988. As a result of such
recapture, the Bank will incur an additional tax liability of approximately
$125,000 which will be taken into income beginning in 1998 over a six year
period.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and
then from the Bank's supplemental reserve for losses on loans, to the extent
thereof, and an amount based on the amount distributed (but not in excess of
the amount of such reserves) will be included in the Bank's income. Non-
dividend distributions include distributions in excess of the Bank's current
and accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not be so included in the Bank's
income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if the Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount
of such distribution (but not in excess of the amount of such reserves) would
be includable in income for federal income tax purposes, assuming a 35%
federal corporate income tax rate. The Bank does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
SAIF Recapitalization Assessment. The Funds Act levied a 65.7-cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial
statement purposes, this assessment was reported as an expense for the
quarter ended September 30, 1996. The Funds Act includes a provision which
states that the amount of any special assessment paid to capitalize SAIF
under this legislation is deductible under Section 162 of the Code in the
year of payment.
State and Local Taxation
State of Illinois. The Company files a consolidated Illinois income tax
return. For Illinois income tax purposes, the Company is taxed at an
effective rate equal to 7.2% of Illinois Taxable Income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations). The exclusion of income on United State Treasury
obligations has the effect of reducing the Illinois taxable income of the
Bank.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporation income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
Year 2000 Compliance
Many computer programs use only two digits to identify a year in the date
field and therefore do not consider the impact of the upcoming change in the
century. These programs, if not corrected, could fail or cause erroneous
results by or at January 1, 2000. The Company currently processes the
majority of financial transactions through a third-party data processing
company. The contract with this company expires in March, 1999. The Company
has recently contracted with a different software company to provide the
Company with software to process these transactions in-house and expects to
convert to the new software by the end of 1998. The new software provider
has pledged in its contract with the Company that its software is year 2000
compliant, meaning that the date fields in its software are already capable
of handling the change to the year 2000. In addition, the Board of Directors
of the Company has appointed a year 2000 compliance officer to identify,
evaluate and monitor other areas that will be affected by the year 2000 issue
and ensure that all such areas will be in compliance within the time frames
established by the Company. Such other areas include various purchased
software programs used for purposes such as payroll, accounts payable and
loan processing, and the impact of year 2000 on major customers and
suppliers. 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 1998 without any material disruption to its operations.
Impact of New Accounting Standards
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock. SFAS No. 128
simplifies previous standards for computing EPS. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. SFAS No.
128 requires restatement of all prior period EPS data presented. The Company
adopted Statement 128 during the fiscal quarter ending December 31, 1997.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 summarizes previously issued
disclosure guidance contained within Accounting Principles Board Opinions No.
10 and 15 as well as SFAS No. 47. This statement is effective for financial
statements issued for periods ending after December 15, 1997. Accordingly,
the Company adopted Statement 129 during the fourth quarter of 1997. There
were no changes to the Company's disclosures pursuant to the adoption of SFAS
No. 129.
In June 1997, the 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 investment by owners and
distributions to owners." The comprehensive income and related cumulative
equity impact of comprehensive income items will be 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 is
expected to be disclosed as an additional component of the Company's income
under the requirements of SFAS No. 130. This statement is effective for
fiscal years beginning after December 15, 1997. The Company will adopt
Statement 130 during 1998.
Also in 1997, the FASB issued Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which supersedes SFAS 14,
"Financial Reporting of Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in annual
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic area and major
customers. SFAS 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This standard is effective
for financial statement periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Due to
the recent issuance of this standard, management has been unable to fully
evaluate the impact, if any, the standard may have on the Company's future
financial statement disclosures.
In addition to historical information, this Annual Report 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 competition, changes in the
quality or composition of the Bank'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 in Item 1,
"Business" of the Company's 1997 Form 10-K.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company and the Bank who are not directors or Named Executive
Officers as set forth in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 28, 1998 at pages 5 through 8.
Age at
Name 12/31/97 Position
- ---------------- ---------- -------------------------------------
Jane F. Adams 40 Chief Financial Officer, Secretary,
Treasurer of Great American Bancorp,
Inc. since April, 1995. Senior Vice
President - Finance, Secretary,
Treasurer of Bank since February,
1996. Prior thereto, Vice President -
Finance, Secretary, Treasurer of Bank
since April, 1995. Secretary,
Treasurer of PASC since April, 1995.
Prior to April, 1995, Vice President
and Controller, Champaign National
Bank, Champaign, Illinois since 1986.
Melinda K. Waller 38 Senior Vice President - Deposit
Acquisitions of Bank since February
1996. Prior thereto Vice President -
Deposit Acquisitions of Bank since
1991.
Paul D. Wilson 46 Senior Vice President - Lending of
Bank since November, 1995. Prior
thereto, Vice President - Senior
Commercial Lending Officer, First of
America Bank, N.A., Champaign,
Illinois, since 1993.
Item 2. Description of Property.
The Bank conducts its business through an administrative office located
in Champaign and two branch offices. The Company believes that the Bank's
current facilities are adequate to meet the present and immediately foresee
able needs of the Bank and the Company. The following table sets forth
certain information relating to the Bank's administrative and branch offices.
<TABLE>
<CAPTION>
Net Book Value
of Property or
Original Leasehold
Leased Date Improvements at
or Leased or Date of Lease December 31,
Location Owned Acquired Expiration 1997
------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Administrative and Branch Office:
1311 South Neil Street
Champaign, Illinois owned 04/12/93 -- $ 5,168,000
Branch Offices:
1912 West Springfield (1)
Champaign, Illinois leased 12/01/79 12/01/04 232,000
301 West Springfield
Urbana, Illinois owned 01/27/80 -- 802,000
-----------
Total $ 6,202,000
===========
</TABLE>
- ---------------
(1) The Bank has the option to extend the lease term for three consecutive
ten-year periods.
The Bank presently owns electronic data processing equipment, consisting
of personal computers, printers, and item processing equipment with an ap
proximate net book value of $283,000. The Bank does not provide data pro
cessing services for other financial institutions and currently out sources
most of its own data processing to a service bureau.
Item 3. Legal Proceedings.
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Company's and the Bank's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended December 31, 1997, no matters were submitted to a
vote of security holders through a solicitation of proxies or otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Information relating to the market for Registrant's common stock and
related stockholder matters appears under "Shareholder Information" in the
1997 Annual Report to Stockholders on pages 53 through 54 and is incorporated
herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The above captioned information appears under the caption "Management's
Discussion and Analysis in the 1997 Annual Report to Stockholders on pages 17
to 30 and is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements of Great American Bancorp, Inc. and
its subsidiary as of December 31, 1997 and 1996, together with the report of
Geo. S. Olive & Co. LLC appears in the 1997 Annual Report to Stockholders on
pages 31 to 52 and is incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information relating to directors and executive officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1998
at pages 5 through 8, which will be filed within 120 days of the Registrant's
fiscal year end.
Item 10. Executive Compensation
The information relating to executive and director compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 28, 1998 at pages 8 through
11, which will be filed within 120 days of the Registrant's fiscal year end.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information relating to security ownership of certain beneficial owners
and management is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 28, 1998
at pages 3 through 4, which will be filed within 120 days of the Registrant's
fiscal year end.
Item 12. Certain Relationships and Related Transactions
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on April 28, 1998 at page 11,
which will be filed within 120 days of the Registrant's fiscal year end.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements
Consolidated Financial Statements of the Company are incorporated by
reference to the following indicated pages of the 1997 Annual Report
to Stockholders.
Independent Auditor's Report . . . . . . . . . . . . . . . . . .31
Consolidated Balance Sheet as of
December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . 32
Consolidated Statement of Income for the year
ended December 31, 1997 and the fifteen months
ended December 31, 1996 . . . . . . . . . . . . . . . . . . .33-34
Consolidated Statement of Stockholders' Equity for
the year ended December 31, 1997 and for the
fifteen months ended December 31, 1996. . . . . . . . . . . . . 35
Consolidated Statement of Cash Flows for the year
ended December 31, 1997 and for the fifteen months
ended December 31, 1996 . . . . . . . . . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . . .37-52
The remaining information appearing in the 1997 Annual Report to
Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.
(2) Schedules
All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated
financial statements or the notes thereto.
(3) Exhibits
The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of Great American Bancorp, Inc.*
3.2 Bylaws of Great American Bancorp, Inc.*
4.0 Stock Certificate of Great American Bancorp, Inc.*
10.1 First Federal Savings Bank of Champaign-Urbana Employee Stock
Ownership Plan*
10.2 Form of Employment Agreement between First Federal Savings
Bank of Champaign-Urbana and George R. Rouse*
10.3 Form of Employment Agreement between Great American Bancorp,
Inc. and George R. Rouse*
10.4 Form of Change of Control Agreements between First Federal
Savings Bank of Champaign-Urbana and Jane F. Adams, Dale Pelg
and Melinda Waller.*
10.5 Great American Bancorp, Inc. 1995 Incentive Plan**
10.6 Great American Bancorp, Inc. 1995 Incentive Plan***
(as amended and restated as of January 13, 1997)
11.0 Computation of earnings per share (filed herewith)
13.0 1997 Annual Report to Stockholders (only portions
incorporated by reference filed herewith)
21.0 Subsidiary information is incorporated herein by reference to
"Part I - Subsidiaries"
23.2 Consent of Independent Accountants
27.1 Financial Data Schedule for fiscal year ended December 31,
1997.
27.2 Amended Financial Data Schedule for the quarters ended June
30, 1996 and September 30, 1996 and for the fifteen month
period ended December 31, 1996.
27.3 Amended Financial Data Schedule for the quarters ended March
31, 1997, June 30, 1997 and September 30, 1997.
__________________
* Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement, as amended,
filed on March 24, 1995, Registration No. 33-90614.
** Incorporated herein by reference into this document from the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on February 14, 1996 which was filed on
January 11, 1996 at Exhibit A.
*** Incorporated herein by reference into this document from the
Registrant's Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
(b) Reports on Form 8-K
The Registrant filed a Report on Form 8-K on October 22, 1997. The Report
on Form 8-K incorporated by reference a press release dated October 21, 1997
attached as Exhibit 20, relating to the Registrant's unaudited results for
the third quarter of 1997.
SIGNATURES
Pursuant to the requirements of Section 13 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.
Date: March 30, 1998 By: /s/ George R. Rouse
----------------------- -------------------------------
George R. Rouse
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Date: March 30, 1998 By: /s/ George R. Rouse
----------------------- -------------------------------
George R. Rouse
President, Chief Executive
Officer and Director
Date: March 30, 1998 By: /s/ Morgan C. Powell
----------------------- -------------------------------
Morgan C. Powell
Chairman of the Board
of Directors
Date: March 30, 1998 By: /s/ James Acheson
----------------------- -------------------------------
James Acheson, Director
Date: March 30, 1998 By: /s/ Clinton C. Atkins
----------------------- ------------------------
Clinton C. Atkins, Director
Date: March 30, 1998 By: /s/ Ronald Kiddoo
----------------------- -------------------------------
Ronald Kiddoo, Director
Date: March 30, 1998 By: /s/ Jane F. Adams
----------------------- -------------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
(Principal Senior Accounting
and Financial Officer)<PAGE>
Exhibit 11.
Earnings per share
Earnings per share (EPS) were computed as follows
(dollar amounts in thousands except share data):
Year Ended December 31, 1997
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 873 1,577,554 $ 0.55
Effect of Dilutive Securities
Stock options 31,092
Unearned incentive plan shares 55,210
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 873 1,663,856 $ 0.53
===============================
Period Ended December 31, 1996
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 534 1,799,011 $ 0.30
Effect of Dilutive Securities
Stock options 138
Unearned incentive plan shares 66,596
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 534 1,865,745 $ 0.29
===============================
Exhibit 13.0 Annual Report to Shareholders
GREAT AMERICAN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Table dollar amounts in thousands, except per share data)
Great American Bancorp, Inc. (the "Company") is based in east central
Illinois and is the parent company of First Federal Savings Bank of
Champaign-Urbana (the "Bank"). The Company was organized in 1995 for the
purpose of acquiring all of the capital stock of the Bank upon the Bank's
conversion from the mutual to the stock form of organization. In 1995, the
Company sold 2,052,750 shares of common stock in an initial public offering
at $10 per share. The Company purchased 100% of the outstanding capital
stock of the Bank using 50% of the $19.36 million in net proceeds generated
from the initial offering.
The Company originates loans and also purchases loans from the Bank, but
otherwise conducts no significant business except for through the Bank. In
addition to traditional banking services, the Bank, through its subsidiary
Park Avenue Service Corporation ("PASC"), provides securities brokerage
services through a third-party broker-dealer, Scout Brokerage Services, Inc.
and also engages in the sale of tax deferred annuities. In September 1997,
PASC formed GTPS Insurance Agency ("Agency") to provide insurance related
products to customers. The Agency sells a variety of insurance products
including life, health, auto, property and casualty insurance. All
references to the Company include the Bank and PASC, unless otherwise
indicated.
In November 1995, the Company's Board of Directors voted to change the
Company's fiscal year end from September 30 to December 31. Accordingly, the
following discussion analyzes the results of operations for the year ended
December 31, 1997 compared to the fifteen months ended December 31, 1996.
Fluctuations in the results of operations that are significant only because
of the additional quarter in the period ended December 31, 1996 have not been
discussed. All references to percentage changes in income or expense items
have been annualized.
Results of Operations
General
The Company recorded net income of $873,000 in 1997, $339,000, or 104.4%
higher on an annualized basis, than the $534,000 in net income reported for
fiscal 1996. Basic earnings per share grew 83.3% from $0.30 in fiscal 1996
to $0.55 in 1997, while diluted earnings per share increased 82.8% from $0.29
per share in fiscal 1996 to $0.53 in 1997. The increase in earnings in 1997
was due primarily to an increase in noninterest income and a reduction in
noninterest expense, both of which resulted mainly from nonrecurring items
recorded in fiscal 1996. Net interest income was higher in 1997, compared to
net interest income in fiscal 1996 on an annualized basis, while the
provision for loan losses decreased from fiscal 1996 to fiscal 1997.
The Company recorded two significant nonrecurring items in the fifteen months
ended December 31, 1996: a one-time special deposit insurance assessment
totaling $572,000, or $350,000 net of taxes, and a loss on the sale of
securities totaling $127,000, or $78,000 net of taxes. Net income for fiscal
1996, exclusive of these nonrecurring items, would have been $962,000 or
$770,000 on an annualized basis. Diluted earnings per share for fiscal 1996,
exclusive of the nonrecurring items, would have been $0.52 or $0.41 on an
annualized basis. The $873,000 in net income for 1997 represents a 13.4%
increase over the $770,000 adjusted annualized net income for fiscal 1996.
The return on average assets was 0.63% for fiscal 1997 compared to 0.64% for
fiscal 1996 (exclusive of nonrecurring items and annualized). For 1997, the
return on average equity was 3.02% compared to 2.34% for fiscal 1996
(exclusive of nonrecurring items and annualized).
SAIF Assessment
On September 30, 1996, the Deposit Insurance Funds Act of 1996 was enacted
which required the Federal Deposit Insurance Corporation ("FDIC") to impose a
one-time special assessment on deposits held by savings and loan institutions
that are insured through the Savings Association Insurance Fund ("SAIF").
The special assessment was equal to $0.657 per $100 of insured deposits and
was required to be applied against SAIF-assessable deposits held as of March
31, 1995. The charge to the Company for this one-time assessment, which was
paid to the FDIC in November 1996, was $572,000.
In 1997, SAIF insured institutions were assessed according to the same risk-
based assessment schedule as the Bank Insurance Fund ("BIF") members - 0 to
27 basis points per $100 of insured deposits. Prior to 1997, the SAIF
assessment range was 23 to 31 basis points per $100 of insured deposits. In
addition, SAIF assessed institutions were also billed an additional 6.48
basis points for payments on the Financing Corporation ("FICO") obligation.
BIF members paid 1.296 basis points toward the FICO bonds. Because the
Company was in the lowest risk classification during 1997, the Company paid
only the 6.48 basis point FICO payment. The Company expensed $64,000 for
FDIC insurance in 1997, compared to $811,000 for fiscal 1996.
Loss on Sale of Securities
During the fourth quarter of 1996, the Company also recorded a loss of
$127,000, $78,000 net of taxes, on the sale of $6.0 million of adjustable
rate mortgage mutual funds. These funds had been accounted for as available
for sale, with an unrealized loss recorded as a reduction of total
stockholders' equity. The sale of these securities, therefore, had no effect
on total stockholders' equity. The Company sold the securities in response
to declining interest rates toward the end of 1996.
Net Interest Income
Net interest income, which is the difference between interest income earned
on loans and investments and interest expense recorded on deposits and other
interest-bearing liabilities, was $5.60 million for 1997, a decline of $1.17
million from the $6.77 million recorded for the fifteen months ended December
31, 1996. However, the $5.60 million for 1997 is 3.3% higher than the $6.77
million for fiscal 1996 on an annualized basis.
Interest Income - Interest income was $10.16 million for the year ended
December 31, 1997 compared to $10.81 million for the fifteen months ended
December 31, 1996. The $10.16 million for 1997 represents a 17.5% increase
over the annualized amount for fiscal 1996. The increase on an annualized
basis was primarily due to loan growth and an increase in the average balance
of interest-bearing time deposits and interest-bearing demand deposits,
offset by a decrease in the average balance of the Federated Liquid Cash Fund
and the average balance of investment securities.
The average balance of total loans increased from $83.50 million in fiscal
1996 to $102.57 million in 1997, an increase of $19.07 million or 22.8%. The
majority of this growth was in one-to four-family and multifamily mortgage
loans, although both commercial and consumer loans also had modest increases.
The average balance of total one-to four-family mortgage loans increased
$9.58 million during 1997 and the average balance of total multifamily loans
increased $8.84 million. The average balance of total commercial loans
increased $1.18 million and the average balance of consumer loans grew $1.28
million during the year ended December 31, 1997. Average total commercial
real estate loans declined during 1997 by $2.15 million due mainly to one
loan totaling $2.20 million which was repaid in December, 1996.
The growth in loans occurred as a result of stable to declining mortgage
interest rates during the latter part of 1996 and in 1997, resulting in
increased loan originations and refinancing activity. Also, management
implemented strategies during 1996 and 1997 designed to promote loan growth.
These strategies included more targeted marketing efforts, employee referral
programs, the hiring of an additional commercial loan officer, and consumer
and mortgage loan promotions. Consumer loans also grew as a result of the
Company introducing both a new credit card program and an overdraft
protection product in early 1997. Total average loans were also higher in
1997 due to the Company selling $3.5 million in one-to four-family mortgage
loans during the first few months of fiscal 1996.
The average balance of interest-bearing time deposits, which were all Federal
Home Loan Bank term deposits, increased $676,000 in the year ended December
31, 1997 from the level maintained in fiscal 1996, while the average balance
of investment securities declined $1.82 million and the average balance of
interest-bearing demand deposits, which includes the Federated Liquid Cash
Fund, decreased $189,000.
The average yield on interest-earning assets increased from 7.89% for the
period ended December 31, 1996 to 7.99% for the year ended December 31, 1997,
primarily due to a higher yield on investment securities.
Interest Expense - Interest expense increased from $4.04 million in fiscal
1996 to $4.55 million in 1997, an annualized increase of 40.9%, with most of
the increase attributable to growth in interest-bearing deposits,
particularly certificates of deposit. The average balance of total interest-
bearing deposits grew $20.41 million, or 24.8%, from $82.36 million in fiscal
1996 to $102.77 million in 1997. Total average certificates of deposit
increased from $47.22 million in fiscal 1996 to $66.39 million in 1997, an
increase of $19.17 million or 40.6%. The majority of this growth, or $17.04
million, was in certificates with maturities of from eighteen months to two
and a half years. The growth in time deposits was due to several deposit
promotions held toward the end of 1996 and in 1997. Management implemented
these programs in order to provide funding for loans, secure new customers
and to retain existing customers.
The average balances of total insured money market accounts ("IMMA") and
total NOW accounts increased $609,000 and $1.51 million, respectively, from
fiscal 1996 to fiscal 1997, a result of new product types introduced in
January, 1997. These new products include an IMMA account which earns a
higher rate of interest for customers that maintain a minimum $10,000 balance
and a new NOW account with added services. Management promoted these new
products to both existing customers and new customers during 1997.
The average cost of interest-bearing liabilities increased from 3.89% for the
period ended December 31, 1996 to 4.41% for the year ended December 31, 1997.
The total average rate on certificates of deposit increased from 5.35% for
fiscal 1996 to 5.72% for 1997, due to the growth in longer-term certificates,
those maturing in eighteen months to two and a half years. The average rate
on IMMA deposits increased from 2.01% for the fifteen months ended December
31, 1996 to 2.47% for the year ended December 31, 1997 due to the new IMMA
product first marketed to customers in January, 1997.
Net interest income of $6.77 million in fiscal 1996 increased $2.08 million
from the $4.69 million recorded for fiscal 1995, an annualized increase of
15.6%. Interest income increased from $7.68 million for fiscal 1995 to
$10.81 million for the fifteen months ended December 31, 1996, an annualized
increase of 12.6%. This increase was primarily due to growth in loans and an
increase in average short-term investments. Interest expense increased from
$3.00 million in fiscal 1995, to $4.04 million for fiscal 1996, an annualized
increase of 7.7% with most of the increase attributable to increases in rates
and average balances of certificates of deposit, offset by a reduction in the
volume of other interest-bearing deposits.
Average Balance Sheet - The following table presents the average balance
sheet for the Company for the periods ended December 31, 1997, December 31,
1996 and September 30, 1995, the interest on interest-earning assets and
interest-bearing liabilities and the related average yield or cost. The
average balances are derived from average daily balances. The yields or cost
are calculated by dividing income or expense by the average balance of assets
or liabilities, respectively, for the periods shown except where noted
otherwise. The yields and costs include fees which are considered
adjustments to yields. The average yields and costs for the period ended
December 31, 1996 were adjusted to reflect annualized percentages.
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet
Period Ended
-------------------------------------------------------------------------------------
December 31, 1997 December 31, 1996 (1) September 30,1995
-------------------------- -------------------------- --------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing demand deposits $ 7,380 $ 378 5.12% $ 4,604 $ 293 5.07% $ 3,676 $ 196 5.33%
Federated Liquid Cash Fund 10,018 534 5.33 12,983 881 5.41 7,902 443 5.61
Interest-bearing time deposits 855 48 5.61 179 12 5.34 827 41 4.96
Investment securities, net (2) 5,671 347 6.12 7,488 557 5.93 7,994 473 5.92
Loans, net (3) 102,568 8,811 8.59 83,499 9,024 8.61 76,218 6,503 8.53
FHLB stock 545 37 6.79 465 40 6.86 432 28 6.48
----------------------------------------------------------------------------------------
Total interest-earning assets 127,037 10,155 7.99% 109,218 10,807 7.89% 97,049 7,684 7.92%
Noninterest-earning assets 12,021 11,716 12,310
----------------------------------------------------------------------------------------
Total assets $ 139,058 $ 120,934 $ 109,359
========================================================================================
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Insured money market deposits $ 7,199 $ 178 2.47% $ 6,590 $ 166 2.01% $ 8,509 $ 168 1.97%
Savings deposits 15,116 303 2.00 15,991 400 1.99 18,388 364 1.98
NOW and other demand deposits 14,060 243 1.73 12,552 272 1.73 12,054 207 1.72
Certificates of deposit 66,392 3,794 5.72 47,223 3,168 5.35 43,752 2,132 4.87
----------------------------------------------------------------------------------------
Total deposits 102,767 4,518 4.40 82,356 4,006 3.88 82,703 2,871 3.47
FHLB advances and other 469 33 7.04 416 36 6.90 1,202 126 10.48
----------------------------------------------------------------------------------------
Total interest-bearing
liabilities 103,236 4,551 4.41% 82,772 4,042 3.89% 83,905 2,997 3.57%
Noninterest-bearing liabilities 6,910 5,272 4,765
----------------------------------------------------------------------------------------
Total liabilities 110,146 88,044 88,670
Stockholders' equity 28,912 32,890 20,689
----------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 139,058 $ 120,934 $ 109,359
========================================================================================
Net interest rate spread (4) $ 5,604 3.59% $ 6,765 4.00% $ 4,687 4.35%
========================================================================================
Net interest margin (5) 4.41% 4.94% 4.83%
========================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 123.06% 131.95% 115.67%
========================================================================================
</TABLE>
(1) Represents a fifteen-month period as a result of the Company's
change in fiscal year from September 30 to December 31, which
occurred in November, 1995.
(2) Includes securities available for sale and unamortized discounts
and premiums.
(3) Amount is net of deferred loan fees, loan discounts and premiums,
loans in process, allowance for loan losses and nonperforming loans.
(4) Net interest rate spread represents the difference between the
yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by
average interest-earning assets.
Rate/Volume Analysis - The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and expense during the periods indicated. Information is provided in
each category with respect to (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (change in rate multiplied by prior volume); and (iii) the
net change. The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate. The interest income and interest expense amounts for
the fifteen months ended December 31, 1996 were annualized in order to be
comparable to interest income and interest expense for the fiscal years ended
December 31, 1997 and September 30, 1995.
<TABLE>
<CAPTION>
Year Ended Period Ended
December 31, 1997 December 31, 1996
Compared to Compared to
Period Ended Year Ended
December 31, 1996 September 30, 1995
-------------------------- --------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
-------------------------- --------------------------
Volume Rate Net Volume Rate Net
-------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing demand deposits $ 143 $ 1 $ 144 $ 48 $ (9) $ 39
Federated Liquid Cash Fund (158) (13) (171) 276 (14) 262
Interest-bearing time deposits 38 -- 38 (35) 3 (32)
Investment securities, net (111) 12 (99) (30) 3 (27)
Loans, net 1,638 (46) 1,592 628 88 716
FHLB stock 5 -- 5 2 2 4
---------------------------------------------------------
Total interest-earning assets 1,555 (46) 1,509 889 73 962
---------------------------------------------------------
Interest-bearing liabilities:
Insured money market deposits 13 32 45 (39) 3 (36)
Savings deposits (18) 1 (17) (48) 4 (44)
NOW and other demand deposits 26 (1) 25 9 2 11
Certificates of deposit 1,087 173 1,260 177 226 403
FHLB advances and other 4 -- 4 (64) (33) (97)
---------------------------------------------------------
Total interest-bearing
liabilities 1,112 205 1,317 35 202 237
---------------------------------------------------------
Net change in net interest
income $ 443 $ (251) $ 192 $ 854 $ (129) $ 725
=========================================================
</TABLE>
Provision for Loan Losses
The provision for loan losses for the year ended December 31, 1997 was
$156,000 compared to $325,000 for the fifteen months ended December 31, 1996.
The provision for loan losses for both periods reflects management's analysis
of the Company's loan portfolio based on information which is currently
available to it at such time. In particular, management considers the level
of nonperforming loans and potential problem loans. The higher provision for
fiscal 1996 was due to an increase in nonperforming and potential problem
loans and loans charged off during 1996 and included a special provision of
$50,000 recorded in the fourth quarter of 1996. Total charge-offs for the
year ended December 31, 1997 totaled $38,000 compared to $186,000 in fiscal
1996. The charge-offs in 1997 included $18,000 in consumer loans and $20,000
associated with one commercial loan borrower. Approximately $145,000 of the
charge-offs in fiscal 1996 related to loans to two commercial customers in
different service industries. While management of the Company believes that
the allowance for loan losses is sufficient based on information currently
available to it, no assurances can be made that future events, conditions or
regulatory directives will not result in increased provisions for loan losses
or additions to the allowance for loan losses which may adversely affect net
income.
Noninterest Income
Noninterest income for the year ended December 31, 1997 was $783,000 compared
to $641,000 for the period ended December 31, 1996, an increase of 52.6% on
an annualized basis. The fiscal 1996 amount included the loss of $127,000
from the sale of adjustable rate mortgage mutual funds.
Income from PASC's joint venture declined from $51,000 for the period ended
December 31, 1996 to $33,000 in fiscal 1997 due to fewer lot sales. All of
the lots in the joint venture have been sold and the joint venture liquidated
all accounts to the partners in November, 1997. Brokerage commissions
increased from $32,000 for the period ended December 31, 1996 to $61,000 in
fiscal 1997 due to commission income generated from PASC's securities
brokerage services which became operative in late 1996. Insurance sales
commissions, which were $41,000 for fiscal 1997 compared to zero in the prior
period, reflects income generated from the Agency since its inception in
September, 1997.
Service charges on deposit accounts increased 13.3% on an annualized basis
from the $497,000 ($398,000 on an annualized basis) recorded for the period
ended December 31, 1996 to $451,000 in fiscal 1997, primarily due to
overdraft fees. The Bank restructured overdraft fees, including an increase
in the per item fee, effective in January, 1997. Other customer fees
increased from $79,000 for the period ended December 31, 1996 to $142,000 in
fiscal 1997, an annualized increase of 125.4%, due mainly to increases in ATM
fees and fees related to the addition of a credit card program in early 1997.
The increase in ATM fees resulted from the acquisition of additional machines
during 1996 and 1997 and also was due to a new service charge implemented in
late 1996 which charges non customers a fee for ATM withdrawals at Bank owned
machines.
Net gains recorded from loan sales decreased from $30,000 for the period
ended December 31, 1996 to $1,000 in fiscal 1997 due to a decreased volume of
sales in fiscal 1997. The Company sold $3.5 million in fixed rate
residential loans in fiscal 1996, compared to $72,000 in 1997. Other income
decreased from $41,000 for the period ended December 31, 1996 to $22,000 in
fiscal 1997 due mainly to the recording in 1996 of a $21,000 gain on mortgage
servicing rights. This gain was recorded in conjunction with the Company's
adoption during the period ended December 31, 1996 of Statement of Financial
Accounting Standards ("SFAS") No. 122 "Accounting for Mortgage Servicing
Rights," which requires rights to service mortgage loans for others be
recorded as an asset. No additional gains on mortgage servicing rights were
capitalized in 1997.
Noninterest Expense
Noninterest expense for the year ended December 31, 1997 was $4.71 million
compared to $6.10 million for the period ended December 31, 1996. The 1996
amount includes the one-time SAIF special deposit insurance assessment of
$572,000.
Salaries and employee benefits expense totaled $2.53 million in fiscal 1997
and was 13.5% higher on an annualized basis compared to the $2.79 million
recorded for the period ended December 31, 1996. Compensation expense was
higher in 1997, compared to fiscal 1996 on an annualized basis, due to normal
pay raises and the hiring of additional staff, including two insurance agents
for the newly formed Agency and a commercial loan officer. Compensation
expense was also higher in 1997 on an annualized basis due to expenses for
the Company's Incentive Plan and ESOP. The Company recorded $217,000 of
expense related to the Incentive Plan in fiscal 1997 compared to $210,000, or
$168,000 on an annualized basis, in fiscal 1996. The expense was higher in
1997 due to the plan not being adopted until February, 1996. The Company
expensed $434,000 related to the ESOP in 1997 versus $455,000 ($364,000 on an
annualized basis) for fiscal 1996. ESOP expense increased in 1997 due to the
growth in the price of the Company's stock during both 1996 and 1997.
Equipment expenses totaling $305,000 in 1997 were 24.5% higher on an
annualized basis than the $306,000 recorded for fiscal year 1996, due mainly
to depreciation expense resulting from the purchase of five ATM machines in
1996 and one ATM machine in 1997, and computer and other equipment installed
in early 1997 for the Bank to process checks in-house instead of through a
correspondent financial institution.
Deposit insurance expense for the fiscal year ended December 31, 1997 totaled
$64,000 and was 66.5% lower on an annualized basis than the $239,000 recorded
for the period ended December 31, 1996, excluding the $572,000 special SAIF
assessment. The lower expense for 1997 reflects the reduction in the
assessment schedule for SAIF insured institutions. Directors fees were
$100,000 in fiscal 1997, 21.3% lower on an annualized basis than the $159,000
recorded in the period ended December 31, 1996. Directors fees were lower in
fiscal 1997 due to the monthly fees being reduced, effective in January 1996,
and also due to fewer board meetings held by the PASC board of directors in
1997.
Income Tax Expense
Total income tax expense was $651,000 for the year ended December 31, 1997,
compared to $446,000 for the period ended December 31, 1996. The increase is
attributable to the higher income before tax in 1997. The effective tax
rates for the periods ended December 31, 1997 and 1996 were 42.7% and 45.5%,
respectively. The effective tax rate was lower in fiscal 1997 due to a
higher level of state tax exempt interest income from U.S. Treasury and
qualified Federal agency securities.
Financial Condition
Total consolidated assets of the Company increased $9.60 million, or 7.3%,
from $132.37 million at December 31, 1996 to $141.97 million at December 31,
1997. The growth in assets occurred primarily in loans, which increased by
$20.49 million or 22.3%, offset by a reduction in cash and cash equivalents
of $8.93 million or 33.8% and interest-bearing time deposits of $2.00 million
or 100%.
Cash and cash equivalents declined from $26.41 million at December 31, 1996
to $17.48 million at December 31, 1997 and interest-bearing time deposits
decreased from $2.00 million at December 31, 1996 to zero at December 31,
1997. Such reductions were utilized to fund loan growth which exceeded
deposit growth by approximately $9.23 million, treasury stock purchases of
$3.05 million and cash dividends of $644,000.
Total investment securities were $3.30 million at December 31, 1997 compared
to $3.40 million at December 31, 1996. During 1997, the Company purchased
$4.99 million of Federal agency securities, designating $1.99 million as
available for sale. A $1.0 million U.S. Treasury security held as of
December 31, 1996 matured in November, 1997. Federal agency securities
totaling $4.0 million were called in the latter half of 1997 due to the
decline in interest rates during this period. The Federal agency securities
held as of December 31, 1997 mature in varying dates from 1998 to 2000 and
have a weighted average yield of 6.18%. At December 31, 1997, the Company
also held $300,000 in municipal securities which mature in various years from
1998 to 2001. The weighted average yield on the municipal securities, which
are exempt from federal income taxes, is 4.57%.
Loan growth from December 31, 1996 to December 31, 1997 occurred in all loan
categories, except construction loans. One-to four family residential
mortgage loans increased $5.97 million or 11.6%, multifamily mortgage loans
increased $8.73 million, or 92.4%, commercial loans increased $3.78 million,
or 46.1%, consumer loans increased $1.42 million and commercial real estate
loans grew by $933,000. Construction loans decreased by $420,000. Company
management has implemented various strategies during 1996 and 1997 designed
to promote loan growth, including special rate promotions, employee referral
programs and the hiring of an additional commercial loan officer. During the
early months of fiscal 1996, the Company sold $3.5 million in fixed rate
residential loans due to a decline in interest rates during the period, as
compared to loan sales of $72,000 during fiscal 1997.
The allowance for loan losses increased from $374,000 at December 31, 1996 to
$497,000 at December 31, 1997 due to the $156,000 in provision for loan
losses recorded offset by net charge-offs of $33,000. The ratios of the
Company's allowance for loan losses to total loans were .44% and .41% at
December 31, 1997 and 1996. The ratios of the Company's allowance to loan
losses to total nonperforming loans were 126.8% and 211.3% at December 31,
1997 and 1996.
Company management and the Board of Directors perform ongoing reviews of the
loan portfolio in order to identify nonperforming loans and potential problem
loans and to evaluate the adequacy of the allowance for loan losses. The
Bank utilizes an internal asset classification system similar to that used by
the Office of Thrift Supervision (the "OTS"), the Bank's primary regulator,
to classify assets. The Bank classifies nonperforming loans and potential
problem loans and other assets as "Substandard," "Doubtful," "Loss," or
"Watch" assets.
An asset is considered Substandard if it is inadequately protected by the
current net worth and paying capacity of the borrower or of the collateral
pledged, if any. Substandard assets include those characterized by the
distinct possibility that the Bank will sustain some loss if the deficiencies
are not corrected. Assets classified as Doubtful have all of the weaknesses
inherent in those classified as Substandard with the added characteristic
that the weaknesses present make collection or liquidation in full, on the
basis of currently existing facts and conditions, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the categories described above but possess
weaknesses are classified as "Watch." Total internally classified assets
equals the sum of nonperforming loans, which are loans past due 90 days or
more and non accruing loans, and potential problem loans.
Total classified assets declined from $2.18 million at December 31, 1996 to
$1.14 million at December 31, 1997, a decrease of $1.04 million or 47.7%.
Total nonperforming loans were $392,000 at December 31, 1997, compared to
$177,000 at December 31, 1996. Total nonperforming loans at December 31,
1997 were comprised of $372,000 in loans past due 90 days or more and $20,000
in loans on non accrual. Total potential problem loans were $748,000 at
December 31, 1997 compared to $2.00 million in 1996.
The majority of the decrease in classified assets from December 31, 1996 to
December 31, 1997 was due to loans to one borrower which totaled $861,000 at
December 31, 1996 and which were removed from classified assets during 1997.
This borrower made payments totaling $181,000 during 1997 and the loans have
been paid on a timely basis since December 31, 1996. The loan was current at
December 31, 1997.
Total classified assets at December 31, 1997 included impaired loans totaling
$730,000. A loan is considered impaired when, based on current information
and events, it is probable that a creditor will be unable to collect all
amounts due according to the contractual terms of the loan agreement. If the
present value of expected future cash flows, or in certain instances the
observable market price of the loan or the fair value of the underlying
collateral, is less than the recorded investment in the loan, then the
creditor shall recognize an impairment by adjusting the allowance for loan
losses with a corresponding charge to provision for loan losses. At December
31, 1997, impaired loans were comprised of loans to five borrowers. The
allowance for impaired loans, included in the Company's allowance for loan
losses, was $206,000.
Approximately $303,000 of total impaired loans related to one borrower, with
$277,000 in loans secured by the customer's retail business and the related
commercial real estate and the remaining balance secured by the customer's
residence. The assets of the business, including the real estate, were sold
in late 1997 and the proceeds from the sale were used to reduce the total
outstanding balance to $180,000 in early 1998. The Company is in the process
of negotiating a long-term repayment schedule with the borrower for the
remaining $180,000 balance.
An additional $282,000 of impaired loans related to a commercial borrower in
an unrelated retail industry. These loans include $191,000 secured by assets
of the business and $91,000 secured by the owner's residence. The Company
anticipates receiving partial repayment in early 1998 from the sale of a
business asset and otherwise is working with the borrower to reduce the
indebtedness.
The remaining balance of impaired loans include an $82,000 commercial loan
partially secured by assets of the borrower's business, and unsecured
consumer loans to two customers totaling $63,000. Since December 31, 1997
the Company has collected approximately $22,000 from the commercial borrower
and now expects full repayment on this loan. The Bank continues to work with
the consumer borrowers to establish acceptable repayment schedules.
The balance of classified assets not considered impaired assets totaled
$410,000 at December 31, 1997 and included four residential mortgage loans
totaling $134,000, consumer loans to six separate borrowers totaling $35,000
and commercial loans to three separate borrowers totaling $241,000. The
majority of these loans are substantially secured and the Company anticipates
that the loans will be repaid satisfactorily from cash flows from business
operations or from the sale of the underlying collateral.
Total other assets increased $350,000 from $1.36 million at December 31, 1996
to $1.71 million at December 31, 1997. This increase was due to the
recording of the excess of the purchase price over the fair value of assets
acquired for the purchase of the insurance business of a local agent which
occurred at the inception of the Agency and also was due to insurance
premiums receivable being recorded in 1997. The unamortized balance of the
excess purchase price was $268,000 and insurance premiums receivable were
$125,000 at December 31, 1997.
Total deposits increased $11.27 million or 11.2% from $100.71 million on
December 31, 1996 to $111.98 million on December 31, 1997. The majority of
this growth was in time deposits which increased $9.93 million, demand
deposits which increased $881,000, IMMA accounts which increased $757,000,
offset by savings accounts which decreased $300,000. Time deposits increased
primarily in certificates of deposit with maturities ranging from eighteen
months to two and a half years. These categories of certificates increased
by $10.18 million. The growth in time deposits was due to several
certificate of deposit promotions held during the year ended December 31,
1997. Company management implemented these promotions in order to provide
funding for loans, gain new customers and retain existing customers whose
deposits were maturing. The growth in demand deposits and IMMA accounts was
due to the new products the Company introduced in January 1997. These new
products, marketed under the name "Club Fed," include a NOW account product,
which offers various additional services, and the Club Fed IMMA account which
provides a higher rate of interest for account balances of $10,000 or more.
The Company marketed these new products to customers and non customers with
several advertising campaigns. Savings deposits declined as a result of
customers transferring balances to the new Club Fed IMMA account.
Total other liabilities grew $502,000 in 1997, from $1,193,000 at December
31, 1996 to $1,695,000 at December 31, 1997 due to the recording of insurance
premiums due insurance companies of $119,000, deferred insurance commission
income of $51,000, income taxes payable of $126,000 which were a receivable
of $120,000 at December 31, 1996 and increases in deferred compensation due
directors of $71,000 and insurance and real estate taxes held in escrow for
loan customers of $59,000.
Total stockholders' equity decreased from $30.46 million at December 31, 1996
to $28.29 million at December 31, 1997, a decrease of $2.17 million. This
decline resulted from net income of $873,000, plus ESOP and incentive plan
shares earned of $434,000 and $217,000, respectively, and $2,000 from the
change in the unrealized gain on securities available for sale, less $644,000
in dividends declared and $3.05 million in treasury stock purchased.
Subsequent to December 31, 1997, the Company completed the repurchase of 5%
of the Company's common stock or 83,599 shares for a total of $1.75 million
or $20.93 per share. The repurchased shares will be held as treasury shares
to be used for general corporate purposes.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans, and, to a lesser extent, proceeds from the sale of 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 Bank is
subject to required minimum liquidity ratios as established by the OTS, the
Bank's primary regulator. These ratios are based upon a percentage of
deposits and short-term borrowings. The ratio may vary at the direction of
the OTS depending upon economic conditions and deposit flows and is currently
4%. The Bank's liquidity ratios were 15.38% and 18.87% at December 31, 1997
and 1996, respectively. The Company is not required to maintain a minimum
level of regulatory liquidity.
The primary investment activity of the Company is the origination of mortgage
loans, commercial and consumer loans, and the purchase of U.S. Treasury and
Federal agency securities. During the periods ended December 31, 1997 and
1996, the Company originated mortgage loans in the amounts of $36.50 million
and $35.75 million, respectively, commercial loans in the amounts of $15.36
million and $15.08 million, respectively, and consumer loans in the amounts
of $12.16 million and $15.68 million, respectively. Purchases of U.S.
Treasury and Federal agency securities totaled $4.99 million in fiscal 1997
and $4.00 million in the period ended December 31, 1996. Asset acquisitions
during the periods ended December 31, 1997 and 1996 were primarily funded by
deposits, a decrease in cash and cash equivalents and interest-bearing time
deposits, principal repayments on loans and proceeds from the sale of the
adjustable-rate mortgage mutual funds which were sold in late 1996.
A review of the Consolidated Statement of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") decreased $8.93 million during 1997 and increased $4.09
million in the period ended December 31, 1996. Cash decreased in the period
ended December 31, 1997 due to net cash used in investing activities of
$18.73 million offset by cash provided by operating activities of $2.24
million and net cash provided by financing activities of $7.56 million. Cash
used in investing activities included the $20.49 million net increase in
loans, which is primarily loan originations net of principal repayments, the
$1.99 million purchase of securities available for sale and $3.0 million
purchase of securities held to maturity, offset by a decrease in interest-
bearing time deposits of $2.0 million and proceeds from maturing securities
of $5.10 million. Cash flows from operating activities included net income
of $873,000, and noncash adjustments to net income including the provision
for loan losses of $156,000, depreciation of $438,000, ESOP compensation
expense of $434,000 and incentive plan expense of $217,000. Cash provided by
financing activities included the increases in certificates of deposit of
$9.93 million and noninterest-bearing, interest bearing demand and savings
deposits of $1.34 million, offset by cash used to pay dividends of $659,000,
and the purchase of treasury stock of $3.05 million.
Cash increased in the period ended December 31, 1996 due to net cash provided
by operating activities of $2.10 million and net cash provided by financing
activities of $14.87 million, less cash used in investing activities of
$12.88 million. Cash flows from operating activities in the period ended
December 31, 1996 included net income of $534,000, proceeds from sales of
loans originated for resale of $3.53 million, and noncash adjustments to net
income including the provision for loan losses of $325,000, depreciation of
$470,000, ESOP compensation expense $455,000 and incentive plan expense of
$210,000, less $3.50 million in loans originated for resale. Cash provided
by financing activities included the increases in certificates of deposit of
$18.05 million and noninterest bearing, interest bearing demand and savings
deposit of $1.79 million, offset by cash used to pay dividends of $907,000,
purchase stock for the incentive plan of $1.19 million and purchase treasury
stock of $2.88 million. Cash used in investing activities included the
$14.33 million net increase in loans, the $2.00 million increase in interest-
bearing time deposits and the $4.00 million in security purchases, offset by
the $5.87 million in proceeds from the sale of the adjustable rate mortgage
funds and $2.00 million in security maturities.
At December 31, 1997, the Bank exceeded all of its regulatory capital
requirements with tangible capital and core capital both at $18.37 million or
13.8% of total adjusted tangible assets and 23.0% of total risk-weighted
assets and risk-based capital at $18.86 million or 23.6% of total risk-
weighted assets. The required ratios are 1.5% for tangible capital to
tangible assets, 3.0% for core capital to tangible assets, 4.0% for core
capital to total risk- weighted assets and 8.0% for risk-based capital to
risk-weighted assets. See the accompanying Notes to Consolidated Financial
Statements for the Bank's capital calculations as of December 31, 1997 and
1996.
The Company's most liquid assets are cash and cash equivalents. The level of
cash and cash equivalents is dependent on the Company's operating, financing,
lending and investing activities during any given period. At December 31,
1997, cash and cash equivalents totaled $17.48 million. The Company's future
short-term requirements for cash are not expected to significantly change.
However, in the event that the Company should require funds beyond its
ability to generate them internally, additional sources of funds are
available, such as FHLB advances. With no parent company debt and sound
capital levels, the Company has several options for longer-term cash needs,
such as for future expansion and acquisitions.
Management is not aware of any current recommendations or government
proposals which if implemented would have a material effect on the Company's
liquidity, capital resources or operations.
Management of Interest Rate Risk
The principal objective of the Company's interest rate risk management
function is to evaluate the interest rate risk included in certain balance
sheet accounts, determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives, establish asset concentration guidelines and manage
the risk consistent with Board-approved guidelines. Through such management,
the Company seeks to reduce the vulnerability of its operations to changes in
interest rates and to manage the ratio of interest rate sensitive assets to
interest rate sensitive liabilities within specified maturities or repricing
dates. The Bank's Board of Directors has established an Asset/Liability
Committee consisting of management officers, which is responsible for
reviewing the Bank's asset/liability policies and interest rate risk
position. Such committee generally meets on a quarterly basis, and at other
times as dictated by market conditions, and reports to the Board of Directors
after each such meeting.
The Bank's interest rate risk strategy primarily consists of: (i) emphasizing
the attraction and retention of core deposits, which tend to be a more stable
source of funding; (ii) emphasizing the origination of adjustable rate
mortgage loan products and short-term commercial loans, the origination of
which is largely dependent on the market demand for such loans; (iii) when
market conditions are favorable and in consideration of the regulatory
requirements relating to required levels of residential loans which must be
maintained by the Bank, selling fixed-rate one- to four-family mortgage
loans; and (iv) investing in short-term U.S. Government securities. As a
traditional thrift lender, the Bank has a significant amount of its earning
assets invested in fixed-rate mortgages with contractual maturities greater
than one year. At December 31, 1997, an aggregate of $46.31 million, or
32.6% of total assets, were invested in such assets.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1997 which mature or
reprice in the periods shown. Except as stated in the table, the amount of
assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity.
<TABLE>
<CAPTION>
Interest Rate Sensitivity (in thousands)
At December 31, 1997
Over One Over Three Over Six
Month Months Months
Within Through Through Through
One Three Six Twelve Over One
Month Months Months Months Year Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits (1) $ 12,191 $ -- $ -- $ -- $ -- $ 12,191
Investment securities, net (2) 100 -- -- 2,000 1,779 3,879
Loans (3) 7,434 4,434 7,216 8,665 84,563 112,312
--------------------------------------------------------------------------------
Total interest-earning assets $ 19,725 $ 4,434 $ 7,216 $ 10,665 $ 86,342 $ 128,382
================================================================================
Interest-bearing liabilities:
NOW, savings and insured
money market deposits $ 36,060 $ -- $ -- $ -- $ -- $ 36,060
Certificates of deposit 8,269 9,436 9,396 21,620 21,740 70,461
--------------------------------------------------------------------------------
Total deposits 44,329 9,436 9,396 21,620 21,740 106,521
Other interest-bearing liabilities -- -- -- -- 491 491
--------------------------------------------------------------------------------
Total interest-bearing liabilities 44,329 9,436 9,396 21,620 22,231 107,012
--------------------------------------------------------------------------------
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (24,604) $ (5,002) $ (2,180) $(10,955) $ 64,111 $ 21,370
================================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities $ (24,604) $ (29,606) $(31,786) $(42,741) $ 21,370 $ 21,370
================================================================================
Cumulative interest-earning assets
divided by interest-bearing liabilities .45 .45 .50 .50 1.20 1.20
================================================================================
</TABLE>
(1) Includes interest-bearing demand and interest-bearing time deposits.
(2) Includes FHLB stock and reflects repricing, contractual maturity or
anticipated call date.
(3) Loans are placed in the various interest-sensitive periods based on
historical prepayment tendencies
as well as contractual terms.
The Company tends to be liability sensitive due to the levels of short-term
NOW, savings and insured money market deposits maintained. However, the
effect of rate increases on these deposits, which are mainly core retail
deposits, tends to lag behind the change in market rates. This lag generally
lessens the negative impact on net interest income during a period of rising
interest rates. Based on the information provided in the table, assuming no
management intervention, the effect of an increase in interest rates of 100
basis points would reduce annualized net interest income by approximately
$246,000 in the one month category or approximately $296,000 in the three
month category. A decrease in interest rates would have the opposite effect.
Management believes that the assumptions used to evaluate interest rate
sensitivity approximate actual experience and considers this method a
reasonable tool; however, the interest rate sensitivity of the Company's
assets and liabilities and the estimated effects of changes in interest rates
on net interest income could vary substantially if different assumptions were
used or actual experience differs from the historical experiences on which
these assumptions were based.
Year 2000 Compliance
Many computer programs use only two digits to identify a year in the date
field and therefore do not consider the impact of the upcoming change in the
century. These programs, if not corrected, could fail or cause erroneous
results by or at January 1, 2000. The Company currently processes the
majority of financial transactions through a third-party data processing
company. The contract with this company expires in March, 1999. The Company
has recently contracted with a different software company to provide the
Company with software to process these transactions in-house and expects to
convert to the new software by the end of 1998. The new software provider
has pledged in its contract with the Company that its software is year 2000
compliant, meaning that the date fields in its software are already capable
of handling the change to the year 2000. In addition, the Board of Directors
of the Company has appointed a year 2000 compliance officer to identify,
evaluate and monitor other areas that will be affected by the year 2000 issue
and ensure that all such areas will be in compliance within the time frames
established by the Company. Such other areas include various purchased
software programs used for purposes such as payroll, accounts payable and
loan processing, and the impact of year 2000 on major customers and
suppliers. 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 1998 without any material disruption to its operations.
Current Accounting Issues
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 establishes standards for
computing and presenting earnings per share ("EPS") and applies to entities
with publicly held common stock or potential common stock. SFAS No. 128
simplifies previous standards for computing EPS. SFAS No. 128 is effective
for financial statements issued for periods ending after December 15, 1997,
including interim periods. Earlier application is not permitted. SFAS No.
128 requires restatement of all prior period EPS data presented. The Company
adopted Statement 128 during the fiscal quarter ending December 31, 1997.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 summarizes previously issued
disclosure guidance contained within Accounting Principles Board Opinions No.
10 and 15 as well as SFAS No. 47. This statement is effective for financial
statements issued for periods ending after December 15, 1997. Accordingly,
the Company adopted Statement 129 during the fourth quarter of 1997. There
were no changes to the Company's disclosures pursuant to the adoption of SFAS
No. 129.
In June 1997, the 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 investment by owners and
distributions to owners." The comprehensive income and related cumulative
equity impact of comprehensive income items will be 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 is
expected to be disclosed as an additional component of the Company's income
under the requirements of SFAS No. 130. This statement is effective for
fiscal years beginning after December 15, 1997. The Company will adopt
Statement 130 during 1998.
Also in 1997, the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which supersedes SFAS 14,
"Financial Reporting of Segments of a Business Enterprise." SFAS No. 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires
reporting of selected information about operating segments in annual
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic area and major
customers. SFAS 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. This standard is effective
for financial statement periods beginning after December 15, 1997 and
requires comparative information for earlier years to be restated. Due to
the recent issuance of this standard, management has been unable to fully
evaluate the impact, if any, the standard may have on the Company's future
financial statement disclosures.
In addition to historical information, this Annual Report 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 competition, changes in the
quality or composition of the Bank'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 in Item 1,
"Business" of the Company's 1997 Form 10-K.<PAGE>
Independent Auditor's Report
Board of Directors
Great American Bancorp, Inc.
Champaign, Illinois
We have audited the consolidated balance sheet of Great American Bancorp,
Inc. and subsidiary as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year ended December 31, 1997 and the fifteen-month period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our 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 consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Great American Bancorp, Inc. and subsidiary as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the year ended
December 31, 1997 and the fifteen-month period ended December 31, 1996, in
conformity with generally accepted accounting principles.
/s/ Geo S. Olive & Co. LLC
Champaign, Illinois
January 16, 1998
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheet (in thousands, except share data)
December 31 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 5,285 $ 6,361
Interest-bearing demand deposits 12,191 20,049
--------------------------
Cash and cash equivalents 17,476 26,410
Interest-bearing time deposits -- 2,000
Investment securities
Available for sale 1,999 --
Held to maturity 1,300 3,400
--------------------------
Total investment securities 3,299 3,400
Loans 112,312 91,817
Allowance for loan losses (497) (374)
--------------------------
Net loans 111,815 91,443
Premises and equipment 7,090 7,306
Federal Home Loan Bank stock 580 454
Other assets 1,713 1,356
--------------------------
Total assets $ 141,973 $ 132,369
==========================
Liabilities
Deposits
Noninterest bearing $ 5,463 $ 4,253
Interest bearing 106,521 96,461
--------------------------
Total deposits 111,984 100,714
Other liabilities 1,695 1,193
--------------------------
Total liabilities 113,679 101,907
--------------------------
Commitments and Contingent Liabilities
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 19,655 19,486
Retained earnings - substantially restricted 16,167 15,938
Net unrealized gain on securities
available for sale 2 --
--------------------------
35,845 35,445
Less: Treasury stock, at cost - 380,773 and 200,144 shares (5,925) (2,875)
Unallocated employee stock ownership plan
shares - 87,891 and 113,566 shares (879) (1,136)
Unearned incentive plan shares - 51,802 and
67,349 shares (747) (972)
--------------------------
Total stockholders' equity 28,294 30,462
--------------------------
Total liabilities and
stockholders' equity $141,973 $ 132,369
==========================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income (in thousands, except share data)
Year Ended December 31 and Fifteen Months Ended December 31 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans $ 8,811 $ 9,024
Investment securities
Taxable 370 574
Tax exempt 14 23
Deposits with financial institutions and other 960 1,186
--------------------------
Total interest income 10,155 10,807
--------------------------
Interest Expense
Deposits 4,518 4,006
Other 33 36
--------------------------
Total interest expense 4,551 4,042
--------------------------
Net Interest Income 5,604 6,765
Provision for loan losses 156 325
--------------------------
Net Interest Income After
Provision for Loan Losses 5,448 6,440
--------------------------
Noninterest Income
Income from joint venture 33 51
Brokerage commissions 61 32
Insurance sales commissions 41 --
Service charges on deposit accounts 451 497
Loan servicing fees 32 38
Other customer fees 142 79
Net realized losses on sales of
available-for-sale securities -- (127)
Net gains on loan sales 1 30
Other income 22 41
--------------------------
Total noninterest income 783 641
--------------------------
Noninterest Expenses
Salaries and employee benefits 2,531 2,794
Net occupancy expenses 464 564
Equipment expenses 305 306
Data processing fees 193 237
Deposit insurance expense 64 811
Printing and office supplies 275 300
Legal and professional fees 203 250
Directors and committee fees 100 159
Insurance expense 41 49
Marketing and advertising expenses 165 212
Other expenses 366 419
--------------------------
Total noninterest expenses 4,707 6,101
--------------------------
<PAGE>
Income Before Income Tax 1,524 980
Income tax expense 651 446
--------------------------
Net Income $ 873 $ 534
==========================
Per Share Data:
Earnings
Basic:
Net income $ 0.55 $ 0.30
==========================
Average number of shares 1,577,554 1,799,011
==========================
Diluted:
Net income $ 0.53 $ 0.29
==========================
Average number of shares 1,663,856 1,865,745
==========================
Dividends $ 0.40 $ 0.58
==========================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Changes in Stockholders' Equity (in thousands,
except share data)
Net
Unrealized Unearned
Gain (Loss) on Employee Unearned
Securities Stock Owner- Incentive
Common Paid-in Retained Available Treasury ship Plan Plan
Stock Capital Earnings For Sale Stock Shares Shares Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, October 1, 1995 $ 21 $ 19,363 $ 16,482 $ (97) $ -- $ (1,465) $ -- $ 4,304
Net income for 1996 -- -- 534 -- -- -- -- 534
Cash dividends ($.58 per share) -- -- (1,078) -- -- -- -- (1,078)
Incentive plan shares acquired -- -- -- -- -- -- (1,185) (1,185)
Employee stock ownership plan shares earned -- 126 -- -- -- 329 -- 455
Incentive plan shares earned -- (3) -- -- -- -- 213 210
Purchase of treasury stock -- -- -- -- (2,875) -- -- (2,875)
Net change in unrealized gain (loss) on
securities available for sale -- -- -- 97 -- -- -- 97
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1996 $ 21 $ 19,486 $ 15,938 $ -- $(2,875) $ (1,136) $ (972) $ 30,462
Net income for 1997 -- -- 873 -- -- -- -- 873
Cash dividends ($.40 per share) -- -- (644) -- -- -- -- (644)
Employee stock ownership plan shares earned -- 177 -- -- -- 257 -- 434
Incentive plan shares earned -- (8) -- -- -- -- 225 217
Purchase of treasury stock -- -- -- -- (3,050) -- -- (3,050)
Net change in unrealized gain (loss) on
securities available for sale -- -- -- 2 -- -- -- 2
- ----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1997 $ 21 $ 19,655 $ 16,167 $ 2 $(5,925) $ (879) $ (747) $ 28,294
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows (in thousands)
Year Ended December 31 and Fifteen Months Ended December 31 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 873 $ 534
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 156 325
Depreciation 438 470
Amortization of deferred loan fees (36) (28)
Deferred income tax (15) (200)
Investment securities accretion, net (5) (12)
Investment securities losses -- 127
Net gain on loan sales (1) (30)
Employees stock ownership plan
compensation expense 434 455
Incentive plan expense 217 210
Loans originated for sale (72) (3,496)
Proceeds from sales of loans originated for resale 73 3,526
Net change in
Other assets (357) 80
Other liabilities 531 135
--------------------------
Net cash provided by operating activities 2,236 2,096
--------------------------
Investing Activities
Net change in interest-bearing time deposits 2,000 (2,000)
Purchase of securities available for sale (1,993) --
Proceeds from sales of securities available for sale -- 5,873
Purchases of securities held to maturity (2,995) (3,996)
Proceeds from maturities of securities held to maturity 5,097 2,000
(Purchase) redemption of Federal Home Loan Bank stock (126) 29
Net change in loans (20,492) (14,328)
Purchases of premises and equipment (222) (458)
--------------------------
Net cash used by investing activities (18,731) (12,880)
--------------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits 1,338 1,788
Certificates of deposit 9,932 18,052
Cash dividends (659) (907)
Purchase of stock for incentive plan -- (1,185)
Purchase of treasury stock (3,050) (2,875)
--------------------------
Net cash provided by financing activities 7,561 14,873
--------------------------
Net Change in Cash and Cash Equivalents (8,934) 4,089
Cash and Cash Equivalents, Beginning of Period 26,410 22,321
--------------------------
Cash and Cash Equivalents, End of Period $ 17,476 $ 26,410
==========================
Additional Cash Flows Information
Interest paid $ 4,563 $ 4,240
Income tax paid $ 495 $ 669
</TABLE>
See notes to consolidated financial statements.
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table dollar amounts in thousands)
> Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Great American Bancorp, Inc.
("Company"), its wholly owned subsidiary, First Federal Savings Bank of
Champaign-Urbana ("Bank") and the Bank's wholly owned subsidiary, Park Avenue
Service Corporation ("PASC"), conform to generally accepted accounting
principles and reporting practices followed by the banking industry. The more
significant of the policies are described below.
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 revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal
savings bank charter and provides full banking services. As a federally-
chartered thrift, the Bank is subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives
deposits from customers located primarily in Champaign County, Illinois and
surrounding counties. The Bank's loans are generally secured by specific
items of collateral including real property, consumer assets and business
assets. Although the Bank has a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their contracts is dependent upon
economic conditions in the real estate industry.
Consolidation - The consolidated financial statements include the accounts of
the Company and the Bank after elimination of all material intercompany
transactions and accounts.
Investment Securities - Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the securities to
maturity. Securities held to maturity are carried at amortized cost. Debt
securities not classified as held to maturity are classified as available for
sale. Securities available for sale are carried at fair value with unrealized
gains and losses reported separately in stockholders' equity, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
Investment in Joint Venture - The Company's joint venture is accounted for by
the equity method because it has no more than a 50% interest. The Company's
share of net income from the joint venture is recognized as income in the
consolidated statement of income and added to the investment account.
Mortgage servicing rights on originated loans are capitalized by allocating
the total cost of the mortgage loans between the mortgage servicing rights and
the loans based on their relative fair values. Capitalized servicing rights
are amortized in proportion to and over the period of estimated servicing
revenues.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. The accrual of interest on
impaired loans is discontinued when, in management's opinion, the borrower may
be unable to meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.
Certain loan fees and direct costs are deferred and amortized as an adjustment
of yield on the loans.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience,
changes in the composition of the portfolio, the current condition and amount
of loans outstanding, and the probability of collecting all amounts due.
Impaired loans are measured by the present value of expected future cash
flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1997 the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the areas within which the Bank operates would increase the likelihood of
additional losses due to credit and market risks and could create the need for
additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed on the straight-line method for buildings, furniture
and fixtures based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included
in current operations.
Federal Home Loan Bank stock is a required investment for institutions that
are members of the Federal Home Loan Bank system. The required investment in
the common stock is based on a predetermined formula.
Intangible assets are being amortized on the straight-line basis over fifteen
years. Such assets are periodically evaluated as to the recoverability of
their carrying value.
Income tax in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiary.
Accounting for Postretirement Benefits - The Company is recognizing the
transition obligation using the straight-line method over the plan
participants' average future service period of twenty years.
Incentive Plan - The Company accounts for its stock award program, or
incentive plan, in accordance with Accounting Principles Board Opinion ("APB")
No. 25. The aggregate purchase price of all shares owned by the incentive
plan is reflected as a reduction of stockholders' equity. Compensation
expense is based on the market price of the Company's stock on the date the
shares are granted and is recorded over the vesting period. The difference
between the aggregate purchase price and the fair value on the date granted of
the shares earned is recorded as an adjustment to paid-in capital.
Employee Stock Ownership Plan - The Company accounts for its employee stock
ownership plan ("ESOP") in accordance with American Institute of Certified
Public Accountants ("AICPA") Statement of Position 93-6. The cost of shares
issued to the ESOP but not yet committed to be released to participants is
presented in the consolidated balance sheet as a reduction of stockholders'
equity. Compensation expense is recorded based on the market price of the
shares as they are committed to be released for allocation to participant
accounts. The difference between the market price and the cost of shares
committed to be released is recorded as an adjustment to paid-in capital.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are not considered dividends
for financial statement purposes.
ESOP shares are considered outstanding for earnings per share calculations as
they are committed to be released; uncommitted shares are not considered
outstanding.
Treasury stock is stated at cost. Cost is determined by the first-in, first-
out method.
Earnings per share - Basic earnings per share have been computed based upon
the weighted average common shares outstanding during each year. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Reclassifications of certain amounts in the 1996 consolidated financial
statements have been made to conform to the 1997 presentation.
> Change in Fiscal Year End
On November 13, 1995, the Company's Board of Directors approved a change in
the fiscal year end of the Company and its subsidiary from September 30 to
December 31. Accordingly, the prior year balance sheet included in these
financial statements is as of December 31, 1996, while the statements of
income, changes in stockholders' equity and cash flows are for the fifteen-
month period ended December 31, 1996.
> Establishment of Insurance Agency
In September 1997, the Company purchased the insurance business of a local
insurance agent for approximately $274,000 and established the GTPS Insurance
Agency ("Agency") as a division of PASC. The excess of the purchase price
over the fair value of assets acquired is being amortized over fifteen years.
<TABLE>
<CAPTION>
> Investment Securities
1997
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 1,996 $ 3 $ -- $ 1,999
-------------------------------------------------------
Total available for sale 1,996 3 -- 1,999
-------------------------------------------------------
Held to maturity
U.S. Treasury -- -- -- --
Federal agencies 1,000 2 -- 1,002
State and municipal 300 3 -- 303
-------------------------------------------------------
Total held to maturity 1,300 5 -- 1,305
-------------------------------------------------------
Total investment securities $ 3,296 $ 8 $ -- $ 3,304
=======================================================
<CAPTION>
1996
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to maturity
U.S. Treasury $ 1,000 $ -- $ -- $ 1,000
Federal agencies 2,000 -- 6 1,994
State and municipal 400 2 -- 402
-------------------------------------------------------
Total investment securities $ 3,400 $ 2 $ 6 $ 3,396
=======================================================
</TABLE>
The amortized cost and fair value of securities held to maturity at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because issuers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for sale
----------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 1,100 $ 1,102 $ 996 $ 1,000
One to five years 200 203 1,000 999
----------------------------------------------------
Totals $ 1,300 $ 1,305 $ 1,996 $ 1,999
====================================================
</TABLE>
There were no sales of securities available for sale during 1997. Proceeds
from sales of securities available for sale during 1996 were $5,873,000.
Gross losses of $127,000 were realized on those sales. There were no sales of
securities held to maturity during 1997 or 1996. There were no securities
transferred between classifications during 1997 or 1996.
With the exception of securities of the U.S. Treasury and Federal Agencies,
the Company did not hold any securities of a single issuer, payable from and
secured by the same source of revenue or taxing authority, the book value of
which exceeded 10% of stockholders' equity at December 31, 1997.
> Loans and Allowance
December 31 1997 1996
- -----------------------------------------------------------------------------
Mortgage loans:
One-to four-family $ 57,698 $ 51,710
Other loans secured by real estate 29,029 19,304
Construction 2,994 2,799
--------------------------
89,721 73,813
Undisbursed portion of loans (1,407) (777)
Deferred loan fees (57) (77)
--------------------------
Total mortgage loans 88,257 72,959
--------------------------
Commercial and consumer loans:
Commercial 15,134 9,861
Consumer 12,088 10,667
--------------------------
27,222 20,528
Undisbursed portion of loans (3,167) (1,670)
--------------------------
Total commercial and consumer loans 24,055 18,858
--------------------------
Total loans $ 112,312 $ 91,817
==========================
The following is an analysis of the allowance for loan losses for the year
ended December 31, 1997 and for the fifteen months ended December 31, 1996:
Allowance for loan losses
Balances, beginning of period $ 374 $ 231
Provision for losses 156 325
Recoveries on loans 5 4
Loans charged off (38) (186)
--------------------------
Balances, end of period $ 497 $ 374
==========================
Information on impaired loans is summarized below.
December 31 1997 1996
- ------------------------------------------------------------------------------
Impaired loans with an allowance $ 730 $ 471
Allowance for impaired loans (included in the
Company's allowance for loan losses) 206 190
Period Ended December 31 1997 1996
- ------------------------------------------------------------------------------
Average balance of impaired loans $ 784 $ 595
Interest income recognized on impaired loans 77 80
Cash-basis interest included above 72 66
The Bank has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates (related
parties). Such transactions were made in the ordinary course of business on
substantially the same terms and conditions, including interest rates and
collateral, as those prevailing at the same time for comparable transactions
with other customers, and did not, in the opinion of management, involve more
than normal credit risk or present other unfavorable features. The aggregate
amount of loans, as defined, to such related parties was as follows:
Balances, January 1, 1997 $ 493
Changes in composition of related parties 143
New loans, including renewals 366
Payments, etc., including renewals (217)
--------------
Balances, December 31, 1997 $ 785
==============
> Loan Servicing
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of loans serviced for others
totaled $10,730,000 and $12,791,000 at December 31, 1997 and December 31,
1996.
In 1996, the Company adopted SFAS No. 122, Accounting for Mortgage Servicing
Rights. This Statement requires the capitalization of retained mortgage
servicing rights on originated or purchased loans by allocating the total cost
of the mortgage loans between the mortgage servicing rights and the loans
(without the servicing rights) based on their relative fair values. SFAS No.
122 was superseded during 1996 by SFAS No. 125 Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities. SFAS No. 125
(as did SFAS No. 122) requires the assessment of impairment of capitalized
mortgage servicing rights and requires that impairment be recognized through a
valuation allowance based on the fair value of those rights. The aggregate
fair value of capitalized mortgage servicing rights totaled $17,000 and
$19,000 at December 31, 1997 and December 31, 1996, respectively. Comparable
market values were used to estimate fair value. For purposes of measuring
impairment, risk characteristics including product type, investor type, and
interest rates, were used to stratify the originated mortgage servicing
rights.
1997 1996
- ---------------------------------------------------------------------------
Mortgage Servicing Rights
Balances, October 1 $ 19 $ --
Servicing rights capitalized -- 21
Amortization of servicing rights (2) (2)
--------------------------
Balances, December 31 $ 17 $ 19
==========================
> Premises and Equipment
December 31 1997 1996
- -----------------------------------------------------------------------------
Land $ 1,545 $ 1,545
Buildings 5,024 5,017
Leasehold improvements 867 867
Furniture and equipment 2,114 1,899
--------------------------
Total cost 9,550 9,328
Accumulated depreciation (2,460) (2,022)
--------------------------
Net $ 7,090 $ 7,306
==========================
> Other Assets and Other Liabilities
December 31 and September 30 1997 1996
- ---------------------------------------------------------------------------
Other assets
Interest receivable $ 997 $ 807
Cash value of insurance 200 185
Investment in joint venture -- 69
Income taxes receivable -- 120
Mortgage servicing rights 17 19
Excess of purchase price over the
fair value of assets acquired 268 --
Insurance premiums receivable 125 --
Prepaid expenses and other assets 106 156
--------------------------
Total $ 1,713 $ 1,356
==========================
Other liabilities
Interest payable on deposits $ 22 $ 34
Deferred compensation - directors 496 425
Accrued real estate taxes 105 123
Insurance and real estate taxes held
in escrow for loan customers 234 175
Accrued postretirement benefit obligation 87 71
Dividends payable 156 171
Deferred income taxes 4 20
Income taxes payable 126 --
Premiums due insurance companies 119 --
Deferred insurance commission income 51 --
Accrued expenses and other 295 174
--------------------------
Total $ 1,695 $ 1,193
==========================
> Investment in Joint Venture
The Bank's subsidiary, Park Avenue Service Corporation, holds a 50% equity
interest in a joint venture called The Old Farm. The other partner of the
joint venture is Wisegarver Land Development.
The Old Farm was formed in October, 1985 for the purpose of purchasing and
selling approximately 58 acres of real estate. The property is zoned for 44
acres of residential real estate, 11 acres for duplexes and 3 acres for office
buildings. Park Avenue Service Corporation provides the financing for
construction and Wisegarver Land Development acts as the manager of the
project. Profit is divided equally between the partners. The last sale of
Old Farm property occurred in November 1997 bringing total assets,
liabilities, and partner's equity to zero.
Condensed unaudited financial statements for The Old Farm are as follows:
December 31 1997 1996
- ----------------------------------------------------------------------------
Condensed statement of financial condition
Assets
Cash $ -- $ 45
Notes receivable -- 159
Lots held for sale -- 82
--------------------------
Total assets $ -- $ 286
==========================
Liabilities and partners' equity
Deferred sales $ -- $ 148
Equity, Park Avenue Service Corporation -- 69
Equity, Wisegarver Land Development -- 69
--------------------------
Total liabilities and partners' equity $ -- $ 286
==========================
Period Ended December 31 1997 1996
- -----------------------------------------------------------------------------
Condensed statement of operations
Sales $ 158 $ 211
Cost of sales (92) (121)
--------------------------
66 90
Other income (expenses) -- 4
--------------------------
Net income $ 66 $ 94
==========================
> Deposits
December 31 1997 1996
- ----------------------------------------------------------------------------
Demand deposits $ 19,482 $ 18,601
Savings deposits 15,072 15,372
Insured money market 6,969 6,212
Certificates of deposit of $100,000 or more 8,151 5,288
Other certificates of deposit 62,310 55,241
--------------------------
Total deposits $111,984 $100,714
==========================
Certificates of deposit maturing in years ending December 31,
1998 $ 48,766
1999 10,723
2000 3,169
2001 2,216
2002 --
Thereafter 5,587
----------
$ 70,461
==========
> Lease Commitments and Total Rental Expense
The Company leases one branch office and another office previously operated as
a branch office under operating leases. The branch office is rented on a
twenty-five year lease with four ten-year options with escalating rental
payments.
The previous branch office is currently on a thirty-month lease which is
renewable for three additional thirty-month terms at the lessee's option.
This office is being subleased to an unrelated party. In addition, the lessee
is required to pay the property taxes, normal maintenance and insurance on the
property.
The total minimum lease commitment at December 31, 1997 under these leases is
$483,000, which is due as follows:
Lease Rent from Net Lease
Payments Sublease Payment
------------------------------------------
Years ending December 31
1998 $ 52 $ 35 $ 17
1999 52 35 17
2000 57 32 25
2001 57 29 28
2002 57 29 28
During the remaining lease term 208 220 (12)
------------------------------------------
Total $ 483 $ 380 $ 103
==========================================
Total rent expense was $48,000 and $51,000 for the periods ended December 31,
1997 and 1996.
> Income Tax
Period Ended December 31 1997 1996
- -----------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $ 557 $ 556
State 109 90
Deferred
Federal (6) (177)
State (9) (23)
--------------------------
Total income tax expense $ 651 $ 446
==========================
Reconciliation of federal statutory to
actual tax expense
Federal statutory income tax at 34% $ 518 $ 333
Effect of state income taxes 66 44
Effect of allocating ESOP shares 67 69
--------------------------
Actual tax expense $ 651 $ 446
==========================
A cumulative net deferred tax liability is included in other liabilities. The
components of the liability are as follows:
December 31 1997 1996
- -----------------------------------------------------------------------------
Assets
Deferred loan fees $ 9 $ 23
Allowance for loan losses 126 --
Deferred compensation 192 164
Incentive plan 66 82
Postretirement benefit obligation 34 26
Net unrealized losses on securities
available for sale 1 --
Mortgage servicing rights 6 7
Other -- 26
--------------------------
Total assets 434 328
--------------------------
Liabilities
Federal Home Loan Bank stock basis 20 20
Allowance for loan losses -- 3
Depreciation 407 325
Other 11 --
--------------------------
Total liabilities 438 348
---------------------------
$ (4) $ (20)
===========================
The tax benefit attributable to the net realized losses on sales of available-
for-sale securities recorded for the period ended December 31, 1996 was
$49,000.
Retained earnings at December 31, 1997 and 1996 included approximately
$4,300,000 of the tax bad debt reserve, which accumulated prior to 1988, for
which no deferred federal income tax liability has been recognized. This
amount represents an allocation of income to bad-debt deductions for tax
purposes only. Reduction of amounts so allocated for purposes other than tax
bad-debt losses or adjustments arising from carryback of net operating losses
would create income for income tax purposes only, which would be subject to
the then current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount was approximately $1,669,000 as of December
31, 1997 and 1996.
> Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instruments for commitments to extend
credit and standby letters of credit is represented by the contractual amount
of those instruments. The Bank uses the same credit policies in making such
commitments as they do for instruments that are included in the consolidated
balance sheet.
Financial instruments whose contract amount represents credit risk as of the
end of the period were as follows:
December 31 1997 1996
- -----------------------------------------------------------------------------
Commitments to extend credit
At variable rates $ 4,525 $ 3,933
At fixed rates (ranging from 7.75% to 9.25%
at December 31, 1997) 2,070 417
Standby letters of credit 257 476
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of credit,
is based on management's credit evaluation. Collateral held varies but may
include accounts receivable, inventory, property and equipment, and income-
producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and subsidiary are also subject to claims and lawsuits which arise
primarily in the ordinary course of business. It is the opinion of management
that the disposition or ultimate resolution of such claims and lawsuits will
not have a material adverse effect on the consolidated financial position of
the Company.
> Restriction on Dividends
The Office of Thrift Supervision ("OTS") regulations provide that savings
associations which meet fully phased-in capital requirements and are subject
only to "normal supervision" may pay out, as a dividend, 100 percent of net
income to date over the calendar year and 50 percent of surplus capital
existing at the beginning of the calendar year without supervisory approval,
but with 30 days prior notice to the OTS. Any additional amount of capital
distributions would require prior regulatory approval. Savings associations
meeting current minimum capital requirements but not fully phased-in
standards, may, with 30 days prior notice but without prior approval,
distribute up to 75 percent of net income if they meet the risk-based
requirement on January 1, 1993. Savings associations failing to meet current
capital standards may only pay dividends with supervisory approval.
In 1995, when the Bank converted from a federally chartered mutual savings
bank to a federally chartered stock savings bank, a liquidation account was
established in an amount equal to the Bank's net worth as reflected in the
latest statement of condition used in its final conversion offering circular.
The liquidation account is maintained for the benefit of eligible deposit
account holders who maintain their deposit account in the Bank after
conversion. In the event of a complete liquidation, and only in such event,
each eligible deposit account holder will be entitled to receive a liquidation
distribution from the liquidation account in the amount of the then current
adjusted sub account balance for deposit accounts then held, before any
liquidation distribution may be made to stockholders. Except for the
repurchase of stock and payment of dividends, the existence of the liquidation
account will not restrict the use or application of net worth. The initial
balance of the liquidation account was $15,950,000.
> Regulatory Capital
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies and is assigned to a capital category. The
assigned capital category is largely determined by three ratios that are
calculated according to the regulations: total risk adjusted capital, core
(Tier 1) capital, and tangible capital ratios. The ratios are intended to
measure capital relative to assets and credit risk associated with those
assets and off-balance sheet exposures of the entity. The capital category
assigned to an entity can also be affected by qualitative judgements made by
regulatory agencies about the risk inherent in the entity's activities that
are not part of the calculated ratios.
There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank in
any of the undercapitalized categories can result in actions by regulators
that could have a material effect on a bank's operations. At December 31,
1997 and 1996, the Bank is categorized as well capitalized and met all subject
capital adequacy requirements. There are no conditions or events since
December 31, 1997 that management believes have changed the Bank's
classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------------
Required for To Be Well
Actual Adequate Capital* Capitalized*
--------------------------------------------------------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital*
(to risk-weighted assets) $ 18,863 23.6% $ 6,408 8.0% $ 8,010 10.0%
Core capital* (to risk-
weighted assets) 18,366 23.0 3,197 4.0 4,796 6.0
Core capital* (to adjusted
tangible assets) 18,366 13.8 3,983 3.0 6,638 5.0
<CAPTION>
1996
-----------------------------------------------------------------
Required for To Be Well
Actual Adequate Capital* Capitalized*
--------------------------------------------------------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital*
(to risk-weighted assets) $ 25,112 34.1% $ 5,887 8.0% $ 7,359 10.0%
Core capital* (to risk-
weighted assets) 24,743 33.6 2,946 4.0 4,419 6.0
Core capital* (to adjusted
tangible assets) 24,743 19.2 3,863 3.0 6,438 5.0
</TABLE>
*As defined by regulatory agencies
The Bank's tangible capital at December 31, 1997 and 1996 was $18,366,000 and
$24,743,000, which amount was 13.8 percent and 19.2 percent of tangible
assets, respectively, and exceeded the required ratio of 1.5 percent.
> Employee Stock Ownership Plan
The Company has an employee stock ownership plan ("ESOP") covering
substantially all of its employees. The ESOP borrowed $1,642,000 from the
Company and used those funds to acquire 164,220 shares of the Company's common
stock at $10 per share. The ESOP covers employees who complete at least
twelve consecutive months of service for the Bank during which the employee
performs at least 1,000 hours of service. A participant is 100% vested after
seven years of credited service.
The ESOP shares are held in trust and allocated to ESOP participants based on
the interest and principal payments made by the ESOP on the loan from the
Company. The loan is secured by shares purchased with the loan proceeds and
will be repaid by the ESOP with funds from the Company's discretionary
contributions to the ESOP and earnings on ESOP assets. Dividends on
unallocated ESOP shares will be applied to reduce the loan. Principal
payments are scheduled to occur in even annual amounts over a seven year
period. However, in the event Company contributions exceed the minimum debt
service requirements, additional principal payments will be made.
During the year ended December 31, 1997, 25,675 shares of stock with an
average fair value of $16.90 were committed to be released, resulting in ESOP
compensation expense of $434,000. During the period ended December 31, 1996,
32,975 shares of stock with an average fair value of $13.81 were committed to
be released, resulting in ESOP compensation expense of $455,000. The
following table reflects the shares held by the plan:
December 31 1997 1996
- -----------------------------------------------------------------------------
Shares earned by participants 76,329 50,654
Shares distributed to participants (7,083) (4,082)
Unallocated shares 87,891 113,566
---------------------------
Total ESOP shares 157,137 160,138
===========================
Fair value of unallocated shares $ 1,670 $ 1,682
===========================
The Board of Directors of the Company may direct payment of cash dividends on
shares allocated to participants to be paid in cash to the participants or to
be credited to participant accounts and invested.
> Incentive Plan
In February 1996, the Company adopted a stock-based compensation program which
provides for the granting of stock of the Company as stock awards and options
to purchase stock of the Company (the "Incentive Plan.")
The Incentive Plan covers key employees and directors and is authorized to
acquire and grant as stock awards 82,110 shares of the Company's common stock
or 4% of the shares issued in the Company's initial public offering. The
82,110 shares were acquired in 1996 by funds contributed by the Company.
Participants in the Incentive Plan vest at a rate of 20% per year commencing
one year after the date such shares are granted. In the event of a change in
control or death or disability, all unvested stock awards will vest
immediately.
The following is a summary of the status of the stock awards and changes in
the stock awards as of and for the periods ended December 31, 1997 and 1996.
Period Ended December 31 1997 1996
- -----------------------------------------------------------------------------
Stock Awards Shares Shares
- ------------------------------------------------------------------------------
Outstanding, beginning of year 80,528 --
Granted 5,433 80,528
Distributed (16,106) --
Forfeited (6,400) --
--------------------------
Outstanding, end of year 63,455 80,528
Shares available for future stock awards 2,549 1,582
--------------------------
Total stock awards 66,004 82,110
==========================
During the year ended December 31, 1997, 15,547 shares representing stock
awards were earned by participants, as adjusted for forfeitures, and resulted
in compensation expense of $217,000. For the period ended December 31, 1996,
14,761 shares were earned resulting in compensation expense of $210,000.
Under the Incentive Plan, which is accounted for in accordance with APB No.
25, Accounting for Stock Issued to Employees, and related interpretations, the
Company also grants directors, selected executives and other key employees
stock option awards which vest at a rate of 20% per year commencing one year
after the date the shares are granted. The Incentive Plan provides that in
the event of a change in control or death or disability, all unvested options
will be immediately exercisable. During 1996, the Company authorized the
grant of options for up to 205,275 shares of the Company's common stock or 10%
of the shares issued in the Company's initial public offering. The options
expire ten years from the date of grant.
The following is a summary of the status of the Company's stock option plan
and changes in that plan as of and for the periods ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
Period Ended December 31 1997 1996
- ------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Shares Price Shares Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 193,319 $ 14.00 -- $ --
Granted 16,782 16.38 193,319 14.00
Exercised -- -- -- --
Forfeited (15,200) 14.00 -- --
------- -------
Outstanding, end of year 194,901 $ 14.20 193,319 $ 14.00
======= =======
Options exercisable at
year end 38,664 --
Weighted-average fair value of
options granted during the year $ 6.82 $ 4.37
</TABLE>
As of December 31, 1997, the 194,901 options outstanding have exercise prices
ranging from $14.00 to $16.38 and a weighted-average remaining contractual
life of 8.3 years. The exercise price of each option was equal to the market
price of the Company's stock on the date of grant; therefore, no compensation
expense was recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires
pro forma disclosures of net income and earnings per share as if the Company
had accounted for its stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing
model with the following assumptions:
- -----------------------------------------------------------------------------
1997 1996
----------------------
Risk-free interest rates 7.00% 7.00%
Dividend yields 2.50% 2.50%
Volatility factors of expected market price
of common stock 13.00% 12.00%
Weighted-average expected life of the
options (years) 10.00 10.00
Under SFAS No. 123, compensation cost would be recognized in the amount of the
estimated fair value of the options and amortized to expense over the options'
vesting period. The pro forma effect on net income and earnings per share of
this statement are as follows:
1997 1996
- -----------------------------------------------------------------------------
Net income As reported $ 873 $ 534
Pro forma 786 458
Basic earnings per share As reported $ 0.55 $ 0.30
Pro forma 0.50 0.25
Diluted earnings per share As reported $ 0.53 $ 0.29
Pro forma 0.47 0.25
> Postretirement Plan
The Company sponsors a postretirement plan that covers both salaried and non
salaried employees. The plan provides postretirement health care coverage to
eligible retirees. An eligible retiree is an employee who retires from the
Company on or after attaining age 63 1/2 and has completed at least 15 years
of service, or an employee who retires at any age after 25 years of service,
or an employee hired before July 13, 1992 who retires at age 63 1/2 with 10
years of service. The age requirement of 63 1/2 will be waived for an
employee who has completed 15 years of service and becomes disabled and is
unable to work.
The Company continues to fund benefit costs on a pay-as-you go basis, and, for
the year ended December 31, 1997 and the fifteen months ended December 31,
1996 the Company made benefit payments totaling $9,000 and $13,000. The
following table sets forth the plan's funded status, and amounts recognized in
the consolidated balance sheet.
<PAGE>
December 31 1997 1996
- -----------------------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees $ (54) $ (62)
Fully eligible active plan participants (--) (11)
Other active plan participants (74) (50)
---------------------------
(128) (123)
Plan assets at fair value -- --
---------------------------
Accumulated postretirement benefit obligation
in excess of plan assets (128) (123)
Prior service cost not yet recognized in net
periodic postretirement benefit cost -- --
Unrecognized net (gain) loss from past experience
different from that assumed and from
changes in assumptions (99) (97)
Unrecognized transition obligation 140 149
---------------------------
$ (87) $ (71)
===========================
Components of net periodic postretirement cost
Service cost - benefits attributed to
service during the period $ 8 $ 20
Interest cost on accumulated postretirement
benefit obligation 10 19
Actual return on plan assets -- --
Net amortization and deferral 3 10
---------------------------
Net periodic postretirement benefit cost $ 21 $ 49
===========================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9 percent, gradually declining to 6
percent in 1999. The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8 percent for both periods.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1997 would
have increased by 20%. The effect of this change on the sum of the service
cost and interest would be an increase of 23%.
> Deferred Compensation
The Company has a deferred compensation plan for its directors whereby each
director may elect to defer his annual fees. For the periods ended December
31, 1997 and 1996, expense related to this plan was $32,000 and $30,000,
respectively, with payouts equaling zero and $17,000, respectively.
<PAGE>
> Earnings per share
<TABLE>
<CAPTION>
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 1997
---------------------------------------
Weighted
Average Per-Share
Income Shares Amount
---------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $ 873 1,577,554 $ 0.55
Effect of Dilutive Securities
Stock options 31,092
Unearned incentive plan shares 55,210
-------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 873 1,663,856 $ 0.53
=======================================
<CAPTION>
Period Ended December 31, 1996
---------------------------------------
Weighted
Average Per-Share
Income Shares Amount
---------------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 534 1,799,011 $ 0.30
Effect of Dilutive Securities
Stock options 138
Unearned incentive plan shares 66,596
-------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 534 1,865,745 $ 0.29
=======================================
</TABLE>
> Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents -- The fair value of cash and cash equivalents
approximates carrying value.
Interest-bearing Time Deposits -- The fair value of interest-bearing time
deposits approximates carrying value.
Investment Securities -- Fair values are based on quoted market prices.
Loans -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are
based on carrying values. The fair values for certain mortgage loans,
including one-to-four family residential, are based on quoted market prices of
similar loans sold in conjunction with securitization transactions, adjusted
for differences in loan characteristics. The fair value of other loans is
estimated using discounted cash flow analyses using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality.
Interest Receivable/Payable -- The fair values of interest receivable/payable
approximate carrying values.
Federal Home Loan Bank stock -- Fair value of Federal Home Loan Bank stock is
based on the price at which it may be resold to the Federal Home Loan Bank.
Deposits -- The fair values of noninterest-bearing demand, interest-bearing
demand and savings accounts are equal to the amount payable on demand at the
balance sheet date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on certificates to a schedule of aggregated expected
monthly maturities on such time deposits.
Off-Balance Sheet Commitments -- Commitments include commitments to purchase
and originate mortgage loans, commitments to sell mortgage loans, and standby
letters of credit and are generally of a short-term nature. The fair value of
such commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------
Carrying Fair Carrying Fair
December 31 Amount Value Amount Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 17,476 $ 17,476 $ 26,410 $ 26,410
Interest-bearing time deposits -- -- 2,000 2,000
Investment securities
Available for sale 1,999 1,999 -- --
Held to maturity 1,300 1,305 3,400 3,396
Loans, net 111,815 113,108 91,443 93,007
Interest receivable 997 997 807 807
Federal Home Loan Bank stock 580 580 454 454
Cash surrender value of life insurance 200 200 185 185
Liabilities
Deposits 111,984 112,074 100,714 100,635
Interest payable 22 22 34 34
Off-balance sheet assets
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
GREAT AMERICAN BANCORP, INC.
SHAREHOLDER INFORMATION
Stock Listing and Price Information
The Company's common stock trades on The Nasdaq Stock Market under the symbol
GTPS. At December 31, 1997, 1,671,977 shares of the Company's common stock
were held of record by 449 persons or entities, not including the number of
persons or entities holding stock in nominee or street name through various
brokers or banks.
The following schedule shows the high and low sales prices for each of the
quarters in the year ended December 31, 1997 and the fifteen months ended
December 31, 1996:
Quarter Ended: High Low
------------------ ------ ------
September 30, 1995 13 3/4 11 3/4
December 31, 1995 14 3/4 13
March 31, 1996 15 1/4 13 3/4
June 30, 1996 14 3/4 13 3/4
September 30, 1996 14 3/4 13
December 31, 1996 15 1/4 13 3/4
March 31, 1997 16 1/2 14 1/2
June 30, 1997 17 15 1/2
September 30, 1997 19 1/4 16 1/2
December 31, 1997 20 18 1/2
At December 31, 1997 the closing price of a common share was $19. Such prices
do not necessarily reflect retail markups, markdowns, or commissions.
During the periods ended December 31, 1996 and 1997, the Company declared
dividends as follows:
Date Declared Record Date Payable Date Amount
- ---------------- ----------------- ----------------- ------
February 9, 1996 February 21, 1996 February 29, 1996 $ .28
June 11, 1996 June 24, 1996 July 8, 1996 .10
August 15, 1996 September 13, 1996 October 1, 1996 .10
November 19, 1996 December 13, 1996 January 2, 1997 .10
February 10, 1997 March 14, 1997 April 1, 1997 .10
May 12, 1997 June 13, 1997 July 1, 1997 .10
August 11, 1997 September 15, 1997 October 1, 1997 .10
November 10, 1997 December 15, 1997 January 2, 1998 .10
-------
$ .98
=======
Investor Information
Stockholders, investors and analysts interested in additional information may
contact:
Jane F. Adams
Chief Financial Officer
Great American Bancorp, Inc.
1311 S. Neil Street
Champaign, IL 61820
Annual Report on Form 10-KSB
A copy of the annual report on Form 10-KSB for the fiscal year ended December
31, 1997, which has been filed with the Securities and Exchange Commission is
available to stockholders (excluding exhibits) at no charge, upon written
request to the above address.
Corporate Counsel
Muldoon, Murphy and Faucette
5101 Wisconsin Avenue N.W.
Washington, D C 20016
Independent Auditors
Geo. S. Olive & Co. LLC
100 Trade Center
Champaign, IL 61820
Annual Meeting of Stockholders
The Annual Meeting of Stockholders of Great American Bancorp, Inc. will be
held at 9:30 a.m. April 28, 1998 at:
First Federal Savings Bank of Champaign-Urbana
1311 S. Neil Street
Champaign IL 61820
Shareholders are welcome to attend.
Stock Transfer Agent and Registrar
Inquiries regarding stock transfer, registration, lost certificates or changes
in name and address should be directed to the transfer agent and registrar:
American Securities Transfer and Trust, Inc.
938 Quail Street, Suite 101
Lakewood, CO 80215
Exhibit 23.2 Consent of Independent Accountants
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Great American Bancorp, Inc.
We have issued our report dated January 16, 1998 accompanying the consolidated
financial statements of Great American Bancorp, Inc. and Subsidiary appearing
in the Company's 1997 Annual Report to Stockholders. We consent to the
incorporation by reference in this Form 10-KSB of the aforementioned report.
Geo. S. Olive & Co. LLC
/s/ Geo. S. Olive & Co., LLC
Champaign, Illinois
March 27, 1998
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-KSB and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,285
<INT-BEARING-DEPOSITS> 12,191
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,999
<INVESTMENTS-CARRYING> 1,300
<INVESTMENTS-MARKET> 1,305
<LOANS> 112,312
<ALLOWANCE> 497
<TOTAL-ASSETS> 141,973
<DEPOSITS> 111,984
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,695
<LONG-TERM> 0
0
0
<COMMON> 21
<OTHER-SE> 28,273
<TOTAL-LIABILITIES-AND-EQUITY> 141,973
<INTEREST-LOAN> 8,811
<INTEREST-INVEST> 384
<INTEREST-OTHER> 960
<INTEREST-TOTAL> 10,155
<INTEREST-DEPOSIT> 4,518
<INTEREST-EXPENSE> 4,551
<INTEREST-INCOME-NET> 5,604
<LOAN-LOSSES> 156
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,707
<INCOME-PRETAX> 1,524
<INCOME-PRE-EXTRAORDINARY> 1,524
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 873
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0.53
<YIELD-ACTUAL> 4.41
<LOANS-NON> 20
<LOANS-PAST> 372
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 748
<ALLOWANCE-OPEN> 374
<CHARGE-OFFS> 38
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 497
<ALLOWANCE-DOMESTIC> 497
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains amended summary financial information extracted from SEC
Forms 10-QSB for the periods ended June 30, 1996 and September 30, 1996 and
Form 10-KSB for the period ended December 31, 1996. These are qualified in
their entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 OCT-01-1995
<PERIOD-END> JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 4,038 4,529 6,361
<INT-BEARING-DEPOSITS> 11,403 9,672 22,049
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 5,828 5,845 0
<INVESTMENTS-CARRYING> 3,396 3,397 3,400
<INVESTMENTS-MARKET> 3,379 3,390 3,396
<LOANS> 86,174 91,386 91,817
<ALLOWANCE> 262 322 374
<TOTAL-ASSETS> 119,662 123,866 132,369
<DEPOSITS> 85,119 90,446 100,714
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 1,212 1,689 1,193
<LONG-TERM> 0 0 0
0 0 0
0 0 0
<COMMON> 21 21 21
<OTHER-SE> 33,310 31,710 30,441
<TOTAL-LIABILITIES-AND-EQUITY> 119,662 123,866 132,369
<INTEREST-LOAN> 3,411 5,346 9,024
<INTEREST-INVEST> 769 1,065 597
<INTEREST-OTHER> 0 0 1,186
<INTEREST-TOTAL> 4,180 6,411 10,807
<INTEREST-DEPOSIT> 1,503 2,330 4,006
<INTEREST-EXPENSE> 1,517 2,352 4,042
<INTEREST-INCOME-NET> 2,663 4,059 6,765
<LOAN-LOSSES> 110 170 325
<SECURITIES-GAINS> 0 0 (127)
<EXPENSE-OTHER> 2,263 3,927 6,101
<INCOME-PRETAX> 603 410 980
<INCOME-PRE-EXTRAORDINARY> 343 201 980
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 343 201 534
<EPS-PRIMARY> 0.18 0.11 0.30
<EPS-DILUTED> 0.18 0.11 0.29
<YIELD-ACTUAL> .049 0.05 .049
<LOANS-NON> 0 59 0
<LOANS-PAST> 227 108 177
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 1,080 2,063 1,995
<ALLOWANCE-OPEN> 267 267 231
<CHARGE-OFFS> 118 119 186
<RECOVERIES> 4 4 4
<ALLOWANCE-CLOSE> 262 322 374
<ALLOWANCE-DOMESTIC> 262 322 374
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains amended summary financial information extracted from SEC
Form 10-QSB for the periods ended March 31, 1997, June 30, 1997 and September
30, 1997. These are qualified in their entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 4,272 4,715 4,934
<INT-BEARING-DEPOSITS> 21,413 12,439 11,101
<FED-FUNDS-SOLD> 0 0 0
<TRADING-ASSETS> 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 0 999 1,001
<INVESTMENTS-CARRYING> 6,296 6,297 3,299
<INVESTMENTS-MARKET> 6,272 6,303 3,303
<LOANS> 97,181 100,777 110,194
<ALLOWANCE> 408 446 468
<TOTAL-ASSETS> 137,898 136,977 139,568
<DEPOSITS> 107,364 106,367 109,578
<SHORT-TERM> 0 0 0
<LIABILITIES-OTHER> 1,362 1,247 1,483
<LONG-TERM> 0 0 0
0 0 0
0 0 0
<COMMON> 21 21 21
<OTHER-SE> 29,151 29,342 28,486
<TOTAL-LIABILITIES-AND-EQUITY> 137,898 136,977 139,568
<INTEREST-LOAN> 2,062 4,155 6,416
<INTEREST-INVEST> 85 204 314
<INTEREST-OTHER> 288 566 777
<INTEREST-TOTAL> 2,435 4,925 7,507
<INTEREST-DEPOSIT> 1,052 2,174 3,329
<INTEREST-EXPENSE> 1,060 2,190 3,353
<INTEREST-INCOME-NET> 1,375 2,735 4,154
<LOAN-LOSSES> 39 78 117
<SECURITIES-GAINS> 0 0 0
<EXPENSE-OTHER> 1,165 2,335 3,509
<INCOME-PRETAX> 329 662 1,045
<INCOME-PRE-EXTRAORDINARY> 329 662 1,045
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 191 384 612
<EPS-PRIMARY> 0.12 0.24 0.38
<EPS-DILUTED> 0.11 0.23 0.36
<YIELD-ACTUAL> .045 .044 .044
<LOANS-NON> 20 20 20
<LOANS-PAST> 197 297 349
<LOANS-TROUBLED> 0 0 0
<LOANS-PROBLEM> 1,803 1,753 1,485
<ALLOWANCE-OPEN> 374 374 374
<CHARGE-OFFS> 5 6 26
<RECOVERIES> 0 1 3
<ALLOWANCE-CLOSE> 408 446 468
<ALLOWANCE-DOMESTIC> 408 446 468
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0
</TABLE>
