UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-25808
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GREAT AMERICAN BANCORP, INC.
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Delaware 52-1923366
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State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1311 S. Neil St., P.O. Box 1010, Champaign, IL 61824-1010
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(Address of principal executive offices) (Zip Code)
(217) 356-2265
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
(1) [X] Yes [ ] No
(2) [X] Yes [ ] No
At July 31, 1999, the Registrant had 1,287,383 shares of Common Stock
outstanding, for ownership purposes, which excludes 765,367 shares held as
treasury stock.
Table of Contents
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
As of June 30, 1999 and December 31, 1998
(in thousands)
June 30, 1999 Dec. 31, 1998
(unaudited)
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ASSETS
Cash and due from banks $ 5,270 $ 6,429
Interest-bearing demand deposits 7,678 15,386
--------------------------------
Cash and cash equivalents 12,948 21,815
Investment securities
Available for sale 998 1,001
Held to maturity 3,529 1,977
--------------------------------
Total investment securities 4,527 2,978
Loans 127,840 122,672
Allowance for loan losses (1,202) (925)
--------------------------------
Net loans 126,638 121,747
Premises and equipment 7,376 7,551
Federal Home Loan Bank stock 767 736
Other assets 2,348 2,344
--------------------------------
Total assets $ 154,604 $ 157,171
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing $ 9,243 $ 8,401
Interest bearing 111,686 114,619
--------------------------------
Total deposits 120,929 123,020
Short-term borrowings 2,500 2,000
Long-term debt 7,000 7,000
Other liabilities 1,693 1,999
--------------------------------
Total liabilities 132,122 134,019
--------------------------------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets (Continued)
As of June 30, 1999 and December 31, 1998
(in thousands)
June 30, 1999 Dec. 31, 1998
(unaudited)
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STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
Authorized and unissued --
1,000,000 shares -- --
Common stock, $0.01 par value
Authorized -- 7,000,000 shares
Issued and outstanding -- 2,052,750 shares 21 21
Paid-in-capital 19,929 19,877
Retained earnings -- substantially restricted 16,509 16,411
Accumulated other comprehensive income (1) 1
--------------------------------
36,458 36,310
Less:
Treasury stock, at cost - 760,367 and
693,067 shares (13,042) (11,999)
Unallocated employee stock ownership plan
shares - 52,344 and 63,698 shares (524) (637)
Unearned incentive plan shares - 28,420 and
36,214 shares (410) (522)
--------------------------------
(13,976) (13,158)
--------------------------------
Total stockholders' equity 22,482 23,152
--------------------------------
Total liabilities and
stockholders' equity $ 154,604 $ 157,171
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Six Months Ended June 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Interest income:
Loans $ 5,016 $ 4,927
Investment securities
Taxable 58 112
Tax exempt 18 5
Deposits with financial
institutions and other 382 371
--------------------------------
Total interest income 5,474 5,415
--------------------------------
Interest expense:
Deposits 2,398 2,447
Other 249 26
--------------------------------
Total interest expense 2,647 2,473
--------------------------------
Net interest income 2,827 2,942
Provision for loan losses 273 78
--------------------------------
Net interest income after
provision for loan losses 2,554 2,864
--------------------------------
Noninterest income:
Brokerage commissions 76 86
Insurance sales commissions 341 220
Service charges on deposit accounts 267 222
Loan servicing fees 9 13
Other customer fees 77 68
Other income 12 10
--------------------------------
Total noninterest income 782 619
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(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Six Months Ended June 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Noninterest expense:
Salaries and employee benefits 1,478 1,408
Net occupancy expenses 304 266
Equipment expenses 211 175
Data processing fees 30 99
Deposit insurance expense 36 34
Printing and office supplies 136 126
Legal and professional fees 172 79
Directors and committee fees 51 52
Insurance expense 25 21
Marketing and advertising expenses 85 95
Other expenses 190 199
--------------------------------
Total noninterest expense 2,718 2,554
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Income before income tax 618 929
Income tax expense 254 410
--------------------------------
Net income $ 364 $ 519
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.30 $ 0.35
================================
Average number of shares 1,230,722 1,476,129
================================
Diluted:
Net income $ 0.29 $ 0.33
================================
Average number of shares 1,270,685 1,581,326
================================
Dividends $ 0.22 $ 0.21
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Quarter Ended June 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Interest income:
Loans $ 2,501 $ 2,546
Investment securities
Taxable 20 56
Tax exempt 10 2
Deposits with financial
institutions and other 186 160
--------------------------------
Total interest income 2,717 2,764
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Interest expense:
Deposits 1,193 1,241
Other 134 18
--------------------------------
Total interest expense 1,327 1,259
--------------------------------
Net interest income 1,390 1,505
Provision for loan losses 150 39
--------------------------------
Net interest income after
provision for loan losses 1,240 1,466
--------------------------------
Noninterest income:
Brokerage commissions 51 49
Insurance sales commissions 131 122
Service charges on deposit accounts 136 116
Loan servicing fees 4 6
Other customer fees 42 34
Other income 12 10
--------------------------------
Total noninterest income 376 337
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(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Quarter Ended June 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Noninterest expense:
Salaries and employee benefits 738 720
Net occupancy expenses 155 140
Equipment expenses 104 94
Data processing fees 15 50
Deposit insurance expense 18 17
Printing and office supplies 65 60
Legal and professional fees 82 39
Directors and committee fees 25 26
Insurance expense 13 10
Marketing and advertising expenses 45 59
Other expenses 95 96
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Total noninterest expense 1,355 1,311
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Income before income tax 261 492
Income tax expense 109 217
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Net income $ 152 $ 275
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.12 $ 0.19
================================
Average number of shares 1,235,404 1,461,946
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Diluted:
Net income $ 0.12 $ 0.18
================================
Average number of shares 1,273,221 1,569,102
================================
Dividends $ 0.11 $ 0.11
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998
(unaudited, in thousands)
1999 1998
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Operating Activities:
Net income $ 364 $ 519
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 273 78
Depreciation 265 218
Amortization of deferred loan fees (8) (18)
Deferred income tax (44) (44)
Investment securities accretion, net -- (1)
Employee stock ownership plan
compensation expense 168 252
Incentive plan expense 110 111
Net change in:
Other assets 40 (601)
Other liabilities (320) 273
--------------------------------
Net cash provided by
operating activities 848 787
--------------------------------
Investing Activities:
Purchases of securities available for sale (1,000) (1,000)
Purchases of securities held to maturity (3,002) (1,000)
Proceeds from maturities of securities held
to maturity 1,450 1,100
Proceeds from maturities of securities
available for sale 1,000 997
Purchase of Federal Home Loan Bank stock (31) (118)
Net change in loans (5,156) (11,197)
Purchase of premises and equipment (90) (616)
--------------------------------
Net cash used by
investing activities (6,829) (11,834)
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Six Months Ended June 30, 1999 and 1998
(unaudited, in thousands)
1999 1998
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Financing Activities:
Net change in:
Noninterest-bearing demand, interest-
bearing demand and savings deposits 147 1,188
Certificates of deposit (2,238) 4,135
Other short-term borrowings 500 2,000
Cash dividends (252) (314)
Purchase of treasury stock (1,043) (1,749)
--------------------------------
Net cash provided (used) by
financing activities (2,886) 5,260
--------------------------------
Net Change in Cash and Cash Equivalents (8,867) (5,787)
Cash and Cash Equivalents, Beginning
of Period 21,815 17,476
--------------------------------
Cash and Cash Equivalents, End of
Period $ 12,948 $ 11,689
================================
Additional Cash Flows Information
Interest paid $ 2,399 $ 2,460
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Income tax paid $ 419 $ 486
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Background Information
Great American Bancorp, Inc. (the "Company") was incorporated on February 23,
1995 and on June 30, 1995 acquired all of the outstanding shares of common
stock of First Federal Savings Bank of Champaign-Urbana, (the "Bank") upon the
Bank's conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank. The Company purchased 100% of the
outstanding capital stock of the Bank using 50% of the net proceeds from the
Company's initial stock offering which was completed on June 30, 1995. The
Company began trading on the NASDAQ Stock Market on June 30, 1995 under the
symbol "GTPS".
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310(b) of
Regulation S-B, and, in the opinion of management, contain all adjustments
necessary to present fairly the financial position as of June 30, 1999 and
December 31, 1998, the results of operations for the six months ended and
three months ended June 30, 1999 and 1998, and the cash flows for the six
months ended June 30, 1999 and 1998. All adjustments to the financial
statements were normal and recurring in nature. These results have been
determined on the basis of generally accepted accounting principles.
Reclassifications of certain amounts in the 1998 financial statements have
been made to conform to the 1999 presentation. The results of operations for
the six months ended June 30, 1999 are not necessarily indicative of the
results to be expected for the entire fiscal year.
The Company adopted Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income," ("SFAS No. 130") in 1999. At June 30, 1999
and June 30, 1998, the amounts to be disclosed by the Company under SFAS No.
130 are considered immaterial and are therefore not shown in the accompanying
financial statements.
The consolidated financial statements are those of the Company and the Bank.
These consolidated financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 1998
Annual Report to Shareholders.
PART I -- Item 2.
GREAT AMERICAN BANCORP, INC.
Management's Discussion and Analysis
or Plan of Operation
The Company is the holding company for the Bank. The Bank operates a wholly
owned subsidiary, Park Avenue Service Corporation ("PASC"). PASC offers full
service brokerage activities through Scout Brokerage Services, Inc., a
subsidiary of United Missouri Bank, and also engages in the sale of fixed-rate
and variable-rate tax deferred annuities. In September, 1997, PASC also
established the GTPS Insurance Agency which offers a variety of insurance
products, including life, health, automobile, and property and casualty
insurance. At the inception of GTPS Insurance Agency, PASC hired two
insurance agents to provide these services to customers. Effective March 1,
1998, GTPS Insurance Agency merged with another local insurance agency, the
Cox Lowry and Marsh Insurance Agency, and added four additional insurance
agents. The merged entity assumed the GTPS Insurance Agency name.
In addition to historical information, this 10-QSB may include certain
forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies
of the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices. Further description of the risks and uncertainties to the business
are included in detail under the captions: Liquidity and Capital Resources
and Year 2000 compliance.
Financial Condition
The Company's total assets decreased from $157.17 million at December 31, 1998
to $154.60 million at June 30, 1999, a decrease of $2.57 million, or 1.6%.
This decline was primarily in interest-bearing demand deposits and cash and
due from banks, offset by increases in loans and investment securities held to
maturity. Net loans increased by $4.89 million, or 4.0%, from $121.75 million
at December 31, 1998 to $126.64 million at June 30, 1999. This increase was
mostly in mortgage loans, with increases in residential real estate loans of
$1.69 million, or 2.5%, multi-family loans of $2.62 million, or 15.4%, and
commercial real estate loans of $2.06 million, or 14.2% over December 31, 1998
balances. Investment securities held to maturity increased from $1.98 million
at December 31, 1998 to $3.53 million at June 30, 1999, primarily due to the
purchase of $3.00 million in mortgage-backed securities, offset by maturing
Federal Agency securities totaling $1.45 million. Interest-bearing demand
deposits declined by $7.71 million from $15.39 million at December 31, 1998 to
$7.68 million at June 30, 1999, due to providing funding for new loans and
investment securities.
Total deposits decreased $2.09 million, or 1.7%, from $123.02 million at
December 31, 1998 to $120.93 million at June 30, 1999, due primarily to a
decrease in certificates of deposit. Total certificates of deposit decreased
$2.24 million, or 3.0%, from $75.59 million at December 31, 1998 to $73.35
million at June 30, 1999. The decrease in certificates of deposit was
primarily in certificates maturing in two years and less. Also, in January
1999, the Company engaged in a repurchase agreement in the amount of $500,000.
The increase in short-term borrowings assisted in funding the growth in loans.
Total stockholders' equity decreased $670,000, or 2.9%, from $23.15 million at
December 31, 1998 to $22.48 million at June 30, 1999. Book value per
outstanding voting share increased from $17.03 at December 31, 1998 to $17.40
at June 30, 1999. The increase in stockholders' equity is summarized as
follows (in thousands):
Stockholders' equity, December 31, 1998 $ 23,152
Net income 364
Purchase of treasury stock (1,043)
Dividends declared (267)
Incentive plan shares allocated 110
ESOP shares allocated 168
Decrease in unrealized gain on securities
available for sale, net of income tax effect (2)
------
Stockholders' equity, June 30, 1999 $ 22,482
======
Results of Operations
Comparison of Six Month Periods Ended June 30, 1999 and 1998
Net income was $364,000 for the six months ended June 30, 1999, compared to
$519,000 for the six months ended June 30, 1998. This represents a $155,000,
or 29.9% decrease. Basic earnings per share were $0.30 for the six months
ended June 30, 1999, compared to $0.35 for the six months ended June 30, 1998,
and diluted earnings per share were $0.29 in 1999, compared to $0.33 in 1998.
Net income in 1999 was lower than net income in 1998 due to increases in both
interest and non-interest expense and an increase in the provision for loan
losses.
Net interest income was $2.83 million for the six months ended June 30, 1999,
compared to $2.94 million for the same period in 1998, a decrease of $110,000,
or 3.7%. Interest income was $5.47 million for the six months ended June 30,
1999, compared to $5.42 million for the same period in 1998, an increase of
$50,000, or 1.0%, which was primarily the result of increased interest income
from loans. Interest income on loans in 1999 was $5.02 million, $90,000, or
1.8%, greater than the $4.93 million recorded in 1998.
The increase in interest income on loans was due to higher average total loans
in 1999 offset by a reduction in the average yield on loans. Average total
loans for the six months ended June 30, 1999 were $122.95 million, compared to
$114.96 million for the same period in 1998, an increase of $7.99 million, or
7.0%. The majority of the increase was in mortgage loans. Total mortgage
loans averaged $104.02 million for the six months ended June 30, 1999,
compared to $91.50 million for the six months ended June 30, 1998, an increase
of $12.52 million, or 13.7%. This growth occurred in one-to four-family and
multifamily residential loans, commercial mortgage loans and in construction
loans.
Average total commercial loans were $9.12 million in 1999, compared to $12.14
million in 1998, a decrease of $3.02 million, or 24.9%. Average total
consumer loans were $10.89 million during the six months ended June 30, 1999,
a decrease of $960,000, or 8.1%, below the $11.85 million average total
balance during 1998. The average yield on loans was 8.23% for the six months
ended June 30, 1999, compared to 8.64% for the six months ended June 30, 1998.
Interest income on investment securities declined from $117,000 for the six
months ended June 30, 1998 to $76,000 for the same period in 1999, due to a
decrease in average total investment securities. Total investment securities,
including Federal Home Loan Bank stock, averaged $3.72 million in 1998,
compared to $2.85 million in 1999, a decline of $870,000, or 23.4%. Interest
income on deposits with financial institutions and other increased from
$371,000 for the six months ended June 30, 1998 to $382,000 for the six months
ended June 30, 1999. The average total balance of deposits with financial
institutions and other increased from $14.02 million for the six months ended
June 30, 1998 to $16.77 million for the six months ended June 30, 1999, an
increase of $2.75 million, or 19.6%. The average yield on investment
securities decreased from 6.34% for the six months ended June 30, 1998 to
5.38% for the same period in 1999. The average yield on deposits with
financial institutions and other decreased from 5.34% for the six months ended
June 30, 1998 to 4.59% for the same period in 1999.
Interest expense increased by $180,000, or 7.3% from $2.47 million for the six
months ended June 30, 1998 to $2.65 million for the same period in 1999. The
increase was mainly attributable to growth in average interest-bearing
deposits and an increase in short-term borrowings and long-term debt. Average
total interest-bearing deposits increased from $109.22 million in the first
half of 1998 to $113.69 million during 1999, an increase of $4.47 million, or
4.1%. Most of this growth occurred in NOW and insured money market accounts
and certificates of deposit, primarily certificates maturing in one year or
less. Average borrowings increased $8.83 million from $667,000 for the six
months ended June 30, 1998 to $9.50 million for the same period in 1999. The
majority of the increase in average borrowings was due to $7.00 million in
advances from the Federal Home Loan Bank ("FHLB") entered into by the Company
in September and October of 1998. The average rates on deposits were 4.25%
and 4.52% for the six months ended June 30, 1999 and 1998, respectively.
Net interest income as a percent of average interest earning assets was 4.00%
for the six months ended June 30, 1999 versus 4.47% for the same period in
1998. The spread between the yield on interest earning assets and the rate on
interest bearing liabilities was 3.42% and 3.70% for the six months ended June
30, 1999 and 1998, respectively.
The provision for loan losses was $273,000 for the six months ended June 30,
1999 compared to $78,000 for the six months ended June 30, 1998. The
provision was higher in 1999 due to an increase in the monthly provision due
to a commercial loan totaling $1.35 million becoming non-performing during the
fourth quarter of 1998. In the first quarter of 1999, this borrower filed
Chapter 11, or business reorganization bankruptcy. Currently, certain assets
of the borrower are being liquidated. Company management continues to work
closely with attorneys to determine appropriate actions regarding this loan;
however, the loan will most likely remain in a workout status for several
months. There were no loans charged-off in the six months ended June 30, 1999
and recoveries totaled $3,000. Total charge-offs in the first six months of
1998 were $3,000, with $5,000 in recoveries.
Non-performing loans, which are loans past due 90 days or more and
non-accruing loans, totaled $1.60 million at June 30, 1999, compared to
$119,000 at June 30, 1998. Non-performing loans at June 30, 1999 consisted of
three residential mortgage loans totaling $142,000, one consumer loan of
$2,000, and three commercial loans totaling $1.46 million. All of these loans
are past due 90 days or more with $1.35 million of the balance in non-accrual
status.
The ratio of the Company's allowance for loan losses to total loans was .94%
at June 30, 1999 and .47% at June 30, 1998. Management assesses the adequacy
of the allowance for loan losses based on evaluating known and inherent risks
in the loan portfolio and upon management's continuing analysis of the factors
underlying the quality of the loan portfolio. Management believes that, based
on information currently available, the allowance for loan losses is
sufficient to cover losses inherent in its loan portfolio at this time.
However, no assurance can be given that the level of the allowance for loan
losses will be sufficient to cover future possible loan losses incurred by the
Company or that future adjustments to the allowance for loan losses will not
be necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current
level of the allowance for loan losses. Management may in the future increase
the level of the allowance for loan losses as a percentage of total loans and
non-performing loans in the event it increases the level of commercial real
estate, multifamily, or consumer lending as a percentage of its total loan
portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the allowance for loan losses.
Such agencies may require the Company to provide additions to the allowance
based upon judgements different from management.
Noninterest income totaled $782,000 for the six months ended June 30, 1999,
compared to $619,000 for the same period in 1998, an increase of $163,000, or
26.3%. The majority of the increase is attributable to growth in insurance
sales commissions, which totaled $341,000 for the first six months in 1999,
compared to $220,000 for the same period in 1998. These commissions were
generated by GTPS Insurance Agency, the division of PASC formed in September,
1997. Service charges on deposit accounts also increased in 1999 by a total
of $45,000, from $222,000 for the six months ended June 30, 1998 to $267,000
for the same period in 1999.
Noninterest expense was $2.72 million for the six months ended June 30, 1999,
compared to $2.55 million recorded for the six months ended June 30, 1998, an
increase of $170,000, or 6.7%. The majority of this increase was in legal and
professional fees which increased by $93,000, or 117.7%, due to legal fees
relating to the $1.35 million commercial loan which became non-performing
during the fourth quarter of 1998. Salaries and employee benefits expense was
higher in 1999 due to normal salary increases and additional salaries and
related benefits paid to employees hired when GTPS Insurance Agency merged
with the Cox, Lowry, Marsh Agency in March, 1998. Net occupancy expenses,
equipment expenses and supply expenses were all higher in 1999 due to the
expansion of staff for the GTPS Insurance Agency.
Total income taxes decreased by $156,000, or 38.1% from $410,000 for the six
months ended June 30, 1998 to $254,000 for the same period in 1999 due to the
decrease in pretax net income. The effective tax rate was 41.1% for the six
months ended June 30, 1999 and 44.1% for the same period in 1998.
Results of Operations
Comparison of Three Month Periods Ended June 30, 1999 and 1998.
Net income for the three months ended June 30, 1999 was $152,000, a decrease
of $123,000, or 44.7%, over the $275,000 recorded for the three months ended
June 30, 1998. Basic earnings per share decreased from $0.19 for the three
months ended June 30, 1998 to $0.12 for the same period in 1999, and diluted
earnings per share were $0.12 and $0.18 for the three months ended June 30
1999 and 1998, respectively.
Net income for the second quarter of 1999 was lower due to decreases in net
interest income and increases in noninterest expense and the provision for
loan losses.
Net interest income was $1.39 million for the quarter ended June 30, 1999 and
$1.51 million for the quarter ended June 30, 1998, a decrease of $120,000 or
7.9%. Interest income declined 1.4%, or $40,000, from $2.76 million for the
quarter ended June 30, 1998 to $2.72 million for the second quarter of 1999.
The decrease in interest income was derived from declines in interest on loans
and investment securities offset by an increase in interest on deposits with
financial institutions and other. Interest income on loans decreased $50,000,
or 2.0%, from $2.55 million for the quarter ended June 30, 1998 to $2.50
million for the same quarter in 1999, due mainly to a reduction in the average
yield on loans and a shift in the mix of loans from higher yield commercial
and consumer loans to lower rate residential mortgage loans. The reduction in
the average yield was also partly due to a decline in general interest rates
during late 1998 and early 1999.
Average total residential mortgage loans were $68.16 million for the second
quarter of 1999 compared to $60.16 million in the second quarter of 1998.
Average total commercial loans for the three months ended June 30, 1999 and
June 30, 1998 were $8.93 million and $12.90 million, respectively. This
represents a decrease of $3.97 million, or 30.8%. Average total consumer
loans decline $850,000, or 7.2% from $11.78 million for the three months ended
June 30, 1998 to $10.93 million for the same period in 1999. The average
yield on loans decreased from 8.59% for the three months ended June 30, 1998
to 8.08% for the same period in 1999.
Interest income on investment securities declined from $58,000 for the three
months ended June 30, 1998 to $30,000 for the same period in 1999, due to a
decrease in average total investments. Average total investments for the
second quarter of 1999 were $2.19 million, down $1.68 million, or 43.4%, from
$3.87 million for the second quarter of 1998. Interest income on deposits
with financial institutions and other increased $26,000, or 16.3%, from
$160,000 for the three months ended June 30, 1998 to $186,000 for the three
months ended June 30, 1999. The average balance for the quarter ending June
30, 1999 for deposits with financial institutions and other was $16.45 million
compared to $12.36 million for the same time period in 1998, up $4.09 million,
or 33.1%. The average yield on investment securities for the three months
ending June 30 1999 was 5.50%, while the average yield was 6.01% for the same
time period in 1998. The average yield on deposits with financial
institutions and other was 4.54% for the three months ending June 30, 1999 and
5.19% for the three months ending June 30, 1998.
Interest expense increased $70,000, or 5.6%, from $1.26 million for the three
months ended June 30, 1998 to $1.33 million for the same period in 1999. The
increase was mainly due to higher average total deposits in 1999. Average
total deposits increased from $111.36 million for the quarter ended June 30,
1998 to $114.12 million for the quarter ended June 30, 1999, with the biggest
increases in NOW and insured money market accounts and in certificates
maturing in one year or less. The average yield on total deposits for the
three months ended June 30, 1999 was 4.19% and 4.47% for the three months
ended June 30, 1998. Interest expense on other borrowings increased by
$116,000 from $18,000 for the three months ended June 30, 1998 to $134,000 for
the same period in 1998. In September and October of 1998 the Company
borrowed a total of $7.00 million from the Federal Home Loan Bank which
attributed to the majority of the growth in interest expense from other
borrwings.
Net interest income as a percent of interest earning assets was 3.91% for the
three months ended June 30, 1999 versus 4.47% for the same period in 1998.
The spread between the yield on interest earning assets and the rate on
interest bearing liabilities was 3.34% and 3.72% for the three months ended
June 30, 1999 and 1998, respectively.
The provision for loan losses was $150,000 for the three months ended June 30,
1999 compared to $39,000 for the three months ended June 30, 1998. The
increase was primarily due to an increase in the monthly provision due to the
commercial loan totaling $1.35 million becoming non-performing during the
fourth quarter of 1998.
Noninterest income increased $39,000, or 11.6%, from $337,000 for the quarter
ended June 30, 1998 to $376,000 for the three months ended June 30, 1999. The
increase was due to higher commission income from insurance activities and
higher service charges on deposit accounts. Insurance sales commissions were
$131,000 for the quarter ended June 30, 1999 with $122,000 being recorded for
the same period in 1998, an increase of $9,000 or 7.4%. Service charges on
deposit accounts were $136,000 for the three months ended June 30, 1999 and
$116,000 for the three months ended June 30, 1998, resulting in an increase of
$20,000 or 17.2%.
Noninterest expense was $1.36 million for the three months ending June 30,
1999, compared to $1.31 million for the same period in 1998, an increase of
$50,000, or 3.8%. The increase was mostly attributable to an increase in
legal and professional fees, which rose $43,000 for the three months ended
June 30, 1999, mainly attorney's fees related to the $1.35 million commercial
loan which became non-performing in the fourth quarter of 1998.
Total income taxes for the three months ended June 30, 1999 were $109,000,
compared to $217,000 recorded for the same period in 1998, a decrease of
$108,000, or 49.8%. The effective tax rates for the three months ended June
30, 1999 and 1998, were 41.76% and 44.11%, respectively.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and principal and interest
payments on loans. While maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. The Office of Thrift Supervision ("OTS"), the Company's and the
Bank's primary regulator, requires the Bank to maintain minimum levels of
liquid assets. Currently, the required ratio is 4%. The Bank's liquidity
ratios were 11.70% and 15.67% at June 30, 1999 and December 31, 1998,
respectively, well above the required minimum.
A review of the Consolidated Statements of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") decreased $8.87 million for the six months ended June 30,
1999, compared to a decrease of $5.79 million for the six months ended June
30, 1998.
During the six months ended June 30, 1999, cash was primarily provided from
earnings and maturities of securities. During 1999, cash was primarily used
to fund security purchases, loan originations, and deposit withdrawals, to
purchase treasury stock, and to pay dividends.
The Company's primary investment activities during the six months ended June
30, 1999 was the origination of loans and the purchase of securities held to
maturity and available for sale. During the six months ended June 30, 1999
and June 30, 1998, the Company originated mortgage loans in the amounts of
$11.4 million and $18.6 million, respectively, commercial loans in the amounts
of $3.9 million and $9.4 million, respectively, and consumer loans in the
amounts of $4.7 million and $5.1 million, respectively.
As of June 30, 1999, the Company had outstanding commitments (including
undisbursed loan proceeds) of $4.0 million. The Company anticipates it will
have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in
one year or less from June 30, 1999 totaled $50.6 million. Management
believes a significant portion of such deposits will remain with the
Company.
The OTS capital regulations require savings institutions to meet three capital
standards: a 1.5% tangible capital standard; a 3% leverage (core capital)
ratio and an 8% risk-based capital standard. Effective April 1, 1999,
however, the minimum core capital ratio increased to 4% for all institutions
except those with the highest ratings on the CAMELS financial institutions
rating system. As of June 30, 1999, the Bank's capital percentages for
tangible capital of 6.76%, core capital of 6.76%, and risk-based capital of
12.24% exceed the regulatory requirement for each category.
Current Accounting Issues
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This Statement requires companies to record derivatives on the
balance sheet at their fair value. Statement No. 133 also acknowledges that
the method of recording a gain or loss depends on the use of the derivative.
The new Statement applies to all entities. If hedge accounting is elected
by the entity, the method of assessing the effectiveness of the hedging
derivative and the measurement approach of determining the hedge's
ineffectiveness must be established at the inception of the hedge.
Statement No. 133 amends Statement No. 52 and supercedes Statements No. 80,
105 and 119. Statement No. 107 is amended to include the disclosure
provisions about the concentrations of credit risk from Statement No. 105.
Several Emerging Issues Task Force consensuses are also changed or modified by
the provisions of Statement No. 133.
Statement No. 133 will be effective for all fiscal years beginning after
June 15, 1999. The Statement may not be applied retroactively to financial
statements of prior periods. The adoption of the Statement will have no
material impact on the Corporation's financial condition or result of
operations.
Accounting for Mortgage-Backed Securities Retained After the Securitization
of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
Also in 1998, the FASB issued Statement No. 134, "Accounting for Mortgage-
Backed Securities Retained After the Securitization of Mortgage Loans Held for
Sale by a Mortgage Banking Enterprise." It establishes accounting standards
for certain activities of mortgage banking enterprises and for other
enterprises with similar mortgage operations. This Statement amends Statement
No. 65.
Statement No. 65, as previously amended by Statements No. 115 and 125,
required a mortgage banking enterprise to classify a mortgage-backed security
as a trading security following the securitization of the mortgage loan held
for sale. This Statement further amends Statement No. 65 to require that
after the securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities must classify the resulting mortgage-backed
security or other retained interests based on the entity's ability and intent
to sell or hold those investments.
The determination of the appropriate classification for securities retained
after the securitization of mortgage loans by a mortgage banking enterprise
now conforms to Statement No. 115. The only new requirement is that if an
entity has a sales commitment in place, the security must be classified into
trading.
This Statement is effective for the first fiscal quarter beginning after
December 15, 1998. On the date the Statement is initially applied, an entity
may reclassify mortgage-backed securities and other beneficial interests
retained after the securitization of mortgage loans held for sale from the
trading category, except for those with sales commitments in place. Those
securities and other interests shall be classified based on the entity's
present ability and intent to hold the investments. The adoption of this
Statement had no material impact on the Company's financial condition and
results of operations.
YEAR 2000 Compliance
As the year 2000 approaches, an important business issue has emerged
regarding how existing computer application software programs and operating
systems can accommodate this date value. Many existing application software
products are designed to accommodate only two digits. If not corrected, many
computer applications and systems could fail or create erroneous results by or
at the Year 2000.
The Company's Board of Directors approved a Year 2000 readiness plan in
early 1998, which included the appointment of a Year 2000 compliance officer.
This compliance officer spent the majority of 1998 identifying and evaluating
areas that could be affected by the century date change and preparing for the
Company's conversion of its primary software applications. In October, 1998,
the Company converted from a service bureau environment to a new in-house
system which processes all customer transactions and maintains balances and
history for all loan and deposit customers. The new software vendor
provided written assurances 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 1999, the Year 2000 compliance officer completed
testing of the new software program for Year 2000 compliance. The compliance
officer also tested other software programs for Year 2000 compatibility,
including the Company's area network, wire transfer software and modem
connections, check processing and ATM software and payroll, accounts payable
and general ledger software. All of the software tested was found to be year
2000 compliant.
The Company's operations may also be affected by the Year 2000 compliance
of its customers, significant suppliers and other vendors, including those
vendors that provide non-information and technology systems. The company
requested information related to the year 2000 compliance of its major
customers, significant suppliers and other vendors, by distributing
questionnaires which requested information on their Year 2000 readiness. The
company has received satisfactory responses from the Company's major vendors
and a majority of the large loan customers. In the event that any of the
Company's major customers, significant suppliers or other vendors do not
successfully achieve Year 2000 compliance in a timely manner, the Company's
business or operations could be adversely affected. The Company has prepared
a contingency plan in the event that there are system interruptions. As part
of the contingency plan, the Company intends to engage in alternative
suppliers or other vendors if its current significant suppliers or vendors
fail to meet Year 2000 operating requirements. There can be no assurances,
however, that such plan or the performances by any of the Company's suppliers
and vendors will be effective to remedy all potential problems.
The lending activities of the Company are concentrated primarily in one- to
four-family mortgage lending. Due to the small individual and aggregate
balance of loans to one- to four-family borrowers, it has been determined that
customer Year 2000 readiness issues should have an insignificant impact on the
Company.
The Company's direct expenses to date (other than the salary of Company
employees involved in Year 2000 testing and compliance) have been less than
$20,000 and the Company currently anticipates that the total costs related to
Year 2000 compliance will not exceed $50,000. Material costs, if any, that
may arise from the failure to achieve Year 2000 compliance by either the
Company or its significant suppliers and other vendors is not currently
determinable. To the extent that the Company's systems are not fully Year
2000 compliant, there can be no assurance that potential systems interruptions
or the cost necessary to update software would not have a material adverse
effect on the Company's business, financial condition, results of operations,
cash flows or business projects. In the event that the Company's progress
towards becoming Year 2000 compliant is deemed inadequate, regulatory action
may be undertaken.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions incident to
its business, none of which is believed by management to be
material to the financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders
At the annual meeting of stockholders held on April 27, 1999,
the Company's stockholders approved the following items:
1. elected Jack Troxell to a three-year term as director:
Broker
For Withheld Non-Votes
----- ---------- ---------
Number 1,173,571 25,502 0
Percent 97.9% 2.1% 0%
2. approved the appointment of OLIVE, LLP, formerly known as
Geo. S. Olive & Co., LLC, as independent auditors of
Great American Bancorp, Inc. for the fiscal year ending
December 31, 1999:
Broker
For Against Abstain Non-Votes
----- --------- --------- ---------
Number 1,166,431 30,137 2,505 0
Percent 97.3% 2.5% .2% 0%
The following directors held terms of office which continued
after the meeting:
Mr. Clinton C. Atkins
Mr. Ronald Kiddoo
Dr. Morgan Powell
Mr. George Rouse
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Great American
Bancorp, Inc.*
3.2 By-laws of Great American Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule
b. Report on Form 8-K
On April 15, 1999 the company filed a current report on 8-K
incorporating by reference a press release dated April 13,
1999 relating to the unaudited results for the three months
ended March 31, 1999.
_______________
* Incorporated herein by reference into this document from Form
S-1 Registration Statement, as amended, filed on March 24, 1995,
Registration No. 33-90614.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Great American Bancorp, Inc.
Dated: August 12, 1999 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: August 12, 1999 /s/ Jane F. Adams
-------------------------- ----------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
Exhibit 11.0
Earnings per share (unaudited)
Earnings per share (EPS) were computed as follows
(dollar amounts in thousands except share data):
Six months ended
June 30, 1999
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 364 1,230,722 $ 0.30
Effect of Dilutive Securities
Stock options 7,603
Unearned incentive plan shares 32,360
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 364 1,270,685 $ 0.29
===============================
Six months ended
June 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 519 1,476,129 $ 0.35
Effect of Dilutive Securities
Stock options 62,062
Unearned incentive plan shares 43,135
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 519 1,581,326 $ 0.33
===============================
Three months ended
June 30, 1999
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 152 1,235,404 $ 0.12
Effect of Dilutive Securities
Stock options 7,356
Unearned incentive plan shares 30,461
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 152 1,273,221 $ 0.12
===============================
Three months ended
June 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 275 1,461,946 $ 0.19
Effect of Dilutive Securities
Stock options 66,259
Unearned incentive plan shares 40,897
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 275 1,569,102 $ 0.18
===============================
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,270
<INT-BEARING-DEPOSITS> 7,678
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 998
<INVESTMENTS-CARRYING> 3,529
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<LOANS> 127,840
<ALLOWANCE> 1,202
<TOTAL-ASSETS> 154,604
<DEPOSITS> 120,929
<SHORT-TERM> 2,500
<LIABILITIES-OTHER> 1,693
<LONG-TERM> 7,000
0
0
<COMMON> 21
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