UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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)
At October 31, 1999, the Registrant had 1,235,383 shares of Common Stock
outstanding, for ownership purposes, which excludes 817,367 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 September 30, 1999 and December 31, 1998
(in thousands)
September 30, 1999 Dec. 31, 1998
(unaudited)
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ASSETS
Cash and due from banks $ 4,983 $ 6,429
Interest-bearing demand deposits 3,850 15,386
--------------------------------
Cash and cash equivalents 8,833 21,815
Investment securities
Available for sale 3,005 1,001
Held to maturity 3,504 1,977
--------------------------------
Total investment securities 6,509 2,978
Loans 128,713 122,672
Allowance for loan losses (1,353) (925)
--------------------------------
Net loans 127,360 121,747
Premises and equipment 7,337 7,551
Federal Home Loan Bank stock 767 736
Other assets 2,391 2,344
--------------------------------
Total assets $ 153,197 $ 157,171
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest bearing $ 8,275 $ 8,401
Interest bearing 114,067 114,619
--------------------------------
Total deposits 122,342 123,020
Short-term borrowings -- 2,000
Long-term debt 7,000 7,000
Other liabilities 1,708 1,999
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Total liabilities 131,050 134,019
--------------------------------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets (Continued)
As of September 30, 1999 and December 31, 1998
(in thousands)
Sept. 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 19,952 19,877
Retained earnings -- substantially restricted 16,513 16,411
Accumulated other comprehensive income 3 1
--------------------------------
36,489 36,310
Less:
Treasury stock, at cost -- 792,367 and
693,067 shares (13,521) (11,999)
Unallocated employee stock ownership plan
shares -- 46,665 and 63,698 shares (467) (637)
Unearned incentive plan shares -- 24,523 and
36,214 shares (354) (522)
--------------------------------
(14,342) (13,158)
--------------------------------
Total stockholders' equity 22,147 23,152
--------------------------------
Total liabilities and
stockholders' equity $ 153,197 $ 157,171
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Nine Months Ended September 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Interest income:
Loans $ 7,573 $ 7,578
Investment securities
Taxable 147 168
Tax exempt 24 11
Deposits with financial
institutions and other 516 464
--------------------------------
Total interest income 8,260 8,221
--------------------------------
Interest expense:
Deposits 3,644 3,712
Other 355 68
--------------------------------
Total interest expense 3,999 3,780
--------------------------------
Net interest income 4,261 4,441
Provision for loan losses 423 117
--------------------------------
Net interest income after
provision for loan losses 3,838 4,324
--------------------------------
Noninterest income:
Brokerage commissions 116 119
Insurance sales commissions 477 353
Service charges on deposit accounts 418 336
Loan servicing fees 14 19
Other customer fees 106 107
Net gains on loan sales -- 1
Other income 14 10
--------------------------------
Total noninterest income 1,145 945
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(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Nine Months Ended September 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Noninterest expense:
Salaries and employee benefits 2,184 2,157
Net occupancy expenses 466 426
Equipment expenses 317 280
Data processing fees 87 118
Deposit insurance expense 54 52
Printing and office supplies 209 187
Legal and professional fees 244 110
Directors and committee fees 76 78
Insurance expense 37 31
Marketing and advertising expenses 133 148
Other expenses 305 294
--------------------------------
Total noninterest expense 4,112 3,881
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Income before income tax 871 1,388
Income tax expense 360 609
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Net income $ 511 $ 779
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.42 $ 0.54
================================
Average number of shares 1,219,635 1,444,360
================================
Diluted:
Net income $ 0.41 $ 0.50
================================
Average number of shares 1,255,084 1,545,049
================================
Dividends $ 0.33 $ 0.32
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Quarter Ended September 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Interest income:
Loans $ 2,557 $ 2,651
Investment securities
Taxable 89 57
Tax exempt 6 7
Deposits with financial
institutions and other 134 93
--------------------------------
Total interest income 2,786 2,808
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Interest expense:
Deposits 1,246 1,265
Other 106 43
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Total interest expense 1,352 1,308
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Net interest income 1,434 1,500
Provision for loan losses 150 39
--------------------------------
Net interest income after
provision for loan losses 1,284 1,461
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Noninterest income:
Brokerage commissions 40 33
Insurance sales commissions 136 133
Service charges on deposit accounts 151 114
Loan servicing fees 5 6
Other customer fees 29 38
Net gain on loan sales -- 1
Other income 2 --
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Total noninterest income 363 325
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(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Quarter Ended September 30, 1999 and 1998
(unaudited, in thousands except share data)
1999 1998
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Noninterest expense:
Salaries and employee benefits 706 749
Net occupancy expenses 162 160
Equipment expenses 106 104
Data processing fees 57 19
Deposit insurance expense 18 17
Printing and office supplies 73 61
Legal and professional fees 72 31
Directors and committee fees 25 26
Insurance expense 12 10
Marketing and advertising expenses 48 54
Other expenses 115 96
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Total noninterest expense 1,394 1,327
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Income before income tax 253 459
Income tax expense 106 199
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Net income $ 147 $ 260
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.12 $ 0.19
================================
Average number of shares 1,197,694 1,381,859
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Diluted:
Net income $ 0.12 $ 0.18
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Average number of shares 1,224,770 1,476,148
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Dividends $ 0.11 $ 0.11
================================
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998
(unaudited, in thousands)
1999 1998
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Operating Activities:
Net income $ 511 $ 779
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for loan losses 423 117
Depreciation 398 351
Amortization of deferred loan fees (5) (25)
Deferred income tax (67) (67)
Investment securities amortization
(accretion), net 1 (1)
Net gain on loan sales -- (1)
Employee stock ownership plan
compensation expense 248 372
Incentive plan expense 165 165
Loans originated for sale -- (44)
Proceeds from sales of loans
originated for resale -- 45
Net gain on sale of premises and
equipment (2) --
Net change in:
Other assets 20 (666)
Other liabilities (301) 360
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Net cash provided by
operating activities 1,391 1,385
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Investing Activities:
Purchases of securities available for sale (3,000) (1,000)
Purchases of securities held to maturity (3,002) (1,450)
Proceeds from maturities of securities held
to maturity 1,450 1,100
Proceeds from maturities of securities
available for sale 1,000 997
Proceeds from principal paydowns of
mortgage-backed securities 24 --
Purchase of Federal Home Loan Bank stock (31) (118)
Net change in loans (6,031) (13,441)
Purchase of premises and equipment (184) (858)
Proceeds from sale of premises
and equipment 2 --
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Net cash used by
investing activities (9,772) (14,770)
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 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 (747) 3,671
Certificates of deposit 69 4,223
Other short-term borrowings (2,000) 4,000
Cash dividends (401) (471)
Purchase of treasury stock (1,522) (5,914)
Issuance of treasury stock -- 25
--------------------------------
Net cash provided (used) by
financing activities (4,601) 5,534
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Net Change in Cash and Cash Equivalents (12,982) (7,851)
Cash and Cash Equivalents, Beginning
of Period 21,815 17,476
--------------------------------
Cash and Cash Equivalents, End of
Period $ 8,833 $ 9,625
================================
Additional Cash Flows Information
Interest paid $ 4,003 $ 3,757
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Income tax paid $ 518 $ 666
================================
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 National Market System on June 30, 1995
under the symbol "GTPS".
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310(b) of
Regulation S-B, and, in the opinion of management, contain all adjustments
necessary to present fairly the financial position as of September 30, 1999
and December 31, 1998, the results of operations for the nine months ended and
three months ended September 30, 1999 and 1998, and the cash flows for the
nine months ended September 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 nine months ended September 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 1998. At September 30,
1999 and September 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 $153.20 million at September 30, 1999, a decrease of $3.97 million, or
2.5%. This decrease was primarily in cash and cash equivalents offset by
increases in loans and investment securities. Cash and cash equivalents
declined by $12.99 million,from $21.82 million at December 31, 1998 to $8.83
million at September 30, 1999, due to providing funding for new loans and
investment securites and the repayment of short-term borrowings. Net loans
increased by $5.61 million, or 4.6%, from $121.75 million at December 31, 1998
to $127.36 million at September 30, 1999. This increase was mostly in
mortgage loans, with increases in residential real estate loans of $4.12
million, or 4.9% and commercial real estate loans of $2.94 million, or 20.1%
over December 31, 1998 balances. Total investment securities increased from
$2.98 million at December 31, 1998 to $6.51 million at September 30, 1999 due
primarily to the purchase of mortgage-backed securities totaling $3.00 million
in June 1999.
Total deposits decreased $680,000, from $123.02 million at December 31, 1998
to $122.34 million at September 30, 1999. Total noninterest-bearing demand,
interest-bearing demand and savings deposits decreased $750,000, or 1.6%, from
$47.43 million at December 31, 1998 to $46.68 million at September 30, 1999.
This increase was mainly due to fluctuations that occur in the ordinary course
of business. Total certificates of deposit increased slightly from $75.59
million at December 31, 1998 to $75.66 million at September 30, 1999. The
Company repaid $2.0 million in short-term borrowings in August, 1999.
Total stockholders' equity decreased $1.00 million, or 4.3%, from $23.15
million at December 31, 1998 to $22.15 million at September 30, 1999. Book
value per outstanding voting share increased from $17.03 at December 31, 1998
to $17.57 at September 30, 1999. The decrease in stockholders' equity is
summarized as follows (in thousands):
Stockholders' equity, December 31, 1998 $ 23,152
Net income 511
Purchase of treasury stock (1,522)
Dividends declared (409)
Incentive plan shares allocated 165
ESOP shares allocated 248
Decrease in unrealized gain on securities
available for sale, net of income tax effect 2
------
Stockholders' equity, September 30, 1999 $ 22,147
======
Results of Operations
Comparison of Nine Month Periods Ended September 30, 1999 and 1998
Net income was $511,000 for the nine months ended September 30, 1999, compared
to $779,000 for the nine months ended September 30, 1998. This represents a
$268,000, or 34.4% decrease. Basic earnings per share were $0.42 for the nine
months ended September 30, 1999, compared to $0.54 for the nine months ended
September 30, 1998, and diluted earnings per share were $0.41 in 1999,
compared to $0.50 in 1998.
Net income in 1999 was lower than net income in 1998 due to a decrease in net
interest income, increases in the provision for loan losses and noninterest
expense, partially offset by an increase in noninterest income.
Net interest income was $4.26 million for the nine months ended September 30,
1999, compared to $4.44 million for the same period in 1998, a decrease of
$180,000, or 4.1%. Interest income was $8.26 million for the nine months
ended September 30, 1999, compared to $8.22 million for the same period in
1998.
Average total net loans for the nine months ended September 30, 1999 were
$124.08 million, compared to $117.90 million for the same period in 1998, an
increase of $6.18 million, or 5.2%. Total mortgage loans averaged $105.10
million for the nine months ended September 30, 1999, compared to $94.29
million for the nine months ended September 30, 1998, an increase of $10.81
million, or 11.5%. This growth occurred in one-to four-family and multifamily
residential loans and in commercial mortgage loans.
Average total commercial loans were $9.03 million in 1999, compared to $12.29
million in 1998, a decrease of $3.26 million, or 26.5%. Average total
consumer loans were $11.10 million during the nine months ended September 30,
1999, a decrease of $770,000, or 6.5%, from the $11.87 million average total
balance during 1998. The average yield on loans was 8.16% for the nine months
ended September 30, 1999, compared to 8.59% for the same period in 1998.
Interest income on investment securities declined from $179,000 for the nine
months ended September 30, 1998 to $171,000 for the same period in 1999, due
to a slight decrease in average total investment securities. Total investment
securities averaged $3.93 million in 1998, compared to $3.86 million in 1999.
Interest income on deposits with financial institutions and other increased
from $464,000 for the nine months ended September 30, 1998 to $517,000 for the
nine months ended September 30, 1999. The average total balance of deposits
with financial institutions and other increased from $11.70 million for the
nine months ended September 30, 1998 to $14.82 million for the nine months
ended September 30, 1999, an increase of $3.12 million, or 26.7%. The
increases in total average investment securities and total average deposits
with financial institutions and other were due to the purchase of $3.0 million
in mortgage-backed securities in July of 1999. The average yield on
investment securities decreased from 6.09% for the nine months ended September
30, 1998 to 5.93% for the same period in 1999. The average yield on deposits
with financial institutions and other decreased from 5.30% for the nine months
ended September 30, 1998 to 4.66% for the same period in 1999.
Interest expense increased by $220,000, or 5.8% from $3.78 million for the
nine months ended September 30, 1998 to $4.0 million for the same period in
1999. The increase was mainly attributable to the addition of $7.00 million
in other borrowings during the third quarter of 1998. Average total interest-
bearing deposits increased from $109.84 million in the first nine months of
1998 to $114.81 million during 1999, an increase of $4.97 million, or 4.5%.
Most of this growth occurred in short-term certificates of deposit and demand
deposit accounts. The average rates on deposits were 4.24% and 4.52% for the
nine months ended September 30, 1999 and 1998, respectively. The average rate
on other borrowings was 5.01% for the nine months ended September 30, 1999 and
6.05% for the nine months ended September 30, 1998
Net interest income as a percent of average interest earning assets was 3.99%
for the nine months ended September 30, 1999 versus 4.45% for the same period
in 1998. The spread between the yield on interest earning assets and the rate
on interest bearing liabilities was 3.43% and 3.72% for the nine months ended
September 30, 1999 and 1998, respectively.
The provision for loan losses was $117,000 for the nine months ended September
30, 1998 and $423,000 for the nine months ended September 30, 1999. 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 nine months ended September
30, 1999 and recoveries totaled $5,000. Total charge-offs in the first nine
months of 1998 were $32,000, with $8,000 in recoveries.
Non-performing loans, which are loans past due 90 days or more and
non-accruing loans, totaled $1.53 million at September 30, 1999, compared to
$178,000 at September 30, 1998. Non-performing loans at September 30, 1999
consisted of three residential mortgage loans totaling $142,000 and two
commercial loans of $1.39 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 1.05%
at September 30, 1999 and .47% at September 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 $1,145,000 for the nine months ended September 30,
1999, compared to $945,000 for the same period in 1998, an increase of
$200,000, or 21.1%. Insurance sales commissions, which totaled $477,000 in
1999 with $353,000 being recorded in 1998, accounted for the majority of the
increase in noninterest income. These commissions were generated by GTPS
Insurance Agency, the division of PASC. Service charges on deposit accounts
also increased in 1999 by a total of $82,000, from $336,000 for the nine
months ended September 30, 1998 to $418,000 for the nine months ended
September 30, 1999.
Noninterest expense was $4.11 million for the nine months ended September 30,
1999, compared to $3.88 million recorded for the nine months ended September
30, 1998, an increase of $230,000, or 5.9%. The majority of this increase was
in legal and professional fees, which increased by $134,000 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 $249,000, or 40.9% from $609,000 for the nine
months ended September 30, 1998 to $360,000 for the same period in 1999 due to
the decrease in pretax net income. The effective tax rates for the nine
months ended September 30, 1999 and 1998, were 41.3% and 43.9%, respectively.
The effective tax rate was lower in 1999 due to a higher level of state tax-
exempt interest income from qualified Federal agency securities.
Results of Operations
Comparison of Three Month Periods Ended September 30, 1999 and 1998.
Net income for the three months ended September 30, 1999 was $147,000, a
decrease of $113,000, or 43.5%, below the $260,000 recorded for the three
months ended September 30, 1998. Basic earnings per share decreased from
$0.19 for the three months ended September 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 September 30 1999 and 1998, respectively.
Net income for the third quarter of 1999 was lower due to a decrease in net
interest income, increases in the provision for loan losses and noninterest
expense, partially offset by an increase in noninterest income.
Net interest income was $1.43 million for the quarter ended September 30, 1999
and $1.50 million for the quarter ended September 30, 1998, a decrease of
$70,000,or 4.7%. Interest income declined $20,000 from $2.81 million for the
quarter ended September 30, 1998 to $2.79 million for the third quarter of
1999.
The decrease in interest income was derived from declines in interest on loans
offset by increases in interest on investments and deposits with financial
institutions and other. Interest income on loans decreased $90,000, or 3.4%,
from $2.65 million for the quarter ended September 30, 1998 to $2.56 million
for the same quarter in 1999, due mainly to a decrease in the average yield on
loans resulting from lower general interest rates in 1999.
Average total net loans for the three months ended September 30, 1999 were
$126.36 million, compared to $123.77 million for the same period in 1998, an
increase of $2.59 million, or 2.1%. The majority of the increase was in
mortgage loans. Total mortgage loans averaged $107.27 million for the three
months ended September 30, 1999, compared to $99.85 million for the three
months ended September 30, 1998, an increase of $7.42 million, or 7.4%. This
growth occurred in one-to four-family and multifamily residential loans and in
commercial mortgage loans.
Average total consumer loans were only slightly lower in 1999. The average
yield on loans decreased from 8.50% for the three months ended September 30,
1998 to 8.03% for the same period in 1999.
Interest income on investment securities increased from $64,000 for the three
months ended September 30, 1998 to $95,000 for the same period in 1999, due to
an increase in average total investments. Average total investments for the
third quarter of 1999 were $5.87 million, up $1.52 million, or 34.9%, from
$4.35 million for the third quarter of 1998. Interest income on deposits with
financial institutions and other increased $41,000, or 44.1%, from $93,000 for
the three months ended September 30, 1998 to $134,000 for the three months
ended September 30, 1999. The average balance for the quarter ending
September 30, 1999 for deposits with financial institutions and other was
$10.92 million compared to $7.07 million for the same time period in 1998, an
increase of $3.85 million, or 54.5%. The average yield on investment
securities for the three months ending September 30 1999 was 6.42%, while the
average yield was 5.84% for the same time period in 1998. The average yield
on deposits with financial institutions and other was 4.87% for the three
months ending September 30, 1999 and 5.22% for the three months ending
September 30, 1998.
Interest expense increased $40,000, or 3.1%, from $1.31 million for the three
months ended September 30, 1998 to $1.35 million for the same period in 1999.
The increase was mainly due to higher average total deposits in 1999. Average
total interest-bearing deposits increased from $111.08 million for the quarter
ended September 30, 1998 to $117.06 million for the quarter ended September
30, 1999. Average total certificates of deposit grew $2.42 million, or 3.24%,
from $74.71 million for the three months ended September 30, 1998 to $77.13
million for the same time period in 1999. Average NOW accounts were $1.66
million higher in the third quarter of 1999 compared to the third quarter of
1998, while average insured money market accounts were $1.45 million higher in
1999. The average yield on total interest-bearing deposits for the three
months ended September 30, 1999 was 4.22% and 4.67% for the three months ended
September 30, 1998. Interest expense on other borrowings increased by $63,000
due to higher balances of repurchase agreements and FHLB advances maintained
during the third quarter of 1999.
Net interest income as a percent of interest earning assets was 3.97% for the
three months ended September 30, 1999 versus 4.40% for the same period in
1998. The spread between the yield on interest earning assets and the rate on
interest bearing liabilities was 3.44% and 3.76% for the three months ended
September 30, 1999 and 1998, respectively.
The provision for loan losses was $150,000 for the three months ended
September 30, 1999 and $39,000 for the three months ended September 30, 1998.
The increase in 1999 was due to a higher monthly provision due to the
commercial loan totaling $1.35 million becoming non-performing during the
fourth quarter of 1998. There were no loans charged-off in the three months
ended September 30, 1999 and recoveries totaled $1,000. Total charge-offs in
the three months ended September 30, 1998 were $29,000, with $2,000 in
recoveries.
Noninterest income was up $38,000, or 11.7 %, from $325,000 for the quarter
ended September 30, 1998 to $363,000 for the three months ended September 30,
1999. The increase was due to hgher income from service charges on deposit
accounts which totaled $151,000 for the three months ending September 30, 1999
compared to $114,000 for the same period in 1998.
Noninterest expense was $1.39 million for the three months ending September
30, 1999, compared to $1.33 million for the same period in 1998, an increase
of $60,000, or 4.5%. The increase was mostly attributable to higher legal and
professional fees relating to the $1.35 million loan that became non-
performing during the fourth quarter of 1998.
Total income taxes for the three months ended September 30, 1999 were
$106,000, compared to $199,000 recorded for the same period in 1998, a
decrease of $93,000, or 46.7%. The effective tax rates for the three months
ended September 30, 1999 and 1998, were 41.89% and 43.36%, respectively.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and principal and interest
payments on loans. While maturities and scheduled amortization of loans are
predictable sources of funds, deposit flows and mortgage prepayments are
greatly influenced by general interest rates, economic conditions, and
competition. The Office of Thrift Supervision ("OTS"), the Company's and the
Bank's primary regulator, requires the Bank to maintain minimum levels of
liquid assets. Currently, the required ratio is 4%. The Bank's liquidity
ratios were 8.86% and 15.67% at September 30, 1999 and December 31, 1998,
respectively.
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 $12.98 million for the nine months ended
September 30, 1999, compared to a decrease of $7.85 million for the nine
months ended September 30, 1998. During the nine months ended September 30,
1999, cash was primarily provided from earnings and maturities of securities.
During 1999, cash was primarily used to fund security purchases and loan
growth, repay short-term borrowings,purchase treasury stock, and to pay
dividends.
During the nine months ended September 30, 1998, cash was primarily provided
from earnings, maturities of securities, increases in noninterest bearing,
interest bearing, demand and savings deposits, increases in certificates of
deposit and increases in short-term borrowings. During this period, cash was
primarily used to fund loan originations, purchase securities and treasury
stock and to pay dividends.
The Company's primary investment activities during the nine months ended
September 30, 1999 was the origination of loans and the purchase of securities
held to maturity and available for sale. During the nine months ended
September 30, 1999 and September 30, 1998, the Company originated mortgage
loans in the amounts of $16.7 million and $26.3 million, respectively,
commercial loans in the amounts of $8.3 million and $16.9 million,
respectively, and consumer loans in the amounts of $7.4 million and $7.6
million, respectively.
As of September 30, 1999, the Company had outstanding commitments (including
undisbursed loan proceeds) of $3.4 million. The Company anticipates it will
have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit which are scheduled to mature in
one year or less from September 30, 1999 totaled $48.7 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 leverage ratio increased to 4% for all institutions
except those with the highest rating on the CAMELS financial institution
rating system. As of September 30, 1999, the Bank's capital percentages for
tangible capital of 6.80%, core capital of 6.80%, and risk-based capital of
12.28% exceeded 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. 137 amended the effective date of Statement No. 133 to fiscal
years beginning after June 15, 2000. 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.
Pending Legislation
Pending legislation designed to modernize the regulation of the financial
services industry expands the ability of bank holding companies to affiliate
with other types of financial service companies such as insurance companies
and investment banking companies. However, the legislation provides that
companies that acquire control of a single savings association after May 4,
1999 (or that filed an application for that purpose after that date) are not
entitled to the unrestricted activities formerly allowed for a unitary savings
and loan holding company. Rather, these companies will have authority to
engage in the activities permitted "a financial holding company" under the new
legislation, including insurance and securities-related activities, and the
activities currently permitted for multiple savings and loan holding
companies, but generally not in commercial activities. The authority for
unrestricted activities is grandfathered for unitary savings and loan holding
companies, such as the Company, that existed prior to May 4, 1999. However,
the authority for unrestricted activities would not apply to any company that
acquired the Company.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions incident to
its business, none of which is believed by management to be
material to the financial condition of the Company.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Great American
Bancorp, Inc.*
3.2 By-laws of Great American Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule
b. Report on Form 8-K
On July 21, 1999 the Company filed an 8-K to announce its
earnings for the six months ended June 30, 1999. The
press release announcing the Company's second quarter
earnings was filed by exhibit.
_______________
* Incorporated herein by reference into this document from Form
S-1 Registration Statement, as amended, filed on March 24, 1995,
Registration No. 33-90614.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Great American Bancorp, Inc.
Dated: November 12, 1999 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: November 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):
Nine Months Ended
September 30, 1999
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 511 1,219,635 $ 0.42
Effect of Dilutive Securities
Stock options 4,860
Unearned incentive plan shares 30,589
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 511 1,255,084 $ 0.41
===============================
Nine Months Ended
September 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 779 1,444,360 $ 0.54
Effect of Dilutive Securities
Stock options 59,091
Unearned incentive plan shares 41,598
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 779 1,545,049 $ 0.50
===============================
Three Months Ended
September 30, 1999
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 147 1,197,694 $ 0.12
Effect of Dilutive Securities
Unearned incentive plan shares 27,006
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 147 1,224,700 $ 0.12
===============================
Options to purchase 187,601 shares of common stock at $14.21 were outstanding
at September 30, 1999, but were excluded from the computation of the diluted
earnings per share because the options exercise price was greater than the
average market price of the common shares.
Three Months Ended
September 30, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 260 1,381,859 $ 0.19
Effect of Dilutive Securities
Stock options 54,064
Unearned incentive plan shares 40,225
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 260 1,476,148 $ 0.18
===============================
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-QSB and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 4,983
<INT-BEARING-DEPOSITS> 3,850
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-HELD-FOR-SALE> 3,005
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<LOANS> 128,713
<ALLOWANCE> 1,353
<TOTAL-ASSETS> 153,197
<DEPOSITS> 122,342
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<LIABILITIES-OTHER> 1,708
<LONG-TERM> 7,000
0
0
<COMMON> 21
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<EPS-BASIC> 0.42
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<ALLOWANCE-OPEN> 925
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