U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Year ended December 31, 1999
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Commission file number 000-25808
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GREAT AMERICAN BANCORP, INC.
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(Name of small business issuer in its charter)
Delaware 52-1923366
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1311 S. Neil St., P.O. Box 1010, Champaign, Illinois 61824-1010
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(Address of principal executive offices) (Zip Code)
Issuers's telephone number, including area code (217) 356-2265
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Securities registered under Section 12(b)
of the Exchange Act: None
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Securities registered under Section 12(g)
of the Exchange Act:
Common Stock: par value $0.01 per share
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation SB contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year.
$12,548,000
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The aggregate market value of the voting stock held by non-affiliates of the
Registrant, i.e., persons other than directors and executive officers of the
Registrant, at December 31, 1999 was $11,973,000. For purposes of this
determination only, directors and executive officers of the Registrant have
been presumed to be affiliates. The market value is based upon $12.375 per
share, the last sales price as quoted on The Nasdaq Stock Market for December
31, 1999.
The Registrant had 1,176,915 shares of Common Stock outstanding, for ownership
purposes, at February 29, 2000 which excludes 875,835 shares held as treasury
stock.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
The Exhibit Index is located at pages 49-50.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1999 are incorporated by reference into Part II of this Form 10-KSB. Portions
of the Proxy Statement for the 2000 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-KSB.
INDEX
PART I
PAGE
Item 1. Description of Business . . . . . . . . . . . . . . . . . . 4
Item 2. Description of Property . . . . . . . . . . . . . . . . . . 46
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . 48
Item 4. Submission of Matters to a
Vote of Security Holders . . . . . . . . . . . . . . . . . 48
PART II
Item 5. Market for Common Equity and
Related Stockholder Matters. . . . . . . . . . . . . . . . 48
Item 6. Management's Discussion
and Analysis or Plan of Operation. . . . . . . . . . . . . 48
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . 48
Item 8. Changes In and Disagreements With Accountants
on Accounting and Financial Disclosure . . . . . . . . . . 48
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section
16(a) of the Exchange Act. . . . . . . . . . . . . . . . . 48
Item 10. Executive Compensation. . . . . . . . . . . . . . . . . . . 49
Item 11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . 49
Item 12. Certain Relationships and Related Transactions. . . . . . . 49
Item 13. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 49
SIGNATURES
PART I
Item 1. Description of Business.
In addition to historical information, this Annual Report may include
certain forward looking statements based on current management expectations.
The Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies
of the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or competition, changes in the
quality or composition of the Bank's loan and investment portfolios, changes
in accounting principles, policies or guidelines, and other economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices.
General
Great American Bancorp, Inc. (the "Company") was incorporated on February
23, 1995 and on June 30, 1995 acquired all of the outstanding shares of common
stock of First Federal Savings Bank of Champaign-Urbana, Illinois, (the "Bank")
upon the Bank's conversion from a federally chartered mutual savings bank to a
federally chartered stock savings bank (the "Conversion"). The Company
purchased 100% of the outstanding capital stock of the Bank using 50% of the net
proceeds from the Company's initial stock offering which was completed on June
30, 1995. The Company sold 2,052,750 shares of common stock in the initial
offering at $10 per share. The Company began trading on The Nasdaq Stock Market
on June 30, 1995 under the symbol "GTPS".
The Company's assets at December 31, 1999 consist primarily of the investment
in the Bank of $10.3 million, multifamily real estate loans of $5.7 million,
commercial real estate loans totaling $3.6 million, construction loans of
$531,000, one-to-four family mortgage loans of $237,000 and commercial loans
totaling $296,000. All loans were originated at the Bank and sold to the
Company. The Company does not transact any other material business except
through its subsidiary, the Bank.
Business of the Bank
The Bank was originally chartered in 1908 and became a federally chartered
mutual savings institution in 1938. Prior to changing its name to First
Federal Savings Bank of Champaign-Urbana in January, 1995, the Bank operated
as First Federal Savings and Loan Association of Champaign. The Bank's
primary market area consists of Champaign County, Illinois, which includes the
cities of Champaign and Urbana. The economy in the Bank's primary market area
is predominantly related to the University of Illinois, medical and health
care related businesses, a major food processing operation and agriculture.
The Bank maintains three offices, two in Champaign and one in Urbana, and
provides a full range of retail banking services at each office, with emphasis
on one- to four-family residential mortgage loans and consumer and commercial
loans. At December 31, 1999, the Bank had total assets, liabilities and
stockholders' equity of $143.1 million, $132.8 million, and $10.3 million,
respectively.
The Bank's principal business consists of the acceptance of retail
deposits from the residents and small businesses surrounding its branch
offices and the investment of those deposits, together with funds generated
from operations, primarily in one- to four-family residential mortgage loans.
The Bank also invests in multifamily mortgage loans, commercial real estate
loans, construction loans, land development loans and commercial and consumer
loans. The Bank, from time to time, originates loans for sale during certain
designated periods and, to a lesser extent, may sell loans from its portfolio.
The Bank retains virtually all the servicing rights of loans sold. At
December 31, 1999, the Bank's gross loan portfolio totaled $118.1 million or
82.5% of total assets. In addition to its lending activities, the Bank also
invests in U.S. Treasury and Agency securities, local municipal securities, and
mortgage-backed securities. At December 31, 1999, the Bank's securities
portfolio totaled $6.4 million. Securities totaling $3.0 million were
designated as available for sale and the remaining $3.4 million was classified
as held to maturity. The Bank also had $1.1 million invested in an overnight
money market fund and $2.9 million invested in interest-bearing demand deposits
at December 31, 1999.
The Bank's revenues are derived principally from interest on its mortgage,
consumer and commercial loans, and, to a lesser extent, interest and dividends
on its securities. The Bank's primary sources of funds are deposits,
principal and interest payments and principal prepayments on loans, and
proceeds from Federal Home Loan Bank ("FHLB") advances.
Lending Activities
General. Historically, the principal lending activity of the Bank has
been the origination of long-term fixed-rate mortgage loans for the purpose of
constructing, financing or refinancing one- to four-family residential
properties. In recent years, the Bank has also emphasized the origination of
balloon, adjustable-rate, and short-term fixed-rate mortgage loans, and has
also increased the origination of consumer loans, commercial and commercial
real estate loans.
Loan Portfolio Composition. The following table sets forth the
composition of the consolidated loan portfolio in dollar amounts and in
percentages of the respective portfolios at the dates indicated:
<TABLE>
<CAPTION>
Amount of Loans Outstanding at
------------------------------------------------------
December December December December September
31, 1999 31, 1998 31, 1997 31,1996 30, 1995(1)
-------- --------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Real estate:
One- to four-family residential $ 70,291 $ 66,694 $ 57,613 $ 51,620 $ 41,254
Multifamily residential 18,492 16,956 18,174 9,446 5,736
Commercial 18,213 14,500 10,296 9,363 11,261
Construction 1,919 3,657 1,615 2,035 447
Land 205 185 559 495 275
Commercial business 7,747 9,435 11,967 8,191 8,558
Consumer 11,564 11,245 12,088 10,667 10,112
------- ------- ------- ------- ------
Total loans, gross 128,431 122,672 112,312 91,817 77,643
Allowance for loan losses (703) (925) (497) (374) (231)
------- ------- ------- ------- ------
Total loans, net $ 127,728 $ 121,747 $111,815 $ 91,443 $ 77,412
======= ======= ======= ======= ======
<CAPTION>
Percentage of Loans Outstanding at
-------------------------------------------------------
December December December December September
31, 1999 31, 1998 31, 1997 31, 1996 30, 1995
-------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Real estate:
One- to four-family 54.74% 54.37% 51.30% 56.22% 53.13%
Multifamily residential 14.40 13.82 16.18 10.29 7.39
Commercial 14.18 11.82 9.17 10.20 14.50
Construction 1.49 2.98 1.44 2.22 .58
Land .16 .15 .50 .54 .35
Commercial business 6.03 7.69 10.66 8.92 11.02
Consumer 9.00 9.17 10.75 11.61 13.03
------- ------- ------- ------- -------
Total loans 100.00% 100.00% 100.00% 100.00% 100.00%
======= ======= ======= ======= =======
</TABLE>
(1) In November 1995, the Company and the Bank each changed their fiscal
year end from September 30 to December 31.
There were no loans held for sale at December 31, 1999. At that same
date, 38.2% of total mortgage loans had adjustable interest rates, excluding
consumer loans secured by second mortgages on real property.
The types of loans that the Company and Bank may originate are subject to
federal and state law and regulations. Interest rates charged on loans are
affected by the demand for such loans and the supply of money available for
lending purposes and the rates offered by competitors. These factors are, in
turn, affected by, among other things, economic conditions, monetary policies
of the federal government, including the Federal Reserve Board and legislative
tax policies.
Loan Maturity
The following table shows the maturity of consolidated loans at December
31, 1999, and includes principal repayments. Principal repayments totaled
$34.6 million, $49.1 million and $38.9 million for the years ended December 31,
1999, 1998 and 1997. At December 31, 1999, all loans were classified as held
for investment. While future loan prepayment activity cannot be projected,
management anticipates that in periods of stable interest rates, prepayment
activity would be lower than prepayment activity experienced in periods of
declining interest rates. In general, the Bank originates adjustable and fixed-
rate one- to four-family loans with maturities from 15 to 30 years, one-to-four
family loans with balloon features which mature from 5 to 7 years, multifamily
loans with maturities from 10 to 20 years, adjustable-rate commercial real
estate loans with maturities of 15 to 25 years, commercial loans with
maturities of from 1 to 5 years, and consumer loans with maturities of 1 to 5
years.
<TABLE>
<CAPTION>
December 31, 1999
(in thousands)
------------------------------------------------------------------------------------------
One- to Multi Real Total
Four- Family Estate Loans
Family Residential Commercial Construction Land Commercial Consumer Receivable
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less $ 2,888 507 892 1,919 23 5,365 4,951 16,545
After one year:
More than one year to
three years 5,250 1,128 3,026 -- 46 926 3,600 13,976
More than three years
to five years 6,011 1,925 2,143 -- 22 949 2,353 13,403
More than five years
to 10 years 14,433 11,561 6,043 -- 40 449 564 33,090
More than 10 years
to 20 years 23,666 3,200 5,835 -- 74 58 49 32,882
More than 20 years 18,043 171 274 -- -- -- 47 18,535
-----------------------------------------------------------------------------------------
Total due after
December 31, 2000 67,403 17,985 17,321 -- 182 2,382 6,613 111,886
-----------------------------------------------------------------------------------------
Total loans, gross 70,291 18,492 18,213 1,919 205 7,747 11,564 128,431
Allowance for loan losses (74) (20) (19) (2) -- (321) (267) (703)
-----------------------------------------------------------------------------------------
Total loans, net $ 70,217 18,472 18,194 1,917 205 7,426 11,297 127,728
=========================================================================================
</TABLE>
The following table sets forth, at December 31, 1999, the dollar amount of
gross loans receivable, contractually due after December 31, 2000, and whether
such loans have fixed interest rates or adjustable interest rates.
Due After December 31, 2000
--------------------------------------
Fixed Adjustable Total
--------------------------------------
(in thousands)
Real estate:
One- to four-family residential $ 52,316 $ 15,087 $ 67,403
Multifamily residential 6,797 11,188 17,985
Commercial real estate 2,891 14,430 17,321
Construction -- -- --
Land 37 145 182
Commercial business 615 1,767 2,382
Consumer 6,613 -- 6,613
------------------------------------
Total loans $ 69,269 $ 42,617 $111,886
====================================
Origination, Purchase, Sale and Servicing of Loans. The Bank's lending
activities are conducted primarily through its home office and two branch
offices. The Bank, from time to time, also sells mortgage loans that it
originates during certain designated periods and sells loans from its
portfolio and purchases participations in mortgage loans originated by other
institutions. The Bank has sold one- to four-family mortgage loans during
periods in which management believes market interest rates are not conducive
to the Bank holding such loans in its portfolio. Additionally, the Bank may
sell loans from its portfolio to, among other things, fund its commitments for
loan sales when circumstances result in the Bank's inability to close loans
which have been committed for sale. Historically, the substantial majority of
loans sold by the Company have been sold to the Federal Home Loan Mortgage
Corporation ("FHLMC"). The determination to purchase participations in
specific loans or pools of loans is based upon criteria substantially similar
to the Bank's underwriting policies which consider the financial condition of
the borrower, the location of the underlying property and the appraised value
of the property, among other factors.
The Bank recognizes, at the time of sale, the cash gain or loss on the sale
of the loans based on the difference between the net cash proceeds received
and the carrying value of the loans sold. Mortgage servicing rights on loans
sold are capitalized by allocating the total cost of the mortgage loans
between the mortgage servicing rights and the loans based on their relative
fair values. Capitalized servicing rights are amortized in proportion to and
over the period of estimated servicing revenues.
The following table sets forth consolidated loan originations, purchases,
sales and principal repayments information for the periods indicated.
Year Ended December 31,
------------------------------------------------
1999 1998 1997
------------------------------------------------
(in thousands)
Gross Loans (1)
Beginning balance $ 122,672 $112,312 $ 91,817
Loans originated:
One- to four-family 12,000 16,138 12,071
Multifamily residential 3,315 3,957 16,843
Commercial real estate 4,230 3,863 3,493
Construction 1,387 6,466 2,688
Land 154 -- --
Commercial business 9,809 19,369 12,197
Consumer 9,448 9,704 12,164
----------------------------------------------
Total loans originated 40,343 59,497 59,456
----------------------------------------------
Total 163,015 171,809 151,273
Less:
Transfer to real
estate owned -- -- --
Principal repayments (34,584) (49,093) (38,889)
Sales of loans -- (44) (72)
--------------------------------------------
Total loans, gross $ 128,431 $ 122,672 $ 112,312
==============================================
(1) Gross loans include loans receivable, net of loan origination fees,
deferred loan fees, and unamortized premiums and discounts.
One- to Four-Family Mortgage Lending. The Bank offers both fixed rate
and adjustable rate mortgage loans secured by one- to-four-family residences,
primarily owner-occupied, located in the Bank's primary market area, with
maturities up to thirty years. Substantially all of such loans are secured
by property located in Champaign County, Illinois. Loan originations are
generally obtained from existing or past customers and members of the local
community.
At December 31, 1999, total consolidated gross loans outstanding were
$128.4 million, of which $70.3 million or 54.8% were one- to four-family
residential mortgage loans. Of the one- to four-family residential mortgage
loans outstanding at that date, 78.2% were fixed-rate loans, and 21.8% were
adjustable-rate mortgage loans. The interest rate for the majority of the
Bank's adjustable-rate mortgage loans adjusts periodically based upon a
spread above the one year U.S. Treasury index. The Bank currently offers a
number of adjustable-rate mortgage loan programs with interest rates which
adjust annually, either from the outset of the loan or after a 3, 5 or 7-year
initial period in which the loan has a fixed rate. Such interest rate
adjustments are limited to a 2% annual adjustment cap and a 6%
life-of-the-loan cap. The Bank also offers mortgage loans with balloon
features. In general, these loans may be rolled over on the balloon date if
the customer completes a new loan application and meets all of the
underwriting criteria required of new customers. The Bank currently has no
mortgage loans that are subject to negative amortization but may consider
introducing such loans in the future. Negative amortization involves a
greater risk to the Bank because during a period of high interest rates the
loan principal may increase above the amount originally advanced.
The origination of adjustable-rate residential mortgage loans, as opposed
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing
the potential for default. At the same time, the marketability of the
underlying property may be adversely affected. Periodic and lifetime caps on
adjustable-rate mortgage loans help to reduce these risks but also limit the
interest rate sensitivity of such loans.
The Bank's policy is to originate one- to four-family residential mortgage
loans in amounts up to 80% of the lower of the appraised value or the selling
price of the property securing the loan and up to 95% of the appraised value
or selling price if private mortgage insurance is obtained. Mortgage loans
originated by the Bank generally include due-on-sale clauses which provide the
Bank with the contractual right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property without the
Bank's consent. Due-on-sale clauses are an important means of adjusting the
rates on the Bank's fixed-rate mortgage loan portfolio and the Bank has
generally exercised its rights under these clauses.
Multifamily Lending. The Company and the Bank originate fixed- and
adjustable-rate multifamily residential mortgage loans generally secured by
multiple unit apartment and university housing buildings located in the
Company's and Bank's primary market area. At December 31, 1999, the
consolidated multifamily loan portfolio was $18.5 million, or 14.4% of total
gross loans. In reaching its decision on whether to make a multifamily loan,
management considers the qualifications of the borrower as well as the
underlying property. The factors considered include: the net operating
income of the mortgaged premises before debt service and depreciation; the
debt service ratio (the ratio of net earnings to debt service); and the ratio
of loan amount to appraised value. Pursuant to the Company's and the Bank's
underwriting policies, an adjustable-rate multifamily mortgage loan may only
be made in an amount up to 80% of the appraised value of the underlying
property. In addition, the Company and the Bank generally require a debt
service ratio of 1.2% to 1.5% and the personal guarantee of the borrower.
Properties securing a loan are appraised by an independent appraiser and
title insurance is required on all loans.
When evaluating the qualifications of the borrower for a multifamily
loan, management considers the financial resources and income level of the
borrower, the borrower's experience in owning or managing similar property
and the previous lending experience with the borrower. The Company and the
Bank's underwriting policies require that the borrower be able to demonstrate
strong management skills and the ability to maintain the property from
current rental income. The borrower should also present evidence of the
ability to repay the mortgage and a history of making mortgage payments on a
timely basis. In making its assessment of the creditworthiness of the
borrower, management generally reviews the financial statements, employment
and credit history of the borrower, as well as other related documentation.
The largest multifamily loan at December 31, 1999 is a ten year fixed rate
loan with an outstanding balance of $5.9 million which is secured by an
apartment complex.
Loans secured by apartment buildings and other multifamily residential
properties generally involve larger principal amounts and a greater degree of
risk than one- to four-family residential mortgage loans. Because payments
on loans secured by multifamily properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market
or the economy. The Company and the Bank seek to minimize these risks
through their underwriting policies, which require such loans to be qualified
at origination on the basis of the property's income and debt coverage ratio.
As part of its operating strategy, the Bank intends to increase its
multifamily lending in its primary market area.
Commercial Real Estate Lending. The Bank originates commercial real
estate loans that are generally secured by properties used for business
purposes such as small office buildings or a combination of residential and
retail facilities located in the Bank's primary market area. The Bank's
underwriting procedures provide that commercial real estate loans may
generally be made in amounts up to 80% of the appraised value of the
property, subject to the Bank's current loans-to-one-borrower limit.
These loans may be made with terms up to 30 years, fully amortized, and
are generally offered at interest rates which adjust in accordance with the
prime rate as reported in the Wall Street Journal. The Bank's underwriting
standards and procedures are similar to those applicable to its multifamily
loans, whereby the Bank considers the net operating income of the property
and the borrower's expertise, credit history and profitability. The Bank has
generally required that the properties securing commercial real estate loans
have debt service coverage ratios of at least 1.2% to 1.5%. The largest
commercial real estate loan in the Bank's portfolio at December 31, 1999, was
a $1.7 million, five year adjustable rate, loan which was originated in
February, 1998 and is secured by a multi tenant warehouse facility. At
December 31, 1999, the consolidated commercial real estate loan portfolio
totaled approximately $18.2 million or 14.2% of total consolidated gross
loans. As part of its operating strategy, the Bank intends to increase its
commercial real estate lending in its primary market area.
Loans secured by commercial real estate properties, like multifamily
loans, usually involve larger principal amounts and, generally, the interest
rate on these loans adjusts every five years. The Bank also offers mortgage
loans with balloon features. In general, these loans may be rolled over on
the balloon date if the customer completes a new loan application and meets
all of the underwriting criteria required of new customers. The Bank
currently has no mortgage loans that are subject to negative amortization but
may consider introducing such loans in the future. Negative amortization
involves a greater risk to the Bank because during a period of high interest
rates the loan principal may increase above the amount originally advanced.
Because payments on loans secured by commercial real estate properties
are often dependent on successful operation or management of the properties,
repayment of such loans may be subject to adverse conditions in the real
estate market or the economy. The Bank seeks to minimize these risks through
its underwriting standards, which require such loans to be qualified on the
basis of the property's income and debt service ratio.
Construction and Land Development Lending. The Bank originates loans for
the acquisition and development of property to contractors and individuals in
its primary market area. The Bank has made construction loans primarily to
finance the construction of one- to four-family, owner-occupied residential
properties and multifamily properties. These loans generally have maturities
of one year or less. Loans for the construction of one-to four-family
residences may be made in amounts up to 80% of the appraised value of the
property or up to 95% of the appraised value of the property with private
mortgage insurance. Loans for the construction of commercial and multifamily
properties may be made in amounts up to 80% of the appraised value of the
property, subject to the Bank's current limitation on loans-to-one-borrower.
The Bank generally requires personal guarantees and may require an
irrevocable takeout commitment from a generally recognized lender for an
amount equal to or greater than the amount of the loan. Loan proceeds are
disbursed in increments as construction progresses and as inspections
warrant. Land development loans are determined on an individual basis, but
generally they do not exceed 70% of the actual cost or current appraised
value of the property, whichever is less. The largest construction loan in
the Bank's portfolio at December 31, 1999 was a $531,000 loan originated in
September, 1999. The interest rate on the loan floats daily with the national
prime rate and the loan matures in March 2000. The loan is secured by a
restaurant. At December 31, 1999, the consolidated total of construction and
land development loans was $1.9 million, which amounted to 1.5% of the
consolidated total loan portfolio.
Construction and land development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction. If the estimate of value proves to be
inaccurate, the Bank may be confronted with a project, when completed, having
a value which is insufficient to assure full repayment.
Commercial Lending. The Company and Bank also offer secured and unsecured
commercial business loans. At December 31, 1999, consolidated commercial
business loans totaled $7.7 million, or 6.0% of the total loan portfolio.
Commercial business loans consist of credit lines to support fluctuations in
accounts receivable and inventory, conventional term loans, including both
"owner-occupied" and "investment" real estate loans, working capital loans,
business acquisition loans and small business loans. The Bank's policy is to
generally make fixed-rate and variable rate commercial loans with terms of
from 1 to 5 years. In making commercial loans, management considers primarily
the value of the collateral if the loan is secured, the financial history and
resources of the borrower, the borrower's ability to repay the loan out of net
operating income and the lending history with the borrower. The Company's and
Bank's policies have been generally to require the personal guarantee of all
principal shareholders or partners for loans to corporations or partnerships,
and an annual personal financial statement from all guarantors. The largest
commercial loan or commercial credit relationship consists of unsecured
commercial loans to one borrower which aggregated $1.5 million at December 31,
1999.
As part of its overall strategy, management intends to increase the level
of commercial lending in the primary market area. Unsecured commercial
business lending is generally considered to involve a higher degree of risk
than secured commercial and real estate lending. Risk of loss on an unsecured
commercial business loan is dependent largely on the borrower's ability to
remain financially able to repay the loan out of ongoing operations. If
management's estimate of the borrower's financial ability is inaccurate, the
Company or Bank may be confronted with a loss of principal on the loan.
Consumer Lending. The Bank has developed a consumer loan program to offer
loans on a short term basis, generally up to five years, thereby reducing its
interest rate risk exposure. The Bank's portfolio of consumer loans includes
a combination of automobile, marine, home improvement, recreation, home
equity loans, credit cards loans and overdraft protection loans. As of
December 31, 1999, the Bank's consumer loans amounted to $11.6 million or 9.0%
of the total loan portfolio. Consumer loans are generally originated in the
Bank's primary market area and generally have maturities of one to five years.
Consumer loans may be collateralized by personal property or secondary
encumbrances on real estate. Unsecured consumer loans are generally made with
a maximum maturity of 48 months.
Consumer loans are shorter in term and generally contain higher interest
rates than residential loans. Management believes the consumer loan market
has been helpful in improving its spread between average loan yield and costs
of funds and at the same time improving the matching of its rate sensitive
assets and liabilities.
The underwriting standards employed by the Bank for consumer loans include
a determination of the applicant's credit history and an assessment of the
applicant's ability to meet existing obligations and payments on the proposed
loan. The stability of the applicant's monthly income may be determined by
verification of gross monthly income from primary employment, and additionally
from any verifiable secondary income. Creditworthiness of the applicant is of
primary consideration; however, the underwriting process also includes a
comparison of the value of the collateral in relation to the proposed loan
amount.
Consumer loans entail greater risks than one- to four-family residential
mortgage loans, particularly consumer loans that are secured by rapidly
depreciable assets such as automobiles or that are unsecured. In such cases,
repossessed collateral for a defaulted loan may not provide an adequate
source of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrower's continuing
financial stability, and therefore are more likely to be adversely affected
by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal bankruptcy
and insolvency laws, may limit the amount which can be recovered on such
loans in the event of a default. At December 31, 1999, consumer loans 90
days or more delinquent totaled $1,000 or 0.01% of consumer loans. As part
of its operating strategy, the Bank intends to increase the level of its
consumer lending in its primary market area.
Loan Approval Procedures and Authority. The respective Boards of
Directors authorize the lending activities of the Company and the Bank and
establish the lending policies. The Board of Directors of the Bank has
authorized the following persons to approve loans up to the amounts
indicated: Loans in the amount of $150,000 for secured loans and $75,000 for
unsecured loans may be approved by the President or Senior Vice President of
Lending. One-to four-family residential mortgage loans in an amount not
exceeding the maximum amount saleable to the secondary market (such amount
currently is $257,000 may be approved by specified officers within the
lending department. All other loan commitments or renewals must be referred
to and approved by the Bank's Loan Committee, which is made up of four
directors, the President and the Senior Vice President of Lending.
For all loans originated, upon receipt of a completed loan application from
a prospective borrower, a credit report is ordered and certain other
information is verified by an independent credit agency. If necessary,
additional financial information may be required. An appraisal of real estate
intended to secure a proposed loan generally is required to be performed by an
appraiser designated and approved by the Company or Bank. For proposed
mortgage loans, each Board annually approves independent appraisers to be used
and approves the appraisal policy. The Company's and the Bank's policies are
to obtain title and hazard insurance on all mortgage loans. If private
mortgage insurance is required, the borrower will be required to make payments
to a mortgage impound account from which the Company or Bank makes
disbursements for property taxes and mortgage insurance.
Loan Servicing. The Bank also services mortgage loans for others. Loan
servicing includes collecting and remitting loan payments, accounting for
principal and interest, making inspections as required of mortgaged premises,
contacting delinquent mortgagors, supervising foreclosures and property
dispositions in the event of unremedied defaults, making certain insurance
and tax payments on behalf of the borrowers and generally administering the
loans. At December 31, 1999 the Bank was servicing $6.3 million of loans
for others.
Delinquencies and Classified Assets. Management and the Board of
Directors perform a monthly review of all delinquent loans. The procedures
taken by management with respect to delinquencies vary depending on the
nature of the loan and period of delinquency. The Company and the Bank
generally require that delinquent mortgage loans be reviewed and that a
written late charge notice be mailed no later than the 15th day of
delinquency. The Company's and Bank's policies provide that telephone
contact will be attempted to ascertain the reasons for delinquency and the
prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, management will attempt to obtain full payment or work
out a repayment schedule with the borrower to avoid foreclosure. It is the
general policy to continue to accrue interest on all loans which are past due
unless ultimate collection of principal and interest is in doubt. Property
acquired as a result of foreclosure on a mortgage loan is classified as "real
estate owned", and is recorded at the lower of the unpaid principal balance
or fair value less costs to sell at the date of acquisition and thereafter.
Upon foreclosure, it is the Company's and Bank's policy generally to require
an appraisal of the property and, thereafter, appraisal of the property on an
annual basis and external inspections on at least a quarterly basis.
Federal regulations and the Bank's Classification of Assets Policy require
that the Bank utilize an internal asset classification system as a means of
reporting non performing and potential problem assets. The Bank has
incorporated the asset classifications used by the Office of Thrift
Supervision ("OTS"), the Bank's primary regulator, as part of its credit
monitoring system. The Bank currently classifies non performing and potential
problem assets as "Substandard," "Doubtful" or "Loss" assets. An asset is
considered Substandard if it is inadequately protected by the current net
worth and paying capacity of the obligor or of the collateral pledged, if any.
Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as Doubtful have all of the weaknesses
inherent in those classified Substandard with the added characteristic that
the weaknesses present make collection or liquidation in full, on the basis of
currently existing facts, conditions and values, highly questionable and
improbable. Assets classified as Loss are those considered uncollectible and
of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Watch."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances,
have not been allocated to particular problem assets. When an insured
institution classifies one or more assets, or portions thereof, as Loss, it is
required either to establish a specific allowance for losses equal to 100% of
the amount of the asset so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS, which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment
of adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the
policy statement recommends that institutions have effective systems and
controls to identify, monitor and address asset quality problems; that
management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management
has established acceptable allowance evaluation processes that meet the
objectives set forth in the policy statement. As a result of declines in
local and regional real estate market values and significant losses
experienced by many financial institutions, there has been a greater level of
scrutiny by regulatory authorities of the loan portfolios of financial
institutions undertaken as part of the examination of institutions by the OTS
and the Federal Deposit Insurance Corporation ("FDIC"). While the Bank
believes that it has established an adequate allowance for loan losses, there
can be no assurance that regulators, in reviewing the Bank's loan portfolio,
will not request the Bank to materially increase at that time its allowance
for loan losses, thereby negatively affecting the Bank's financial condition
and earnings at that time. Although management believes that, based on
information currently available, adequate specific and general loan loss
allowances have been established, actual losses are dependent upon future
events and, as such, further additions to the level of specific and general
loan loss allowances may become necessary.
The Bank's Loan Committee reviews and classifies the Bank's loans on a
monthly basis and reports the results of its reviews to the Board of
Directors. The Bank classifies loans in accordance with the management
guidelines described above. At December 31, 1999, the Bank had no other real
estate as a result of foreclosure, which is generally classified as
Substandard. At December 31, 1999, the Bank had $208,000 in assets classified
as Watch, $350,000 classified as Substandard, $116,000 classified as Doubtful,
zero classified as Loss.
The following table sets forth delinquencies in the Bank's loan portfolio
as of the dates indicated
<TABLE>
<CAPTION>
At December 31, 1999 At December 31, 1998
--------------------------------------------------------------------------------------
60-89 Days 90 Days or More 60-89 Days 90 Days or More
--------------------------------------------------------------------------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
--------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family residential 3 $ 41 4 $ 92 7 $ 170 5 $ 95
Multifamily residential -- -- -- -- -- -- -- --
Commercial real estate -- -- -- -- -- -- -- --
Construction and land -- -- -- -- 1 168 -- --
Commercial business -- -- 1 375 1 20 1 1,363
Consumer 1 1 1 1 3 3 1 14
--------------------------------------------------------------------------------------
Total 4 $ 42 6 $ 468 12 $ 361 7 $ 1,472
Delinquent loans to total ======================================================================================
gross loans 0.03% 0.36% 0.29% 1.20%
======================================================================================
<CAPTION>
At December 31, 1997
-------------------------------------------------
60-89 Days 90 Days or More
-------------------------------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
-------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family residential 5 $ 129 4 $ 91
Multifamily residential -- -- -- --
Commercial real estate 4 373 -- --
Construction and land -- -- -- --
Commercial business -- -- 2 277
Consumer 1 3 3 24
-------------------------------------------------
Total 10 $ 505 9 $ 392
Delinquent loans to total =================================================
gross loans 0.45% 0.35%
=================================================
</TABLE>
The one commercial business loan totaling $375,000 which was 90 days
or more past due at December 31, 1999 became 90 days or more delinquent during
the fourth quarter of 1998. At December 31, 1998, the balance of this loan was
$1.36 million. In January 1999, the borrower involved in this nonperforming
loan filed Chapter 11, or business reorganization, bankruptcy. In the second
quarter of 1999, the reorganization plan changed to a liquidation of assets
arrangement. The loan is secured by business assets and guaranteed by the
owner. During 1999, the Company collected $185,000 in principal payments from
this borrower and charged off $800,000 of the loan. The remaining balance of
the loan is $375,000, with $325,000 classified as substandard and $50,000
classified as doubtful at December 31, 1999. The total $375,000 is considered
impaired as of December 31, 1999. Repayment of the remaining balance is
expected from the sale of business assets of the borrower and personal assets
of the guarantor. 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.
Three loans, totaling approximately $58,000 at December 31, 1999, were
delinquent greater than 90 days at both December 31, 1999 and December 31,
1998. The majority of the delinquent borrowers have been making their monthly
or periodic required payments; however, the borrowers delinquent at both
December 31, 1999 and 1998 are habitually delinquent.
Nonaccrual and Past Due Loans. The following table sets forth information
regarding loans contractually past due 90 days or more. At December 31, 1999,
there were no troubled-debt restructured loans within the meaning of Statement
of Financial Accounting Standards No. 15 and no foreclosed properties
classified as real estate owned. The one commercial business loan totaling
$375,000 was on nonaccrual at December 31, 1999. At December 31, 1999, there
were 5 accruing loans past due 90 days or more. The Bank continues to accrue
interest on loans which are past due unless ultimate collection of all
principal and interest is in doubt.
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Sep 30,
1999 1998 1997 1996 1995 (2)
-----------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans contractually past due 90 days or more $ 468 $ 1,472 $ 392 $ 177 $ 144
=================================================================
Allowance for loan losses as a percent
of loans (1) 0.55% 0.75% 0.44% 0.41% 0.30%
Allowance for loan losses as a percent of
non-performing loans 150.21% 62.84% 126.79% 211.30% 160.42%
Non-performing loans as a percent of loans (1) 0.36% 1.20% 0.35% 0.13% 0.19%
Non-performing assets as a percent of total
assets 0.30% 0.94% 0.28% 0.09% 0.13%
</TABLE>
---------------------------
(1) Loans include gross loans less loans in process, undisbursed loan
proceeds and deferred loan origination fees and discounts.
(2) In November 1995, the Company and the Bank each changed their
fiscal year end from September 30 to December 31.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the loan portfolio and the general economy. The allowance
for loan losses is maintained at an amount management considers adequate to
cover estimated losses in loans receivable which are deemed probable and can
be estimated based on information available to management at such time.
While management believes the allowance for loan losses is sufficient to
cover losses inherent in its loan portfolio at this time, no assurances can
be given that the level of the allowance for loan losses will be sufficient
to cover future loan losses incurred or that future adjustments to the
allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions used
by management to determine the current level of the allowance for loan
losses. The allowance is based upon a number of factors, including asset
classifications, economic trends, industry experience and trends, industry
and geographic concentrations, estimated collateral values, management's
assessments of the credit risk inherent in the portfolio, historical loan
loss experience, and the Bank's underwriting policies. As of December 31,
1999 and 1998, the allowance for loan losses was 0.55% and 0.75%,
respectively, of total loans. Management will continue to monitor and modify
the allowance for loan losses as conditions dictate. Various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. These agencies may require additional
valuation allowances, based on their judgments of the information available
at the time of the examination.
It is the policy of the Bank to charge off consumer loans when it is
determined that they are no longer collectible. The policy for loans secured
by real estate, which comprise the bulk of the loan portfolio, is to establish
loss reserves in accordance with the loan classification process, based on
generally accepted accounting practices. It is the Company's and Bank's
policies to obtain an appraisal on all real estate acquired through
foreclosure at the time of foreclosure.
The following table sets forth activity in the allowance for loan losses
for the periods set forth in the table.
<TABLE>
<CAPTION>
---------------------------------------------------------------
Dec 31, Dec 31, Dec 31, Dec 31, Sep 30,
1999 1998 1997 1996 1995 (1)
---------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 925 $ 497 $ 374 $ 231 $ 217
Provision for loan losses 573 456 156 325 132
Charge-offs:
One to four-family residential -- -- -- -- --
Multifamily residential -- -- -- -- --
Commercial real estate -- -- -- -- --
Construction and land -- -- -- -- --
Commercial business 800 -- 20 35 102
Consumer 1 36 18 151 24
--------------------------------------------------------------
Total charge-offs 801 36 38 186 126
--------------------------------------------------------------
Recoveries:
One- to four-family residential -- -- -- -- --
Multifamily residential -- -- -- -- --
Commercial real estate -- -- -- -- --
Construction and land -- -- -- -- --
Commercial business 5 6 -- -- --
Consumer 1 2 5 4 8
--------------------------------------------------------------
Total recoveries 6 8 5 4 8
--------------------------------------------------------------
Net charge-offs 795 28 33 182 118
--------------------------------------------------------------
Balance at end of period $ 703 $ 925 $ 497 $ 374 $ 231
==============================================================
Ratio of net charge-offs during the
period to average loans outstanding
during the period 0.63% 0.02% 0.03% 0.22% 0.15%
==============================================================
</TABLE>
(1) In November 1995, the Company and the Bank each changed their
fiscal year end from September 30 to December 31
The following table sets forth the Bank's allocation of the allowance for
loan losses by loan category and the percent of the allocated allowance to
the total allowance for each specific loan category. The portion of the
allowance for loan losses allocated to each loan category does not represent
the total available for future losses which may occur within the loan
category since the total allowance for loan losses is a valuation reserve
applicable to the entire loan portfolio.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
Amount of Allowance and Percentage of Allowance to Total Allowance
-------------------------------------------------------------------------------------
Dec 31, 1999 Dec 31, 1998 Dec 31, 1997 Dec 31, 1996 Sep 30, 1995(1)
-------------- -------------- -------------- -------------- --------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-
family residential $ 74 10.53% $ 73 7.89% $ 64 12.88% $ 61 16.31% $ 31 13.42%
Multifamily residential 20 2.84 18 1.95 20 4.02 11 2.94 27 11.69
Commercial real estate 19 2.70 16 1.73 11 2.21 11 2.94 14 6.06
Construction and land 2 0.28 4 0.43 4 0.81 4 1.07 -- --
Commercial business 321 45.67 571 61.73 194 39.03 141 37.70 46 19.91
Consumer 267 37.98 243 26.27 204 41.05 146 39.04 113 48.92
-----------------------------------------------------------------------------------
$ 703 100.00% $ 925 100.00% $ 497 100.00% $ 374 100.00% $ 231 100.00%
====================================================================================
</TABLE>
(1) In November 1995, the Company and the Bank each changed their fiscal
year end from September 30 to December 31
Investment Activities
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including U.S. Treasury and Agency
obligations, securities of various federal agencies, FHLB term deposits
certificates of deposit of insured banks and savings institutions, bankers'
acceptances, repurchase agreements and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest their
assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally
chartered savings institution is otherwise authorized to make directly.
Additionally, the Bank must maintain minimum levels of investments that
qualify as liquid assets under OTS regulations. Historically, the Bank has
maintained liquid assets above the minimum OTS requirements and at a level
considered to be adequate to meet its normal daily activities.
The investment policies of the Company and the Bank, as established by
the respective Boards of Directors, attempt to provide and maintain liquidity,
generate a favorable return on investments without incurring undue interest
rate and credit risk and complement lending activities. The investment
policies generally limit investments to government and federal agency-backed
securities and other non-government guaranteed securities, including corporate
debt obligations, that are investment grade. The investment policies provide
authority to invest in U.S. Treasury and U.S. Government guaranteed
securities, securities backed by federal agencies such as the Government
National Mortgage Association ("GNMA") and the Federal National
Mortgage Association ("FNMA"), FHLMC and the Federal Farm Credit Bureau,
mortgage-backed securities with maximum average maturities of 10 years which
are backed by federal agency securities, obligations of state and political
subdivisions with at least an "A" rating, term deposits purchased through the
FHLB and securities issued by mutual funds which invest in securities
consistent with the Company's or Bank's allocable investments. The policies
generally limit investments in each category to the lesser of $5,000,000 or
50% of the Company's or Bank's equity. The investment policies provide that
the President is authorized to execute all transactions within specified
limits which are reviewed by the Board of Directors on a monthly basis. From
time to time the Board of Directors may authorize the President to exceed the
policy limitations. The Bank's Asset/Liability Committee monitors compliance
with the Bank's investment policy and generally meets on a quarterly basis.
At December 31, 1999, the Bank had $6.4 million in investment securities
consisting of $3.0 million invested in Federal agency securities, all
classified as available for sale, $1.9 million in GNMA mortgage-backed
securities and $1.0 million in FNMA mortgage-backed securities and $526,000
invested in local municipal securities. The mortgage-backed securities and
municipal securities are all classified as held to maturity.
The following table sets forth certain information regarding the carrying
and market value of the Company's and the Bank's short-term investments and
securities at the dates indicated.
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Dec 31, 1999 Dec 31, 1998 Dec 31, 1997
--------------------------------------------------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
--------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Federated Liquid Cash Fund $ 1,466 $ 1,466 $ 9,941 $ 9,941 $10,549 $10,549
====================================================================
FHLB term deposits $ -- $ -- $ -- $ -- $ -- $ --
====================================================================
Securities:
Held to maturity:
Mortgage-Backed securities $ 2,937 $ 2,817 $ 1,000 $ 1,002 $ 1,000 $ 1,002
Obligations of states and
political subdivisions 526 521 977 986 300 303
--------------------------------------------------------------------
Total held to maturity 3,463 3,338 1,977 1,988 1,300 1,305
--------------------------------------------------------------------
Available for sale:
U.S. Treasury and
Agency obligations 3,000 2,977 1,000 1,001 1,996 1,999
--------------------------------------------------------------------
Total available for sale 3,000 2,977 1,000 1,001 1,996 1,999
--------------------------------------------------------------------
Total $ 6,463 $ 6,315 $ 2,977 $ 2,989 $ 3,296 $ 3,304
====================================================================
</TABLE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Company's and
the Bank's short-term investments and securities as of December 31, 1999.
<TABLE>
<CAPTION>
At December 31, 1999
---------------------------------------------------------------------------------------------------------
More than One More than Five More than Ten
One Year or Less Year to Five Years Years to Ten Years Years Total
---------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
---------------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federated Liquid Cash
Fund $ 1,466 5.26% $ -- --% $ -- --% $ -- --% $ 1,466 5.26%
=========================================================================================================
Securities:
Held to maturity:
Mortgage-Backed
Securities -- --% $ -- --% $ -- --% $ 2,937 6.88% $ 2,937 6.88%
Obligations of states
and political
subdivisions(1) 100 4.60 426 3.74 -- -- -- -- 526 3.90
Available for sale:
U.S. Treasury and
Agency obligations -- -- 2,977 6.56 -- -- -- -- 2,977 6.56
---------------------------------------------------------------------------------------------------------
Total securities $ 100 4.60% $ 3,403 6.21% $ -- --% $ 2,937 6.88% $ 6,440 6.49%
=========================================================================================================
</TABLE>
(1) The weighted average yields for obligations of states and political
subdivisions were not calculated on a tax equivalent basis.
Source of Funds
General. Deposits, loan repayments and prepayments, proceeds from sales of
loans, cash flows generated from operations and FHLB advances are the primary
sources of the Bank's funds for use in lending, investing and for other
general purposes.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. For the fiscal year ended December 31, 1999,
average certificates of deposit were $75.2 million and were 61.6% of total
average deposits of $122.2 million. Average deposits were $116.8 million for
the year ended December 31, 1998. The flow of deposits is influenced
significantly by general economic conditions, changes in money market rates,
prevailing interest rates and competition. The Bank's deposits are obtained
predominately from the areas in which its branch offices are located. The
Bank relies primarily on customer service and long-standing relationships with
customers to attract and retain these deposits; however, market interest rates
and rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain deposits. From time to time, the Bank
solicits certificate accounts in excess of $100,000.
The Bank's current deposit products include savings, demand deposits, NOW
accounts, money market and certificate of deposit accounts ranging in terms
from thirty days to eight years. Included in the Bank's certificate of
deposit accounts are certificates of deposit with balances in excess of
$100,000, and Individual Retirement Accounts ("IRAs").
Deposits are obtained primarily from residents of Champaign County,
Illinois. The Bank seeks to attract deposit accounts by offering a variety
of products, competitive rates and convenient locations and service hours.
The Bank uses traditional methods of advertising to attract new customers and
deposits, including radio and print media advertising. The Bank does not
generally advertise outside of its market area or utilize the services of
deposit brokers. Management believes that an insignificant number of deposit
accounts are held by nonresidents of the Bank's primary market area.
The Bank sets interest rates on its deposits on a weekly basis, based
upon a number of factors including: the previous week's deposit flow; a
current survey of a selected group of competitors' rates for similar
products; external data which may influence interest rates; investment
opportunities and loan demand; and scheduled maturities.
At December 31, 1999, the Bank had $10.6 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
Amount Weighted
Maturity Period (in thousands) Average Rate
---------------- ------- ------------
Three months or less $ 3,709 4.94%
Over three through six months 777 5.07%
Over six months through 12 months 2,816 5.56%
Over 12 months 3,346 6.08%
-------
Total $ 10,648 5.47%
========================
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category presented.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
---------------------------------------------------------------------------------------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total Weighted
Average Average Average Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits Rate
------- --------- -------- -------- --------- -------- ------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Money market deposits $ 8,783 7.19% 3.03% $ 7,577 6.49% 2.92% $ 7,199 6.70% 2.47%
Passbook deposits 15,141 12.40 2.01 14,912 12.76 2.00 15,116 14.05 2.00
NOW and other demand deposits 15,432 12.64 1.49 14,259 12.21 1.55 14,060 13.07 1.73
Non-interest bearing deposits 7,552 6.18 0.00 6,591 5.64 0.00 4,788 4.45 0.00
------- ------ ------ ------ ------- ------
Total 46,908 38.41 1.71% 43,339 37.10 1.76% 41,163 38.27 1.76%
------- ------ ==== ------ ------ ==== ------- ------ ====
Certificates accounts
Three months or less 347 .28 3.55% 218 .19 3.93% 198 .19 3.46%
Over three through six months 20,260 16.59 4.93 17,637 15.10 5.38 14,048 13.06 5.31
Over six through 12 months 13,280 10.87 4.94 13,193 11.29 5.41 14,332 13.33 5.49
Over one to three years 28,589 23.41 5.54 31,670 27.11 5.88 28,719 26.70 5.92
Over three to five years 7,176 5.88 6.04 5,496 4.71 6.18 5,209 4.84 5.90
Over five to ten years 5,572 4.56 6.68 5,271 4.50 6.75 3,886 3.61 6.83
------- ------ ------- ------ ------- ------
Total certificates 75,224 61.59 5.39% 73,485 62.90 5.74% 66,392 61.73 5.72%
------- ------ ==== ------- ------ ==== ------- ------ ====
Total average deposits $122,132 100.00% $116,824 100.00% $107,555 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
The following table presents, by various categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1999.
<TABLE>
<CAPTION>
Period to Maturity from December 31, 1999
------------------------------------------------------------
At At At
Less than One to Two to Three to Over Four Dec 31, Dec 31, Dec 31,
One Year Two Years Three Years Four Years Years 1999 1998 1997
--------- --------- ----------- ---------- --------- ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Certificate accounts:
0 to 4.00% $ 303 $ -- $ -- $ -- $ -- $ 303 $ 322 $ 156
4.01% to 5.00% 24,317 2,851 453 -- -- 27,621 13,613 1,730
5.01% to 6.00% 18,901 3,848 2,297 1,682 327 27,055 46,757 46,685
6.01% to 7.00% 2,758 10,118 87 1,202 5,089 19,254 14,800 21,748
7.01% to 8.00% -- -- -- -- 100 100 100 142
------------------------------------------------------------------------------------------
Total $46,279 $16,817 $ 2,837 $ 2,884 $ 5,516 $74,333 $75,592 $70,461
==========================================================================================
</TABLE>
At December 31, 1999, the Bank had $8.0 million in advances from the FHLB
and had no other borrowings. The Bank may obtain advances from the FHLB as
part of its operating strategy. The maximum amount that the FHLB will advance
to member institutions, including the Bank, fluctuates from time to time in
accordance with the policies of the OTS and the FHLB. FHLB advances at
December 31, 1999 was comprised of three advances: $2.00 million at 5.31%
maturing in 2000, $5.00 million at 4.30% maturing in 2008, and $1.00 million at
5.50% maturing in 2004. The $5.00 million advance is callable by the FHLB
beginning in 2001 and the $1.00 million advance is callable by the FHLB
beginning in October, 2000.
At December 31, 1998, the Company had $2.0 million in short-term borrowings
which was comprised of a loan sold under a repurchase agreement. During 1999,
this short-term borrowing was repaid. The obligation was secured by a
multifamily residential mortgage loan and the rate on the agreement at December
31, 1998 was 6.0%.
The following table sets forth certain information regarding the Company's
and Bank's borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
At or for the Year At or for the Year At or for the Year
Ended December 31, Ended December 31, Ended December 31,
------------------- ------------------------- -------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Loans sold under repurchase agreement:
Average balance outstanding $ 1,422 $1,167 $ --
======= ====== ======
Maximum amount outstanding at any
month-end during the period $ 2,500 $2,000 $ --
======= ====== ======
Balance outstanding at end of period $ -- $2,000 $ --
======= ====== ======
Weighted average interest rate
during the period 6.19% 5.83% --%
======= ====== ======
Weighted average interest rate
at end of period --% 6.00% --%
======= ====== ======
FHLB advances:
Average balance outstanding $ 7,234 $1,776 $ --
======= ====== ======
Maximum amount outstanding at any
month-end during the period $ 8,000 $7,000 $ --
======= ====== ======
Balance outstanding at end of period $ 8,000 $7,000 $ --
======= ====== ======
Weighted average interest rate
during the period 4.69% 4.73% --%
======= ====== ======
Weighted average interest rate
at end of period 4.70% 4.59% --%
======= ====== ======
</TABLE>
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's competitors are the financial institutions
operating in its primary market area, many of which are significantly larger
and have greater financial resources than the Bank. The Bank's competition
for loans comes principally from commercial banks, savings and loan
associations, mortgage banking companies, credit unions and insurance
companies. Its most direct competition for deposits has historically come
from savings and loan associations and commercial banks. In addition, the Bank
faces increasing competition for deposits from nonbank institutions such as
brokerage firms and insurance companies in such areas as short-term money
market funds, corporate and government securities funds, mutual funds and
annuities. Competition may also increase as a result of the lifting of
restrictions on the interstate operations of financial institutions.
The Bank serves its market area with a variety of residential loan
products and other retail financial services. Management considers the
Bank's reputation for financial strength and competitive deposit and loan
products as its major competitive advantage in attracting and retaining
customers in its market area.
Personnel
As of December 31, 1999, the Company, including the Bank and PASC, had 57
full-time employees and 26 part-time employees. The employees are not
represented by a collective bargaining unit, and the Company considers its
relationship with its employees to be good.
INFORMATION REGARDING SUBSIDIARY ACTIVITIES
Description of Business
The Bank's wholly-owned subsidiary, PASC, is currently engaged on an
agency basis in brokerage services through a third-party broker dealer, Scout
Brokerage Services, Inc. and in the sale of tax-deferred annuity products,
primarily to customers of the Bank and members of the local community. In
September 1997, PASC formed the GTPS Insurance Agency ("Agency") to provide
insurance related products to customers. The Agency sells a variety of
insurance products to both individuals and businesses, including life, health,
automobile, property and casualty insurance. The revenue generated by PASC is
dependent upon maintaining relationships with the current insurance and
brokerage providers. As of December 31, 1999 and 1998, PASC had total assets
of $835,000 and $1,055,000, respectively. For the year ended December 31,
1999, PASC had total revenues of $777,000 which was 6.1% of total consolidated
revenues (prior to the elimination on a consolidated basis of inter-company
transactions) and net income of $73,000, which was 11.3% of total consolidated
net income. For the year ended December 31, 1998, PASC had total revenues of
$625,000 which was 5.0% of total consolidated revenues and net income of
$57,000, which was 6.7% of total consolidated net income.
Competition
PASC competes in the brokerage business primarily with local investment
brokerage offices, which are mainly branches of national firms, and with
several area banks that provide brokerage services. Competition for brokerage
services is based on quality of service, fees charged and knowledge of
investment products offered. The Agency mainly competes with several locally
owned insurance agencies and also with branches and agents of national
insurance companies. Competition for insurance business is based mainly on
quality of services, including handling of claims, premiums quoted and the
availability of a broad range of products from a variety of insurance
companies.
REGULATION AND SUPERVISION
General
As a savings and loan holding company, the Company is required by federal
law to file reports with, and otherwise comply with, the rules and regulations
of the Office of Thrift Supervision ("OTS"). The Bank is subject to extensive
regulation, examination and supervision by the OTS, as its primary federal
regulator, and the FDIC, as the deposit insurer. The Bank is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Savings Association Insurance Fund ("SAIF") managed
by the FDIC. The Bank must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other savings institutions. The OTS and/or the FDIC conduct
periodic examinations to test the Bank's safety and soundness and compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which an institution
can engage and is intended primarily for the protection of the insurance fund
and depositors. The regulatory structure also gives the regulatory
authorities extensive discretion in connection with their supervisory and
enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulatory
requirements and policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Bank and their operations.
Certain of the regulatory requirements applicable to the Bank and to the
Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings institutions and
their holding companies set forth in this Form 10-KSB does not purport to be a
complete description of such statutes and regulations and their effects on
the Bank and the Company.
Holding Company Regulation
The Company is a nondiversified unitary savings and loan holding company
within the meaning of federal law. Under prior law, a unitary savings and loan
holding company, such as the Company was not generally restricted as to the
types of business activities in which it may engage, provided that the Bank
continued to be a qualified thrift lender. See "Federal Savings Institution
Regulation - QTL Test." The Gramm-Leach-Bliley Act of 1999 provides that no
company may acquire control of a savings association after May 4, 1999 unless
it engages only in the financial activities permitted for financial holding
companies under the law or for multiple savings and loan holding companies as
described below. Further, the Gramm-Leach-Bliley Act specifies that existing
savings and loan holding companies may only engage in such activities. The
Gramm-Leach-Bliley Act, however, grandfathered the unrestricted authority for
activities with respect to unitary savings and loan holding companies existing
prior to May 4, 1999, such as the Company, so long as the Bank continues to
comply with the QTL Test. Upon any non-supervisory acquisition by the Company
of another savings institution or savings bank that meets the qualified thrift
lender test and is deemed to be a savings institution by the OTS, the Company
would become a multiple savings and loan holding company (if the acquired
institution is held as a separate subsidiary) and would generally be limited to
activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to the prior approval of the OTS, and certain
activities authorized by OTS regulation.
A savings and loan holding company is prohibited from, directly or
indirectly, acquiring more than 5% of the voting stock of another savings
institution or savings and loan holding company, without prior written approval
of the OTS and from acquiring or retaining control of a depository institution
that is not insured by the FDIC. In evaluating applications by holding
companies to acquire savings institutions, the OTS considers the financial and
managerial resources and future prospects of the company and institution
involved, the effect of the acquisition on the risk to the deposit insurance
funds, the convenience and needs of the community and competitive factors.
The OTS may not approve any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, subject to two exceptions: (i) the approval of interstate
supervisory acquisitions by savings and loan holding companies and (ii) the
acquisition of a savings institution in another state if the laws of the state
of the target savings institution specifically permit such acquisitions. The
states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
Although savings and loan holding companies are not subject to specific
capital requirements or specific restrictions on the payment of dividends or
other capital distributions, federal regulations do prescribe such
restrictions on subsidiary savings institutions as described below. The Bank
must notify the OTS 30 days before declaring any dividend to the Company. In
addition, the financial impact of a holding company on its subsidiary
institution is a matter that is evaluated by the OTS and the agency has
authority to order cessation of activities or divestiture of subsidiaries
deemed to pose a threat to the safety and soundness of the institution.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by federal law and regulations. These laws and regulations delineate
the nature and extent of the activities in which federal associations may
engage. In particular, many types of lending authority for federal
association, e.g. commercial, non-residential real property loans and consumer
loans, are limited to a specified percentage of the institution's capital or
assets.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three minimum capital standards: a 1.5% tangible
capital ratio, a 3% leverage ratio and an 8% risk-based capital ratio. In
addition, the prompt corrective action standards discussed below also
establish, in effect, a minimum 2% tangible capital standard, a 4%
leverage ratio (3% for institutions receiving the highest rating on the CAMEL
financial institution rating system), and, together with the risk-based
capital standard itself, a 4% Tier I risk-based capital standard. The OTS
regulations also require that, in meeting the tangible, leverage and
risk-based capital standards, institutions must generally deduct investments
in and loans to subsidiaries engaged in activities as principal that are not
permissible for a national bank.
The risk-based capital standard for savings institutions requires the
maintenance of Tier I (core) and total capital (which is defined as core
capital and supplementary capital) to risk-weighted assets of at least 4% and
8%, respectively. In determining the amount of risk-weighted assets, all
assets, including certain off-balance sheet assets, are multiplied by a
risk-weight factor of 0% to 100%, assigned by the OTS capital regulation based
on the risks believed inherent in the type of asset. Core (Tier 1) capital is
defined as common stockholders' equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus, and minority
interests in equity accounts of consolidated subsidiaries less intangibles
other than certain mortgage servicing rights and credit card relationships.
The components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to
45% of unrealized gains on available-for-sale equity securities with readily
determinable fair values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core capital.
The capital regulations also incorporate an interest rate risk component.
Savings institutions with "above normal" interest rate risk exposure are
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. From the present time, the OTS has deferred
implementation of the interest rate risk component. At December 31, 1999 the
Bank met each of its capital requirements.
The following table presents the Bank's capital position at December 31,
1999.
Capital
Excess --------------------
Actual Required (Deficiency) Actual Required
--------------------------------------------------------
(in thousands)
Tangible $ 9,775 $ 2,156 $ 7,603 6.82% 1.50%
Core
(Leverage) 9,775 4,345 5,430 6.82% 3.00%
Risk-based 10,420 6,863 3,557 12.15% 8.00%
Prompt Corrective Regulatory Action. The OTS is required to take certain
supervisory actions against undercapitalized institutions, the severity of
which depends upon the institution's degree of undercapitalization.
Generally, a savings institution that has a ratio of total capital to risk
weighted assets of less than 8%, a ratio of Tier 1 (core) capital to risk-
weighted assets of less than 4% or a ratio of core capital to total assets of
less than 4% (3% or less for institutions with the highest examination rating)
is considered to be "undercapitalized." A savings institution that has a
total risk-based capital ratio less than 6%, a Tier 1 capital ratio of less
than 3% or a leverage ratio that is less than 3% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the OTS is required to
appoint a receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital restoration
plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restriction on growth, capital distributions and
expansion. The OTS could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. Deposits of the Bank are presently insured
by the SAIF. The FDIC maintains a risk-based assessment system by which
institutions are assigned to one of three categories based on their
capitalization and one of three subcategories based on examination ratings and
other supervisory information. An institution's assessment rate depends upon
the categories to which it is assigned. Assessment rates for SAIF member
institutions are determined semiannually by the FDIC and currently range from
zero basis points for the healthiest institutions to 27 basis points for the
riskiest.
In addition to the assessment for deposit insurance, institutions are
required to make payments on bonds issued in the late 1980s by the Financing
Corporation ("FICO") to recapitalize the predecessor to the SAIF. During 1999,
FICO payments for SAIF members approximated 6.1 basis points, while Bank
Insurance Fund ("BIF") members paid 1.2 basis points. By law, there is equal
sharing of FICO payments between SAIF and BIF members beginning on January 1,
2000.
The Bank's assessment rate for fiscal 1999 was 6.10 basis points and the
premium paid for this period was $71,000. The FDIC has authority to increase
insurance assessments. A significant increase in SAIF insurance premiums
would likely have an adverse effect on the operating expenses and results of
operations of the Bank. Management cannot predict what insurance assessment
rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that the
institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC or the OTS. The
management of the Bank does not know of any practice, condition or violation
that might lead to termination of deposit insurance.
Thrift Rechartering Legislation. Legislation enacted in 1996 provided
that the BIF and SAIF were to have merged on January 1, 1999 if there were no
more savings associations as of that date. Various proposals to eliminate the
federal savings association charter, create a uniform financial institutions
charter, abolish the OTS and restrict savings and loan holding company
activities have been introduced in Congress. The Bank is unable
to predict whether such legislation will be enacted or the extent to which
the legislation would restrict or disrupt its operations.
Loans to One Borrower. Federal law provides that savings institutions are
generally subject to the limits on loans to one borrower applicable to
national banks. Generally, savings institutions may not make a loan or extend
credit to a single or related group of borrowers in excess of 15% of its
unimpaired capital and surplus. An additional amount may be lent, equal to
10% of unimpaired capital and surplus, if secured by specified
readily-marketable collateral. At December 31, 1999, the Bank's limit on
loans to one borrower was $1.6 million, and the Bank's largest aggregate
outstanding balance of loans to one borrower was $3.5 million. At the time
this loan was originated, the Bank's limit on loans to one borrower exceeded
the original balance of the loan.
QTL Test. The HOLA requires savings institutions to meet a QTL test.
Under the test, a savings association is required to either qualify as a
"domestic building and loan association" under the Internal Revenue Code or
maintain at least 65% of its "portfolio assets" (total assets less: (i)
specified liquid assets up to 20% of total assets; (ii) intangibles, including
goodwill; and (iii) the value of property used to conduct business) in certain
"qualified thrift investments" (primarily residential mortgages and related
investments, including certain mortgage-backed securities) in at least 9
months out of each 12 month period.
A savings institution that fails the QTL test is subject to certain
operating restrictions and may be required to convert to a bank charter. As
of December 31, 1999, the Bank maintained 83.4% of its portfolio assets in
qualified thrift investments and, therefore, met the QTL test. Recent
legislation has expanded the extent to which education loans, credit card
loans and small business loans may be considered "qualified thrift
investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, including cash
dividends, payments to repurchase its shares and payments to shareholders of
another institution in a cash-out merger. The rule effective in the first
quarter of 1999 established three tiers of institutions based primarily on an
institution's capital level. An institution that exceeded all capital
requirements before and after a proposed capital distribution ("Tier 1 Bank")
and had not been advised by the OTS that it was in need of more than normal
supervision, could, after prior notice but without obtaining approval of the
OTS, make capital distributions during the calendar year equal to the greater
of (i) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half the excess capital over its capital
requirements at the beginning of the calendar year or (ii) 75% of its net
income for the previous four quarters. Any additional capital distributions
required prior regulatory approval. Effective April 1, 1999, the OTS's capital
distribution regulation changed. Under the new regulation, an application to
and the prior approval of the OTS is required prior to any capital distribution
if the institution does not meet the criteria for "expedited treatment" of
applications under OTS regulations (i.e., generally, examination ratings in the
two top categories), the total capital distributions for the calendar year
exceed net income for that year plus the amount of retained net income for the
preceding two years, the institution would be undercapitalized following the
distribution or the distribution would otherwise be contrary to a statute,
regulation or agreement with OTS. If an application is not required, the
institution must still provide prior notice to OTS of the capital distribution
if, like the Bank, it is a subsidiary of a holding company. In the event the
Bank's capital fell below its regulatory requirements or the OTS notified it
that it was in need of more than normal supervision, the Bank's ability to make
capital distributions could be restricted. In addition, the OTS could prohibit
a proposed capital distribution by any institution, which would otherwise be
permitted by the regulation, if the OTS determines that such distribution would
constitute an unsafe or unsound practice.
Liquidity. The Bank is required to maintain an average daily balance of
specified liquid assets equal to a monthly average of not less than a
specified percentage of its net withdrawable deposit accounts plus short-term
borrowings. This liquidity requirement is currently 4%, but may be changed
from time to time by the OTS to any amount within the range of 4% to 10%.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's liquidity ratio for December 31, 1999 was 8.27%,
which exceeded the applicable requirements. The Bank has never been subject
to monetary penalties for failure to meet its liquidity requirements.
Assessments. Savings institutions are required to pay assessments to the
OTS to fund the agency's operations. The general assessments, paid on a
semi-annual basis, are computed upon the savings institution's total assets,
including consolidated subsidiaries, as reported in the Bank's latest
quarterly thrift financial report. The assessments paid by the Bank for the
fiscal year ended December 31, 1999 totaled $38,000.
Transactions with Related Parties. The Bank's authority to engage in
transactions with "affiliates" (e.g., any company that controls or is under
common control with an institution, including the Company and its non-savings
institution subsidiaries) is limited by federal law. The aggregate amount of
covered transactions with any individual affiliate is limited to 10% of the
savings institution's capital and surplus. The aggregate amount of covered
transactions with all affiliates is limited to 20% of the savings
institution's capital and surplus. Certain transactions with affiliates are
required to be secured by collateral in an amount and of a type described in
federal law. The purchase of low quality assets from affiliates is generally
prohibited. The transactions with affiliates must be on terms and under
circumstances, that are at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to
any affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of
any affiliate other than a subsidiary.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders ("insiders"), as well as entities such persons control, is
also governed by federal law. Such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and also
not involve more than the normal risk of repayment. Recent legislation
created an exception for loans made pursuant to a benefit or compensation
program that is widely available to all employees of the institution and does
not give preference to insiders over other employees. The law limits both the
individual and aggregate amount of loans the Bank may make to insiders based,
in part, on the Bank's capital position and requires certain board approval
procedures to be followed.
Enforcement. The OTS has primary enforcement responsibility over savings
institutions and has the authority to bring actions against the institution
and all institution-affiliated parties, including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate
in wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive
or cease and desist order to removal of officers and/or directors to
institution of receivership, conservatorship or termination of deposit
insurance. Civil penalties cover a wide range of violations and can amount to
$25,000 per day, or even $1 million per day in especially egregious cases. The
FDIC has the authority to recommend to the Director of the OTS that
enforcement action be taken with respect to a particular savings institution.
If action is not taken by the Director, the FDIC has authority to take such
action under certain circumstances. Federal law also establishes criminal
penalties for certain violations.
Standards for Safety and Soundness. The federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The Guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the OTS determines that a
savings institution fails to meet any standard prescribed by the guidelines,
the OTS may require the institution to submit an acceptable plan to achieve
compliance with the standard.
Federal Home Loan Bank System
The Bank is a member of the Federal Home Loan Bank System, which consists
of 12 regional Federal Home Loan Banks. The Federal Home Loan Bank provides a
central credit facility primarily for member institutions. The Bank, as a
member of the Federal Home Loan Bank, is required to acquire and hold shares of
capital stock in that Federal Home Loan Bank in an amount at least equal to
1.0% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the Federal Home Loan Bank, whichever is greater. The Bank
was in compliance with this requirement with an investment in Federal Home Loan
Bank stock at December 31, 1999 of $767,000.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent thrifts in the late 1980s and to contribute funds for
affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members. If dividends were reduced, or interest on future
Federal Home Loan Bank advances increased, The Bank's net interest income would
likely also be reduced. Recent legislation has changed the structure of the
Federal Home Loan Banks funding obligations for insolvent thrifts, revised the
capital structure of the Federal Home Loan Banks and implemented entirely
voluntary membership for Federal Home Loan Banks. Management cannot predict
the effect that these changes may have with respect to its Federal Home Loan
Bank membership.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The regulations generally
provide that reserves be maintained against aggregate transaction accounts as
follows: for accounts aggregating $44.3 million or less (subject to adjustment
by the Federal Reserve Board) the reserve requirement is 3%; and for accounts
aggregating greater than $44.3 million, the reserve requirement is $1.329
million plus 10% (subject to adjustment by the Federal Reserve Board between 8%
and 14%) against that portion of total transaction accounts in excess of
$44.3 million. The first $5.0 million of otherwise reservable balances
(subject to adjustments by the Federal Reserve Board) are exempted from the
reserve requirements. The Bank complies with the foregoing requirements.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank report their income on a calendar year,
consolidated basis and use the accrual method of accounting, and are subject
to federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to the Bank or the Company. Neither the Company or the Bank have
been audited by the IRS during the last seven years, which covered the tax
years 1993-99. For its 1999 taxable year, the Company and the Bank are
subject to a maximum federal income tax rate of 39%.
Bad Debt Reserves. For fiscal years beginning prior to December 31, 1995,
thrift institutions which qualified under certain definitional tests and
other conditions of the Internal Revenue Code of 1986 (the "Code") were
permitted to use certain favorable provisions to calculate their deductions
from taxable income for annual additions to their bad debt reserve. A
reserve could be established for bad debts on qualifying real property loans
(generally secured by interests in real property improved or to be improved)
under (i) the Percentage of Taxable Income Method (the "PTI Method") or (ii)
the Experience Method. The reserve for nonqualifying loans was computed
using the Experience Method.
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, repeals the reserve method of accounting for bad
debts for tax years beginning after 1995 and requires savings instituitions to
reacature (i.e., take into income) certain portions of their accumulated bad
debt reserves. Thrift institutions eligible to be treated as "small banks"
(assets of $500 million or less) are allowed to use the Experience Method
applicable to such institutions, while thrift institutions that are treated as
large banks (assets exceeding $500 million) are required to use only the
specific charge-off method. Thus, the PTI Method of accounting for bad debts
is no longer available for any financial institution.
A thrift institution required to change its method of computing reserves
for bad debts will treat such change as a change in method of accounting,
initiated by the taxpayer, and having been made with the consent of the IRS.
Any Section 481(a) adjustment required to be taken into income with respect
to such change generally will be taken into income ratably over a six-taxable
year period, beginning with the first taxable year beginning after 1995,
subject to a 2-year suspension if the "residential loan requirement" is
satisfied.
Under the residential loan requirement provision, the recapture required
by the 1996 Act will be suspended for each of two successive taxable years,
beginning with the Bank's 1996 taxable year, in which the Bank originates a
minimum of certain residential loans based upon the average of the principal
amounts of such loans made by the Bank during its six taxable years preceding
its current taxable year.
The Bank is required to recapture (i.e., take into income) over a six year
period the excess of the balance of its tax bad debt reserves as of December
31, 1995, other than its supplemental reserve for losses on loans over the
balance of such reserves as of September 30, 1988. As a result of such
recapture, the Bank incurred an additional tax liability of approximately
$125,000 which was taken into income beginning in 1998 over a six year
period.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and
then from the Bank's supplemental reserve for losses on loans, to the extent
thereof, and an amount based on the amount distributed (but not in excess of
the amount of such reserves) will be included in the Bank's income. Non-
dividend distributions include distributions in excess of the Bank's current
and accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or
accumulated earnings and profits will not be so included in the Bank's
income.
The amount of additional taxable income triggered by a non-dividend is an
amount that, when reduced by the tax attributable to the income, is equal to
the amount of the distribution. Thus, if the Bank makes a non-dividend
distribution to the Company, approximately one and one-half times the amount
of such distribution (but not in excess of the amount of such reserves) would
be includable in income for federal income tax purposes, assuming a 35%
federal corporate income tax rate. The Bank does not intend to pay dividends
that would result in a recapture of any portion of its bad debt reserves.
SAIF Recapitalization Assessment. The Funds Act levied a 65.7-cent fee on
every $100 of thrift deposits held on March 31, 1995. For financial
statement purposes, this assessment was reported as an expense for the
quarter ended September 30, 1996. The Funds Act includes a provision which
states that the amount of any special assessment paid to capitalize SAIF
under this legislation is deductible under Section 162 of the Code in the
year of payment.
State and Local Taxation
State of Illinois. The Company files a consolidated Illinois income tax
return. For Illinois income tax purposes, the Company is taxed at an
effective rate equal to 7.2% of Illinois Taxable Income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject to
certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations). The exclusion of income on United State Treasury
obligations has the effect of reducing the Illinois taxable income of the
Bank.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporation income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the executive
officers of the Company and the Bank who are not directors or Named Executive
Officers as set forth in the Registrant's Proxy Statement for the Annual
Meeting of Shareholders to be held on April 25, 2000 at pages 5 through 9.
Age at
Name 12/31/99 Position
- ---------------- ---------- -------------------------------------
Jane F. Adams 42 Chief Financial Officer, Secretary,
Treasurer of Great American Bancorp,
Inc. since April, 1995. Senior Vice
President - Finance, Secretary,
Treasurer of Bank since February,
1997. Prior thereto, Vice President -
Finance, Secretary, Treasurer of Bank
since April, 1995. Secretary,
Treasurer of PASC since April, 1995.
Prior to April, 1995, Vice President
and Controller, Champaign National
Bank, Champaign, Illinois since 1986.
Melinda K. Waller 40 Senior Vice President - Deposit
Acquisitions of Bank since February
1997. Prior thereto Vice President -
Deposit Acquisitions of Bank since
1991.
Paul D. Wilson 48 Senior Vice President - Lending of
Bank since November, 1995. Prior
thereto, Vice President - Senior
Commercial Lending Officer, First of
America Bank, N.A., Champaign,
Illinois, since 1993.
Item 2. Description of Property.
The Bank conducts its business through an administrative office located
in Champaign and two branch offices. The Company believes that the Bank's
current facilities are adequate to meet the present and immediately foresee
able needs of the Bank and the Company. The following table sets forth
certain information relating to the Bank's administrative and branch offices
<TABLE>
<CAPTION>
Net Book Value
of Property or
Original Leasehold
Leased Date Improvements at
or Leased or Date of Lease December 31,
Location Owned Acquired Expiration 1999
------- --------- ------------- ----------------
<S> <C> <C> <C> <C>
Administrative and Branch Office:
1311 South Neil Street
Champaign, Illinois owned 04/12/93 -- $ 5,105,000
Branch Offices:
1912 West Springfield (1)
Champaign, Illinois leased 12/01/79 12/01/04 182,000
301 West Springfield
Urbana, Illinois owned 01/27/80 -- 767,000
-----------
Total $ 6,054,000
===========
</TABLE>
- ---------------
(1) The Bank has the option to extend the lease term for three consecutive
ten-year periods.
The Bank presently owns electronic data processing equipment, consisting
of personal computers, printers, and item processing equipment with an
approximate net book value of $377,000. The Bank does not provide data
processing services for other financial institutions. In May 1998, the Bank
installed an area network and in October 1998, the Bank converted its primary
computer application to an in-house system. The Bank previously operated its
main banking system through a third party service bureau.
Item 3. Legal Proceedings.
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Company's and the Bank's financial condition or results of
operations.
Item 4. Submission of Matters to a Vote of Security Holders.
During the quarter ended December 31, 1999, no matters were submitted to a
vote of security holders through a solicitation of proxies or otherwise.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Information relating to the market for Registrant's common stock and
related stockholder matters appears under "Shareholder Information" in the
1999 Annual Report to Stockholders on pages 51 through 52 and is incorporated
herein by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The above captioned information appears under the caption "Management's
Discussion and Analysis in the 1999 Annual Report to Stockholders on pages 2
to 23 and is incorporated herein by reference.
Item 7. Financial Statements
The Consolidated Financial Statements of Great American Bancorp, Inc. and
its subsidiary as of December 31, 1999 and 1998, together with the report of
Olive LLP appears in the 1999 Annual Report to Stockholders on pages 24 to 50
and is incorporated herein by reference.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
The information relating to directors and executive officers of the
Registrant is incorporated herein by reference to the Registrant's Proxy
Statement for the Annual Meeting of Stockholders to be held on April 25, 2000
at pages 5 through 8, which will be filed within 120 days of the Registrant's
fiscal year end.
Item 10. Executive Compensation
The information relating to executive and director compensation is
incorporated herein by reference to the Registrant's Proxy Statement for the
Annual Meeting of Stockholders to be held on April 25, 2000 at pages 8
through 11, which will be filed within 120 days of the Registrant's fiscal
year end.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The information relating to security ownership of certain beneficial
owners and management is incorporated herein by reference to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held on April
25, 2000 at pages 3 through 4, which will be filed within 120 days of the
Registrant's fiscal year end.
Item 12. Certain Relationships and Related Transactions
The information relating to certain relationships and related transactions
is incorporated herein by reference to the Registrant's Proxy Statement for
the Annual Meeting of Stockholders to be held on April 25, 2000 at page 11,
which will be filed within 120 days of the Registrant's fiscal year end.
Item 13. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
(1) Financial Statements
Consolidated Financial Statements of the Company are incorporated
by reference to the following indicated pages of the 1999 Annual
Report to Stockholders.
Independent Auditor's Report . . . . . . . . . . . . . . . . . .24
Consolidated Balance Sheet as of
December 31, 1999 and 1998. . . . . . . . . . . . . . . . . . . 25
Consolidated Statement of Income for the year
ended December 31, 1999 and 1998 . . . . . . . . . . . . . . . 26
Consolidated Statement of Comprehensive Income
for the year ended December 31, 1999 and 1998 . . . . . . . . . 27
Consolidated Statement of Stockholders' Equity for
the year ended December 31, 1999 and 1998 . . . . . . . . . . . 28
Consolidated Statement of Cash Flows for the year
ended December 31, 1999 and 1998. . . . . . . . . . . . . . . . 29
Notes to Consolidated Financial Statements . . . . . . . . .30-50
The remaining information appearing in the 1999 Annual Report to
Stockholders is not deemed to be filed as part of this report,
except as expressly provided herein.
(2) Schedules
All schedules are omitted because they are not required or
applicable, or the required information is shown in the
consolidated financial statements or the notes thereto.
(3) Exhibits
The following exhibits are filed as part of this report:
3.1 Certificate of Incorporation of Great American Bancorp,
Inc.*
3.2 Bylaws of Great American Bancorp, Inc.*
4.0 Stock Certificate of Great American Bancorp, Inc.*
10.1 First Federal Savings Bank of Champaign-Urbana Employee
Stock Ownership Plan*
10.2 Form of Employment Agreement between First Federal Savings
Bank of Champaign-Urbana and George R. Rouse*
10.3 Form of Employment Agreement between Great American Bancorp,
Inc. and George R. Rouse*
10.4 Form of Change of Control Agreements between First Federal
Savings Bank of Champaign-Urbana and Jane F. Adams, Dale
Pelg and Melinda Waller.*
10.5 Great American Bancorp, Inc. 1995 Incentive Plan**
10.6 Great American Bancorp, Inc. 1995 Incentive Plan***
(as amended and restated as of January 13, 1997)
11.0 Computation of earnings per share (filed herewith)
13.0 1999 Annual Report to Stockholders (only portions
incorporated by reference filed herewith)
21.0 Subsidiary information is incorporated herein by reference
to "Part I - Subsidiaries"
23.0 Consent of Independent Accountants
27.0 Financial Data Schedule for fiscal year ended December 31,
1999.
__________________
* Incorporated herein by reference into this document from the
Exhibits to Form S-1, Registration Statement, as amended,
filed on March 24, 1995, Registration No. 33-90614.
** Incorporated herein by reference into this document from the
Registrant's Proxy Statement for the Annual Meeting of
Stockholders held on February 14, 1997 which was filed on
January 11, 1997 at Exhibit A.
*** Incorporated herein by reference into this document from the
Registrant's Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GREAT AMERICAN BANCORP, INC.
Date: March 28, 2000 /s/ George R. Rouse
----------------------- -------------------------------
George R. Rouse
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Date: March 28, 2000 /s/ George R. Rouse
----------------------- -------------------------------
George R. Rouse
President, Chief Executive
Officer and Director
Date:
----------------------- -------------------------------
Morgan C. Powell
Chairman of the Board
of Directors
Date: March 29, 2000 /s/ Clinton C. Atkins
----------------------- -------------------------------
Clinton C. Atkins, Director
Date: March 29, 2000 /s/ Ronald Kiddoo
----------------------- ------------------------
Ronald Kiddoo, Director
Date: March 28, 2000 /s/ Jack B. Troxell
----------------------- -------------------------------
Jack B. Troxell, Director
Date: March 28, 2000 /s/ Jane F. Adams
----------------------- -------------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
(Principal Senior Accounting
and Financial Officer)
Exhibit 11.0 Computation of Earnings Per Share
Earnings per share
Earnings per share (EPS) were computed as follows
(dollar amounts in thousands except share data):
Year Ended December 31, 1999
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 644 1,207,068 $ 0.53
Effect of Dilutive Securities
Stock options 237
Unearned incentive plan shares 28,940
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 644 1,236,245 $ 0.52
===============================
Period Ended December 31, 1998
-------------------------------
Weighted
Average Per-Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 848 1,396,800 $ 0.61
Effect of Dilutive Securities
Stock options 51,114
Unearned incentive plan shares 40,465
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 848 1,488,379 $ 0.57
===============================
Exhibit 13.0 Annual Report to Shareholders
GREAT AMERICAN BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
(Table dollar amounts in thousands, except per share data)
Great American Bancorp, Inc. (the "Company") is based in east central
Illinois and is the parent company of First Federal Savings Bank of
Champaign-Urbana (the "Bank"). The Company was organized in 1995 for the
purpose of acquiring all of the capital stock of the Bank upon the Bank's
conversion from the mutual to the stock form of organization. In 1995, the
Company sold 2,052,750 shares of common stock in an initial public offering
at $10 per share. The Company purchased 100% of the outstanding capital
stock of the Bank using 50% of the $19.36 million in net proceeds generated
from the initial offering.
The Company originates loans and also purchases loans from the Bank, but
otherwise conducts no significant business except for through the Bank. In
addition to traditional banking services, the Bank, through its subsidiary
Park Avenue Service Corporation ("PASC"), provides securities brokerage
services through a third-party broker-dealer, Scout Brokerage Services, Inc.,
and also engages in the sale of tax deferred annuities, and through the GTPS
Insurance Agency ("Agency") provides insurance related products to customers.
The Agency sells a variety of insurance products including life, health,
automobile, property and casualty insurance. Refer to Note 22 - "Business
Industry Segments" of the Notes to the Consolidated Financial Statements for
financial information relating to the Company's industry segments, including
banking services and insurance/brokerage services. All references to the
Company include the Bank and PASC, unless otherwise indicated.
Results of Operations
General
The Company recorded net income of $644,000 in 1999 which was $204,000, or
24.1%, lower than the $848,000 reported for 1998. Basic earnings per share
declined $0.08, or 13.1%, from $0.61 in 1998 to $0.53 in 1999 and diluted
earnings per share decreased $0.05, or 8.8%, from $0.57 per share in 1998 to
$0.52 in 1999. The return on average assets was 0.41% for 1999 compared to
0.57% for 1998 and the return on average equity was 2.86% in 1999 compared to
3.28% for 1998.
Earnings were lower in 1999 due to a reduction in net interest income of
$170,000, an increase in the provision for loan losses of $117,000, and an
increase in noninterest expenses of $350,000, offset by noninterest income
which was $230,000 higher in 1999 and income tax expense which was $200,000
lower in 1999.
Net income decreased in 1999 in large part due to a commercial loan totaling
$1.36 million which became nonperforming during the fourth quarter of 1998.
This loan was placed in non-accrual status in the first quarter of 1999.
Total interest income recorded on this loan in 1999 was $8,000 compared to
$96,000 in 1998, a decrease of $88,000. During 1999, the Company increased
the monthly provision to the allowance for loan losses as a result of this
loan, expensing $573,000 in total for 1999 compared to $456,000 in 1998, a
difference of $117,000. The Company also incurred legal fees totaling
$133,000 in 1999 related to this loan compared to $15,000 in 1998. The total
reduction in pretax income associated with this nonperforming loan was
$323,000 in 1999, which represents approximately 81% of the total decrease in
income before income tax. Total income before income tax for 1999 was $1.11
million, down $400,000, or 26.4%, from the $1.51 million recorded in 1998.
In January 1999, the borrower involved in this nonperforming loan filed
Chapter 11, or business reorganization, bankruptcy. In the second quarter of
1999, the reorganization plan changed to a liquidation of assets arrangement.
The loan is secured by business assets and guaranteed by the owner. During
1999, the Company collected $185,000 in principal payments on this loan and
in December 1999, the Company charged-off $800,000. The remaining balance of
$375,000 continues as nonperforming at December 31, 1999. Repayment of the
remaining balance is expected from the sale of business assets of the
borrower and personal assets of the guarantor.
Net income from banking services was $571,000 for the year ended December 31,
1999, a decrease of $220,000, or 27.8%, from the $791,000 recorded for the
year ended December 31, 1998. Net income from banking services declined due
to a reduction in net interest income of $170,000, an increase in the
provision for loan losses of $117,000, and an increase in noninterest expense
of $245,000, mainly equipment expenses and attorneys fees. Noninterest
income increased $91,000 in 1999, primarily services charges on deposit
accounts. Income tax expense related to banking services was $218,000 lower
in 1999.
Net income from insurance/brokerage services increased $16,000, from $57,000
in 1998 to $73,000 in 1999. Total commission income increased $152,000, or
24.3% from $625,000 in 1998 to $777,000 in 1999. Noninterest expenses
related to insurance/brokerage services increased $119,000, from $530,000 in
1998 to $649,000 in 1999, primarily salaries and benefits expense. Income
tax expense associated with insurance/brokerage services increased $17,000 in
1999.
Net Interest Income
Net interest income was $5.71 million in 1999, a decrease of $170,000, or
2.9% from the $5.88 million recorded for 1998.
Interest Income - Interest income was $11.02 million in both 1999 and 1998.
Interest income from loans receivable totaled $10.16 million in 1999, a
slight decrease from the $10.18 million reported for 1998. Interest income
from investment securities increased $57,000, from $233,000 in 1998 to
$290,000 in 1999. Interest income from deposits with financial institutions
and other institutions, which includes interest generated from interest-
bearing demand deposits, interest on balances maintained in the Federated
Liquid Cash Fund and dividends received on Federal Home Loan Bank ("FHLB")
stock decreased from $602,000 in 1998 to $578,000 in 1999.
Interest income from loans receivable decreased in 1999 primarily due to the
$1.36 million commercial loan becoming nonperforming during the fourth
quarter of 1998. Total interest income recorded on this loan in 1999 was
$8,000 compared to $96,000 in 1998, a decrease of $88,000. Without this
nonperforming loan, interest income from loans receivable would have
increased due to growth in average total loans. The average balance of total
loans increased from $119.49 million in 1998 to $124.90 million in 1999, an
increase of $5.41 million, or 4.5%. The following schedule compares average
total loan balances by major categories:
Average Average
Balance Balance Percentage
1999 1998 Change Change
- ----------------------------------------------------------------------------
One-to four-family
mortgage loans $ 68,449 $ 61,830 $ 6,619 10.7%
Multi-family mortgage loans 18,482 17,250 1,232 7.1
Commercial mortgage loans 16,064 14,051 2,013 14.3
Construction loans 2,957 3,001 (44) 1.5
- ----------------------------------------------------------------------------
Total real estate loans 105,952 96,132 9,820 10.2
Commercial loans 8,890 12,089 (3,199) (26.5)
Consumer loans 11,237 11,827 (590) (5.0)
- ----------------------------------------------------------------------------
Total loans 126,079 120,048 6,031 5.0
Allowance for loan losses (1,181) (562) (619) 110.1
- ----------------------------------------------------------------------------
Total loans, net $124,898 $119,486 $ 5,412 4.5%
============================================================================
The growth in average total real estate loans occurred mainly as a result of
declining mortgage interest rates during the latter half of 1998, with stable
to slowly rising interest rates during 1999. Average total commercial loans
declined due to the payoff of one large loan totaling $2.42 million in
November, 1998, payoffs of several smaller loans during 1999 and the charge-
off totaling $800,000 in December, 1999. Average total consumer loans
declined due to account payoffs exceeding loan originations during 1999.
Interest income earned on deposits with financial institutions and other
institutions, which includes Federated Liquid Cash Fund interest, declined in
1999 mainly due to a decrease in short-term interest rates during 1998 which
remained stable for most of 1999. The average total balance of interest-
bearing demand deposits increased $760,000, from $4.18 million in 1998 to
$4.94 million in 1999. The interest-bearing demand deposits maintained by
the Company during 1999 and 1998 were chiefly deposits used for short-term
cash needs and were primarily maintained at the FHLB. The Federated Liquid
Cash Fund is used for depositing funds that may be required in the short-
term. The average balances of the Federated Liquid Cash Fund was $7.37
million in 1999, $120,000 less than the $7.49 million maintained in 1998.
Average total investment securities were $3.95 million in 1999, an increase
of $760,000 from the average $3.19 million maintained during 1998. This
growth was the primary reason for the increase in interest income from
investment securities in 1999. The securities held during 1999 included
Federal agency and local municipal securities with maturities ranging from
two to three years and mortgage backed securities with maturities ranging
from twenty to thirty years. The securities held during 1998 included
primarily Federal agency and local municipal securities with maturities
ranging from two to three years.
The average yield on interest-earning assets decreased from 8.16% in 1998 to
7.77% in 1999, primarily due to a reduction in the yield on average loans
from 8.52% in 1998 to 8.13% in 1999. The reduction in the loan yield
resulted from declining interest rates during the latter half of 1998 which
then stabilized during the first half of 1999 before slowly rising in the
latter part of 1999. Also, the average total balances of commercial and
consumer loans declined in 1999, while average total one-to four-family,
multi-family, and commercial mortgage loans increased. Interest rates on
commercial and consumer loans typically are higher than rates on mortgage
loans.
Interest Expense - Interest expense increased from $5.14 million in 1998 to
$5.32 million in 1999, an increase of $180,000, or 3.5%, due mainly to higher
interest expense on interest-bearing liabilities other than deposits.
Interest expense on deposits declined $100,000, or 2.0%, from $4.96 million
in 1998 to $4.86 million in 1999. This decline was mainly due to a reduction
in the average rate on certificates of deposit, which dropped from 5.74% in
1998 to 5.39% in 1999. The offering rates on a majority of the Company's
certificates dropped during the latter half of 1998 and remained flat until
the Company began increasing rates during the fourth quarter of 1999. Also
in 1999, there was a shift out of the one to three year certificate category
to the three to six month category which tends to have lower offering rates.
The reduction in interest expense caused by lower certificates of deposit
rates was offset somewhat by growth in average total interest-bearing demand
deposits and certificates of deposit. The following schedule compares
average total deposit balances by major categories:
Average Average
Balance Balance Percentage
1999 1998 Change Change
- -----------------------------------------------------------------------------
Insured money market deposits $ 8,783 $ 7,577 $ 1,206 15.9%
Savings deposits 15,141 14,912 229 1.5
NOW and other demand deposits 15,432 14,259 1,173 8.2
- -----------------------------------------------------------------------------
Total interest-bearing
demand deposits 39,356 36,748 2,608 7.1
- -----------------------------------------------------------------------------
Certificates of deposit:
Three months or less 347 218 129 5.9
Over three through six months 20,260 17,637 2,623 14.9
Over six through twelve months 13,280 13,193 87 .7
Over one through three years 28,589 31,671 (3,082) (9.7)
Over three through five years 7,176 5,496 1,680 30.6
Over five through ten years 5,572 5,270 302 5.7
- -----------------------------------------------------------------------------
Total certificates of deposit 75,224 73,485 1,739 2.4
- -----------------------------------------------------------------------------
Total interest-bearing
deposits 114,580 110,233 4,347 3.9
Noninterest-bearing
demand deposits 7,552 6,591 961 14.6
- -----------------------------------------------------------------------------
Total deposits $122,132 $116,824 $ 5,308 4.5%
=============================================================================
The growth in average total interest-bearing demand deposits and certificates
of deposit reflects continuing management strategies implemented to maintain
and grow overall deposit levels. These strategies include promoting the
Company's Club Fed products and services. Club Fed customers enjoy higher
interest rates on IMMA accounts and both Club Fed IMMA and Club Fed Now
customers receive enhanced services for maintaining required minimum
balances. The average total balance of Club Fed IMMA deposits increased
$1.41 million during 1999, while average total Club Fed NOW accounts
increased $780,000. The Company also maintained competitive rates on
certificates of deposit during 1999 in order to preserve deposit levels and
attract new customers. Total average noninterest-bearing demand deposits
increased as a result of the Company implementing various marketing
strategies during the year to promote its free checking account, including
"shrink-wrapped" advertising on a city bus. The average total balance in the
free checking category increased from $1.07 million in 1998 to $2.08 million
in 1999, an increase of $1.01 million, or 94.4%.
Interest expense on interest-bearing liabilities other than deposits grew
$276,000, or 150.8%, from $183,000 in 1998 to $459,000 in 1999 due to
increased levels of borrowing during 1999. In June 1998, the Company sold
$2.0 million in loans to a related party under an agreement to repurchase in
order to meet short-term funding needs, primarily funds needed to repurchase
treasury stock. The Company did not repay these funds until August, 1999.
In September 1998, the Company borrowed $2.0 million in non-callable FHLB
advances which mature in 2000. The Company borrowed an additional $5.0
million in FHLB advances in October 1998 which mature in 2008, but are
callable quarterly by the FHLB beginning in 2001. In January 1999, the
Company sold an additional $500,000 in loans under agreements to repurchase,
which was repaid in July 1999. In October 1999, the Company borrowed an
additional $1.0 million from the FHLB, which matures in 2004, but is callable
quarterly by the FHLB beginning in October 2000. The Company was able to
borrow funds from the FHLB at rates lower than comparable certificate of
deposit rates.
The average cost of interest-bearing liabilities decreased from 4.52% in 1998
to 4.29% in 1999, due primarily to the decline in the average rate on
certificates of deposit. The average rate on IMMA deposits increased from
2.92% in 1998 to 3.03% in 1999 due to growth in the Club Fed IMMA category
which carries a higher rate of interest. The average rate on savings
deposits was relatively unchanged from 1998 to 1999. The average rate on NOW
and other demand deposits declined from 1.55% in 1998 to 1.49% in 1999 due to
the Company lowering the rate paid on these deposits in April 1998. The rate
on loans sold under repurchase agreements increased from 5.83% in 1998 to
6.19% in 1999, due mainly to the $2.0 million agreement renewing at higher
rates during 1999. This agreement renewed monthly.
Net interest income was $5.88 million 1998, an increase of $280,000, or 5%,
from the $5.60 million recorded for 1997. Interest income was $11.02 million
in 1998, $860,000, or 8.5%, higher than the $10.16 million for the year ended
December 31, 1997. The growth in interest income in 1998 was primarily due
to loan growth, offset by declines in the average balances of interest-
bearing demand deposits, the Federated Liquid Cash Fund and investment
securities. Interest expense increased from $4.55 million in 1997 to $5.14
million in 1998, an increase of $590,000, or 13.0%. Most of the increase in
interest expense is attributable to growth in interest-bearing deposits,
particularly certificates of deposit, and growth in borrowings. The Company
maintained no significant borrowing arrangements during 1997.
Average Balance Sheet - The following table presents the average balance
sheet for the Company for the years ended December 31, 1999, 1998 and 1997,
the interest on interest-earning assets and interest-bearing liabilities and
the related average yield or cost. The average balances are derived from
average daily balances. The yields or cost are calculated by dividing income
or expense by the average balance of assets or liabilities, respectively, for
the years shown except where noted otherwise. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Consolidated Average Balance Sheet
Period Ended
-------------------------------------------------------------------------------------
December 31, 1999 December 31, 1998 December 31, 1997
-------------------------- -------------------------- --------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
Interest-bearing demand deposits $ 4,941 $ 226 4.57% $ 4,179 $ 206 4.93% $ 7,380 $ 378 5.12%
Federated Liquid Cash Fund 7,368 352 4.78 7,486 396 5.29 10,018 534 5.33
Interest-bearing time deposits -- -- -- -- -- -- 855 48 5.61
Investment securities, net (1) 3,949 239 6.05 3,192 189 5.92 5,671 347 6.12
Loans, net (2) 124,898 10,157 8.13 119,486 10,183 8.52 102,568 8,811 8.59
FHLB stock 757 51 6.74 665 44 6.62 545 37 6.79
----------------------------------------------------------------------------------------
Total interest-earning assets 141,913 11,025 7.77% 135,008 11,018 8.16% 127,037 10,155 7.99%
Noninterest-earning assets 14,687 14,536 12,021
----------------------------------------------------------------------------------------
Total assets $ 156,600 $ 149,544 $ 139,058
========================================================================================
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Insured money market deposits $ 8,783 $ 266 3.03% $ 7,577 $ 221 2.92% $ 7,199 $ 178 2.47%
Savings deposits 15,141 304 2.01 14,912 298 2.00 15,116 303 2.00
NOW and other demand deposits 15,432 230 1.49 14,259 221 1.55 14,060 243 1.73
Certificates of deposit 75,224 4,056 5.39 73,485 4,218 5.74 66,392 3,794 5.72
----------------------------------------------------------------------------------------
Total deposits 114,580 4,856 4.24 110,233 4,958 4.50 102,767 4,518 4.40
Loans sold under repurchase
agreements 1,422 88 6.19 1,167 68 5.83 -- -- --
Federal Home Loan bank advances 7,234 339 4.69 1,776 84 4.73 -- -- --
Other interest-bearing
liabilities 570 32 5.61 513 31 6.04 469 33 7.04
----------------------------------------------------------------------------------------
Total interest-bearing
liabilities 123,806 5,315 4.29% 113,689 5,141 4.52% 103,236 4,551 4.41%
Noninterest-bearing liabilities 10,239 9,983 6,910
----------------------------------------------------------------------------------------
Total liabilities 134,045 123,672 110,146
Stockholders' equity 22,555 25,872 28,912
----------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 156,600 $ 149,544 $ 139,058
========================================================================================
Net interest rate spread (3) $ 5,710 3.48% $ 5,877 3.64% $ 5,604 3.59%
========================================================================================
Net interest margin (4) 4.02% 4.35% 4.41%
========================================================================================
Ratio of interest-earning assets to
interest-bearing liabilities 114.63% 118.76% 123.06%
========================================================================================
</TABLE
(1) Includes securities available for sale and unamortized discounts
and premiums. Municipal securities are not on a tax equivalent
basis.
(2) Amount is net of deferred loan fees, loan discounts and premiums,
loans in process, allowance for loan losses and nonperforming
loans.
(3) Net interest rate spread represents the difference between the
yield on average interest-earning assets and the cost of average
interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by
average interest-earning assets.
Rate/Volume Analysis - The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and expense during the periods indicated. Information is provided in
each category with respect to (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (change in rate multiplied by prior volume); and (iii) the
net change. The changes attributable to the combined impact of volume and
rate have been allocated proportionately to the changes due to volume and the
changes due to rate.
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
Compared to Compared to
Year Ended Year Ended
December 31, 1998 December 31,1997
-------------------------- ---------------------------
Increase Increase
(Decrease) (Decrease)
Due to Due to
-------------------------- ---------------------------
Volume Rate Net Volume Rate Net
-------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing demand deposits $ 36 $ (16) $ 20 $ (158) $ (14) $ (172)
Federated Liquid Cash Fund (6) (38) (44) (134) (4) (138)
Interest-bearing time deposits -- -- -- (24) (24) (48)
Investment securities, net 46 4 50 (147) (11) (158)
Loans, net 451 (477) (26) 1,442 (70) 1,372
FHLB stock 6 1 7 8 (1) 7
----------------------------------------------------------
Total interest-earning assets 550 (543) 7 647 216 863
----------------------------------------------------------
Interest-bearing liabilities:
Insured money market deposits 36 9 45 10 33 43
Savings deposits 5 1 6 (4) (1) (5)
NOW and other demand deposits 18 (9) 9 3 (25) (22)
Certificates of deposit 98 (260) (162) 407 17 424
Loans sold under repurchase
agreements, FHLB advances and
other interest-bearing liabilities 288 (12) 276 160 (10) 150
----------------------------------------------------------
Total interest-bearing
liabilities 443 (269) 174 470 120 590
----------------------------------------------------------
Net change in net interest
income $ 107 $ (274) $ (167) $ 177 $ 96 $ 273
==========================================================
</TABLE>
Provision for Loan Losses
The provision for loan losses for the year ended December 31, 1999 was
$573,000, compared to $456,000 for the year ended December 31, 1998. The
provision for both periods reflects management's analysis of the Company's
loan portfolio based on information which is currently available to it at
such time. In particular, management considers the level of non-performing
loans and potential problem loans. The higher provision for 1999 reflects an
increase in the monthly provision due to the $1.36 million commercial loan
becoming nonperforming during the fourth quarter of 1998. The provision for
1998 also included a $300,000 one-time additional provision recorded in the
fourth quarter of 1998 due to this loan. Total charge-offs for 1999 were
$801,000 compared to $36,000 in 1998. The 1999 charge-offs included $800,000
of the $1.36 million loan. The remaining $1,000 charge-off in 1999 and all
of the charge-offs in 1998 were consumer loans. While Company management
believes that the allowance for loan losses is sufficient based on
information currently available to it, no assurances can be made that future
events, conditions, or regulatory directives will not result in increased
provisions for loan losses or additions to the allowance for loan losses
which may adversely affect net income.
Noninterest Income
Noninterest income totaled $1.52 million in 1999, compared to $1.30 million
in 1998, an increase of $220,000, or 16.9%. Insurance sales commissions
and service charges on deposit accounts were both significantly higher in
1999, which accounted for the majority of the increase in noninterest income.
Insurance sales commissions were $625,000 in 1999 compared to $490,000 in
1998, an increase of $135,000, or 27.6%. The 1999 amount reflects an entire
year of commissions generated from the business acquired when the Agency
purchased the Cox, Lowry and Marsh Insurance Agency. This acquisition
occurred in March, 1998, therefore, commission income for 1998 reflects only
commission income related to this acquisition for approximately 10 months.
Service charges on deposit accounts increased $84,000, or 17.4%, from
$483,000 in 1998 to $567,000 in 1999, primarily returned check charges due
partly to growth in checking accounts during 1999 and partly because the
Company increased fees for returned checks in August, 1999. The growth in
checking accounts occurred primarily in NOW accounts, Club Fed NOW and Club
Fed IMMA accounts, and the Company's free checking product. The free
checking account also carries a higher per check returned fee than other
checking products. The Club Fed accounts are interest-bearing demand
accounts that include many enhanced services for customers that maintain
specified minimum balances. Club Fed IMMA accounts also earn a higher rate
of interest compared to other IMMA accounts.
Brokerage commissions increased from $135,000 in 1998 to $152,000 in 1999,
reflecting increased brokerage activities, primarily customers investing in
mutual funds and variable annuities.
Noninterest Expenses
Total noninterest expenses increased from $5.21 million in 1998 to $5.55
million in 1999, an increase of $340,000, or 6.5%. The majority of the
increase occurred in two categories: equipment expenses and legal and
professional fees.
Equipment expenses were $598,000 in 1999, an increase of $213,000, or 55.3%,
above the $385,000 recorded in 1998. During 1998, the Bank purchased
computers, printers and software for a network installed in May and in
October 1998, the Bank acquired the software for the Bank's conversion to a
new in-house main operating system. The Bank had previously operated its
main banking system through a third party service bureau. The additional
depreciation and maintenance expense during 1999 for equipment and software
related to the network and the new in-house system was approximately
$190,000. Additional equipment expenses in 1999 included depreciation and
maintenance for new insurance agency software installed in May 1998, new
general ledger software and optical storage software acquired in October
1998, printers purchased in February 1999, loan documentation software
purchased and installed in June 1999 and a new ATM machine purchased in
December 1999.
Legal and professional fees increased from $152,000 in 1998 to $292,000 in
1999, an increase of $140,000, or 92.1%. During 1999, the Company incurred
legal fees totaling $133,000 relating to the $1.36 million commercial loan
which became nonperforming during the fourth quarter of 1998.
Salaries and employee benefits totaled $2.91 million in 1999 and $2.89
million in 1998. The higher expense for 1999 primarily reflects normal
salary raises, increases in group health and dental insurance expense and the
accrual for post retirement benefits, offset by a reduction in the Employee
Stock Option Plan ("ESOP") expense. Total salaries were $1.96 million in
1999 compared to $1.85 million in 1998, a difference of $110,000, or 5.9%.
Besides normal salary increases, 1999 salaries also include an entire year of
expense related to the additional employees added when the Agency acquired
the Cox, Lowry, Marsh Agency in March 1998. Group health and dental
insurance expense was $33,000 higher in 1999, mainly due to an increase in
premium rates. Post retirement benefit expense was $11,000 higher in 1999
due also to the increase in health premiums and an increase in the associated
interest cost. ESOP expense totaled $322,000 in 1999, a decrease of
$146,000, or 31.2%, from the $468,000 recorded in 1998. ESOP expense was
lower in 1999 due to the decline in the average price of the Company's stock.
Data processing fees declined $27,000, or 20.0%, from $135,000 in 1998 to
$108,000 in 1999 due mainly to service bureau fees which were eliminated when
the Bank converted to its new in-house system in October 1998. Printing and
office supplies expense increased $27,000, or 10.6%, from $255,000 in 1998 to
$282,000 in 1999, due to normal supply needs. Printing and office supplies
expense, which also includes telephone and postage expense, was also higher
in 1999 due to the additional business and employees added when the Agency
acquired the Cox, Lowry, Marsh Agency. Marketing and advertising expenses
decreased $39,000, or 18.8%, from $208,000 in 1998 to $169,000 in 1999 due to
the cancellation of an independent advertising agency relationship in early
1999. The Company had been paying a monthly retainer to this agency. Other
miscellaneous expenses totaled $411,000 in 1999, an increase of $30,000, or
7.9%, above the $381,000 recorded in 1998. Approximately half of this
increase was related to a one-time forged check loss in 1999. Other
miscellaneous categories which were higher in 1999 include travel, meals and
entertainment, organizational dues, loan collateral repossession expenses,
and franchise taxes.
Income Tax Expense
Total income tax expense was $462,000 in 1999, compared to $663,000 in 1998.
The decrease is attributable to lower taxable income in 1998. The effective
tax rates for the years ended December 31, 1999 and 1998 were 41.8% and
43.9%. The effective tax rate was lower in 1999 due to a higher level of
state tax exempt interest income from qualified Federal agency securities.
Financial Condition
Total consolidated assets of the Company decreased from $157.17 million as of
December 31, 1998 to $154.31 million as of December 31, 1999, a decrease of
$2.86 million, or 1.8%. The decline in assets occurred primarily in cash and
cash equivalents, offset by increases in investment securities and loans.
Total assets associated with banking services decreased $2.56 million, from
$156.76 million at December 31, 1998 to $154.20 million at December 31, 1999,
mainly cash and cash equivalents which declined $11.81 million, offset by an
increase in investment securities of $3.46 million and an increase in loans
of $5.98 million. Total deposits related to banking services decreased
$173,000 and total borrowings decreased $1.0 million. Total assets connected
to insurance/brokerage services decreased from $1.06 million at December 31,
1998 to $835,000 at December 31, 1999, primarily premiums receivable and the
excess of purchase price over fair value of assets acquired. Total
liabilities related to insurance/brokerage services decreased $293,000 from
$556,000 at December 31, 1998 to $263,000 at December 31, 1999, mainly
premiums due insurance companies and contract payables.
Total cash and cash equivalents decreased $11.81 million, or 54.1%, from
$21.82 million at December 31, 1998 to $10.01 million at December 31, 1999.
The reduction in cash and cash equivalents during 1999 funded growth in
investment securities and loans, declines in deposits and total borrowings,
and the purchase of treasury stock.
Total investment securities increased $3.46 million, from $2.98 million at
December 31, 1998 to $6.44 million at December 31, 1999. During 1999, the
Company purchased $6.00 million in securities: $3.0 million in mortgage-
backed securities designated as held to maturity and $3.0 in callable Federal
agency securities classified as available for sale. Municipal securities
totaling $450,000 matured during 1999 and Federal agency securities totaling
$2.00 million were called during 1999, including $1.00 million designated as
available for sale. Principal repayments of mortgage-backed securities
totaled $66,000 during 1999. At December 31, 1999, the Company held $2.94
million of mortgage-backed securities with an average yield of 6.88%. The
final maturity for mortgage-backed securities totaling $1.97 million is in
2029, while the remaining $970,000 mature in 2019. The Company also held
$2.98 million of Federal agency securities with an average yield of 6.56%
which mature in different years from 2001 to 2003. The Company also held
$526,000 in municipal securities with an average yield of 3.91% which mature
in 2000 and 2001. The municipal securities are exempt from federal income
taxes.
Total net loans grew $5.98 million, or 4.9%, from $121.75 million at December
31, 1998 to $127.73 million at December 31,1999. The following schedule
shows the balances by loan category at December 31 of each year, along with
the change and percentage change:
Balance Balance
December 31, December 31, Percentage
1999 1998 Change Change
- -----------------------------------------------------------------------------
One-to four-family
mortgage loans $ 70,310 $ 66,694 $ 3,616 5.4%
Multi-family mortgage loans 18,492 16,956 1,536 9.1
Commercial mortgage loans 18,399 14,685 3,714 25.3
Construction loans 1,919 3,657 (1,738) (47.5)
- -----------------------------------------------------------------------------
Total real estate loans 109,120 101,992 7,128 7.0
Commercial loans 7,747 9,435 (1,688) (17.9)
Consumer loans 11,564 11,245 319 2.8
- -----------------------------------------------------------------------------
Total loans 128,431 122,672 5,759 4.7
Allowance for loan losses (703) (925) 222 24.0
- -----------------------------------------------------------------------------
Total loans, net $ 127,728 $ 121,747 $ 5,981 4.9%
=============================================================================
Favorable interest rates and a stable local economy were factors in the
growth of one-to four-family, multi-family, commercial mortgage and consumer
loans. Also, $1.02 million in constructions loans at December 31, 1998 were
refinanced as commercial mortgage loans during 1999. An additional $644,000
of construction loans at December 31, 1998 were refinanced as one-to four-
family mortgage loans in 1999. Commercial loans declined due to the $800,000
charge-off in the fourth quarter of 1999 and due to several smaller payoffs.
The allowance for loan losses decreased from $925,000 at December 31, 1998 to
$703,000 at December 31, 1999 due to the total provision recorded of
$573,000, offset by net charge-offs of $795,000. The ratios of the Company's
allowance for loan losses to total loans were .55% and .75% at December 31,
1999 and 1998, respectively. The ratios of the Company's allowance for loan
losses to total nonperforming loans were 150.2% and 62.8% at December 31,
1999 and 1998, respectively.
Company management and the Board of Directors perform ongoing reviews of the
loan portfolio in order to identify nonperforming loans and potential problem
loans and to evaluate the adequacy of the allowance for loan losses. In
performing its reviews, management classifies nonperforming and potential
problem loans as either substandard, doubtful, loss or watch loans. A loan
is considered substandard if it is inadequately protected by the current net
worth and paying capacity of the borrower or of the collateral pledged, if
any. Substandard loans include those characterized by the distinct
possibility that the Company will sustain some loss if the deficiencies are
not corrected. Loans classified as doubtful have all of the weaknesses
inherent in those classified as substandard with the added characteristic
that the weaknesses present make collection or liquidation in full, on the
basis of currently existing facts and conditions, highly questionable and
improbable. Loans classified as loss are those considered uncollectible and
of such little value that their continuance as loans without the
establishment of a specific loss reserve is not warranted. Loans which do
not currently expose the Company to sufficient risk to warrant classification
in one of the categories described above but possess weaknesses are
classified as watch. The total of internally classified loans equals the sum
of nonperforming loans, which are loans past due 90 days or more and
nonaccruing loans, and potential problem loans.
Total classified loans at December 31, 1999 and 1998 are summarized as
follows:
December 31 1999 1998
- ----------------------------------------------------------------------------
Watch $ 208 $ 324
Substandard 350 1,537
Doubtful 116 132
- ----------------------------------------------------------------------------
Total classified loans $ 674 $ 1,993
============================================================================
Nonperforming $ 468 $ 1,472
Potential problem loans 206 521
- ----------------------------------------------------------------------------
Total classified loans $ 674 $ 1,993
============================================================================
Impaired loans $ 537 $ 1,800
============================================================================
There were no loans considered loss as of December 31, 1999 or December 31,
1998. Impaired loans include loans where, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. If the present
value of expected future cash flows, or in certain instances the observable
market price of the loan or the fair value of the underlying collateral, is
less than the recorded investment in the loan, then the Company recognizes an
impairment by adjusting the allowance for loan losses with a corresponding
charge to the provision for loan losses. The allowance for impaired loans
included in the Company's allowance for loan losses was $102,000 and $419,000
at December 31, 1999 and 1998, respectively. All loans considered impaired
at December 31, 1999 and 1998 were included in total classified loans.
Total classified assets decreased $1.32 million, or 66.1%, from $1.99 million
at December 31, 1998 to $674,000 at December 31, 1999. This decrease is
primarily the result of the Company collecting $185,000 in principal payments
and charging off $800,000 of the $1.36 million commercial loan which became
nonperforming in the fourth quarter of 1998. In January 1999, the borrower
involved in this nonperforming loan filed Chapter 11, or business
reorganization, bankruptcy. In the second quarter of 1999, the
reorganization plan changed to a liquidation of assets arrangement. The loan
is secured by business assets and guaranteed by the owner. The remaining
balance of the loan is $375,000, with $325,000 classified as substandard and
$50,000 classified as doubtful at December 31, 1999. The total $375,000 is
considered impaired as of December 31, 1999. Repayment of the remaining
balance is expected from the sale of business assets of the borrower and
personal assets of the guarantor. 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. The loan remains in nonaccrual status.
Total classified assets also decreased in 1999 due to the payoff of two
commercial loans totaling $189,000. Also, one residential loan totaling
$85,000 was removed from classified during 1999 because loan payments were
brought current.
Besides the $375,000 remaining from the $1.36 million loan, classified loans
at December 31, 1999 include loans to one commercial borrower totaling
$125,000. These loans were also classified at December 31, 1998, with the
balance totaling $145,000 on December 31, 1998. The borrower was current
under the terms of his loan agreements as of December 31, 1999.
Also included in classified assets at December 31, 1999 were consumer loans
to six borrowers totaling $53,000 and residential mortgage loans to seven
customers totaling $121,000. The majority of these loans are substantially
secured and the Company anticipates that the loans will be repaid
satisfactorily either from repayment by the customer or from the sale of the
underlying collateral.
Total premises and equipment decreased $360,000 from $7.55 million at
December 31, 1998 to $7.19 million at December 31, 1999, primarily due to
depreciation expense exceeding asset acquisitions. Fixed asset purchases
totaled $275,000 in 1999 and depreciation expense was $635,000. In 1999,
the Company spent approximately $132,000 for hardware, installation costs,
and fees related to the Company's conversion to a new in-house data
processing system in October 1998. These items were billed to the Company in
1999. During 1999, the Company also acquired printers, new loan
documentation software, and replaced an ATM machine.
Other assets were $2.17 million at December 31, 1999 compared to $2.34
million at December 31, 1998, a decrease of $170,000. The unamortized
balance of the excess of the purchase price over the tangible net assets
acquired relating to the acquisition of the Agency decreased $86,000 in 1999.
Amortization expense of $44,000 reduced this balance along with a $42,000
adjustment to the purchase price of insurance business acquired. Premiums
receivable at the Agency decreased $83,000 from December 31, 1998 to December
31, 1999, due mainly to the Agency transferring policies to a "direct bill"
method of payment, where premiums are invoiced to the customer directly from
the insurance companies. Income taxes receivable were $138,000 in 1999,
compared to a payable of $37,000 in 1998. Prepaid expenses and other assets
were $125,000 lower at December 31, 1999, primarily prepaid expenses and
miscellaneous receivables.
Total deposits declined by $175,000, from $123.02 million at December 31,
1998 to $122.85 million at December 31, 1999. The following table summarizes
the balances of deposits at December 31, 1999 and 1998, the change in the
balances and the percentage change:
Balance Balance
December 31, December 31, Percentage
1999 1998 Change Change
- -----------------------------------------------------------------------------
Noninterest bearing
checking accounts $ 8,565 $ 8,401 $ 164 2.0%
Interest bearing:
NOW accounts 15,910 15,051 859 5.7
IMMA accounts 9,332 8,871 461 5.2
Savings accounts 14,705 15,105 (400) (2.7)
Certificates of deposit 74,333 75,592 (1,259) (1.7)
- -----------------------------------------------------------------------------
Total interest
bearing deposits 114,280 114,619 (339) (0.3)
- -----------------------------------------------------------------------------
Total deposits $ 122,845 $ 123,020 $ (175) (0.1)%
=============================================================================
Although total noninterest bearing checking accounts were relatively
unchanged from December 31, 1998 to December 31, 1999, there were
fluctuations within the specific checking products. Total personal basic
checking accounts declined $568,000 from December 31, 1998 to December 31,
1999 and total commercial checking accounts decreased $48,000, while total
free checking accounts increased $678,000. Free checking, a no service
charge product, was actively marketed during 1999.
The growth in NOW and IMMA accounts was primarily in the Company's Club Fed
products. These products provide enhanced services to customers including a
higher rate of interest for maintaining required minimum balances. Total
Club Fed NOW accounts increased by $528,000 from December 31, 1998 to
December 31, 1999, while total Club Fed IMMA accounts increased by $983,000.
Regular IMMA accounts declined $522,000 from December 31, 1998 to December
31, 1999.
Certificate of deposit categories with the largest declines from December 31,
1998 to December 31, 1999 included the six month, one year, eighteen month
and thirty month categories. Total six month certificates of deposit dropped
$2.21 million from December 31, 1998 to December 31, 1998, one year
certificates declined $1.77 million, eighteen month certificates decreased
$1.51 million, and thirty month certificates dropped $1.75 million. Total
two year certificates increased $5.72 million from December 31, 1998 to
December 31, 1999, primarily due to a 21 month certificate special promotion
held in June, 1999.
Loans sold under repurchase agreements totaling $2.00 million at December 31,
1998 were repaid during 1999. FHLB advances increased $1.0 million, from
$7.00 million at December 31, 1998 to $8.00 million at December 31, 1999 due
to an additional borrowing in October 1999. FHLB advances at December 31,
1999 was comprised of three advances: $2.00 million at 5.31% maturing in
2000, $5.00 million at 4.30% maturing in 2008, and $1.00 million at 5.50%
maturing in 2004. The $5.00 million advance is callable by the FHLB
beginning in 2001 and the $1.00 million advance is callable by the FHLB
beginning in October, 2000. Proceeds from advances have provided liquidity
for investment securities, loans, treasury stock purchases and the repayment
of loans sold under repurchase agreements.
Other liabilities decreased by $310,000 from $2.00 million at December 31,
1998 to $1.69 million at December 31, 1999. Contracts payable related to
insurance business acquired was $226,000 lower at December 31, 1999 compared
to the balance owed at December 31, 1998 and GTPS Insurance Agency premiums
due insurance companies decreased $113,000.
Total stockholders' equity decreased from $23.15 million at December 31, 1998
to $21.77 million at December 31, 1999, a decrease of $1.38 million. This
decline resulted from net income of $644,000, plus ESOP and incentive plan
shares earned of $322,000 and $221,000, respectively, less $534,000 in
dividends declared, $2.02 million in treasury stock purchased, and $14,000
from the increase in the unrealized loss on securities available for sale.
In December 1999, the Company announced plans to repurchase an additional 5%
of the Company's common stock, net of treasury stock, or 61,186 shares. As
of February 29, 2000, the Company had repurchased 46,800 shares. The
repurchased shares will be held as treasury shares to be used for general
corporate purposes.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and interest
payments on loans and proceeds from FHLB advances. While maturities and
scheduled amortization of loans are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest
rates, economic conditions, and competition. The Bank is subject to required
minimum liquidity ratios as established by the OTS, the Bank's primary
regulator. These ratios are based upon a percentage of deposits and short-
term borrowings. The ratio may vary at the direction of the OTS depending
upon economic conditions and deposit flows and is currently 4%. The Bank's
liquidity ratios were 8.27% and 15.67% at December 31, 1999 and 1998,
respectively. The Company is not required to maintain a minimum level of
regulatory liquidity.
The primary investment activity of the Company is the origination of mortgage
loans, commercial and consumer loans, and the purchase of mortgage-backed and
Federal agency securities. Asset acquisitions during the year ended December
31, 1999 were primarily funded by a decrease in cash and cash equivalents,
deposits, and FHLB advances. Asset acquisitions during the year ended
December 31, 1998 were primarily funded by deposits, loans sold under
repurchase agreements, and FHLB advances.
A review of the Consolidated Statement of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") decreased $11.80 million during 1999 and increased $4.34
million in the year ended December 31, 1998. Cash decreased in 1999 due to
net cash used by investing activities of $10.34 million and net cash used by
financing activities of $3.74 million, offset by net cash provided by
operating activities of $2.28 million. Net cash used by investing activities
included $6.0 million in investment purchases, offset by proceeds from
maturing and called investment securities of $2.45 million, and the $6.55
million increase in net loans, which is primarily loan originations net of
principal repayments. Cash used by financing activities included the $1.26
million decrease in certificates of deposit, $2.0 million decline in loans
sold under repurchase agreements, $545,000 in dividends paid, and the
purchase of treasury stock totaling $2.02 million, offset by the $1.08
million increase in noninterest-bearing, interest bearing demand and savings
deposits and $1.0 million in proceeds from FHLB advances. Cash provided by
operating activities included net income of $644,000, plus non cash
adjustments to net income including the provision for loan losses of
$573,000, depreciation and amortization of $682,000, ESOP expense of $322,000
and incentive plan expense of $221,000.
Cash increased in the year ended December 31, 1998 due to net cash provided
by operating activities of $2.66 million and net cash provided by financing
activities of $13.34 million, offset by cash used in investing activities of
$11.66 million. Cash provided by operating activities included net income of
$848,000, and non cash adjustments to net income including the provision for
loan losses of $456,000, depreciation and amortization of $625,000, ESOP
compensation expense of $468,000 and incentive plan expense of $221,000.
Cash provided by financing activities included the increases in noninterest-
bearing, interest bearing demand and savings deposits of $5.91 million and
certificates of deposit of $5.13 million, proceeds from loans sold under
repurchase agreements of $2.00 million and FHLB advances of $7.00 million,
offset by cash used to pay dividends of $620,000, and the purchase of
treasury stock of $6.10 million. Cash used in investing activities included
the $10.36 million net increase in loans, the $1.0 million purchase of
securities available for sale, $1.77 million purchase of securities held to
maturity, and the $1.05 purchase of premises and equipment, offset by
proceeds from maturing and called securities of $3.10 million.
At December 31, 1999, the Bank exceeded all of its regulatory capital
requirements with tangible capital and core capital both at $9.78 million or
6.8% of total adjusted tangible assets and risk-based capital at $10.42
million or 12.2% of total risk-weighted assets. The required ratios are 1.5%
for tangible capital to tangible assets, 2.0% for core capital to total
adjusted tangible assets, 4.0% for core capital to adjusted total assets and
8.0% for risk-based capital to risk-weighted assets. See the accompanying
Notes to Consolidated Financial Statements for the Bank's capital
calculations as of December 31, 1999 and 1998.
The Company's most liquid assets are cash and cash equivalents. The level of
cash and cash equivalents is dependent on the Company's operating, financing,
lending and investing activities during any given period. At December 31,
1999, cash and cash equivalents totaled $10.01 million. The Company's future
short-term requirements for cash are not expected to significantly change.
However, in the event that the Company should require funds beyond its
ability to generate them internally, additional sources of funds are
available, such as FHLB advances. With no parent company debt and sound
capital levels, the Company has several options for longer-term cash needs,
such as for future expansion and acquisitions.
Management is not aware of any current recommendations or government
proposals which if implemented would have a material effect on the Company's
liquidity, capital resources or operations.
Management of Interest Rate Risk
The principal objective of the Company's interest rate risk management
function is to evaluate the interest rate risk included in certain balance
sheet accounts, determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives, establish asset concentration guidelines and manage
the risk consistent with Board-approved guidelines. Through such management,
the Company seeks to reduce the vulnerability of its operations to changes in
interest rates and to manage the ratio of interest rate sensitive assets to
interest rate sensitive liabilities within specified maturities or repricing
dates. The Bank's Board of Directors has established an Asset/Liability
Committee consisting of management officers, which is responsible for
reviewing the Bank's asset/liability policies and interest rate risk
position. Such committee generally meets on a quarterly basis, and at other
times as dictated by market conditions, and reports to the Board of Directors
after each such meeting.
The Bank's interest rate risk strategy primarily consists of: (i) emphasizing
the attraction and retention of core deposits, which tend to be a more stable
source of funding; (ii) emphasizing the origination of adjustable rate
mortgage loan products and short-term commercial loans, the origination of
which is largely dependent on the market demand for such loans; (iii) when
market conditions are favorable and in consideration of the regulatory
requirements relating to required levels of residential loans which must be
maintained by the Bank, selling fixed-rate one- to four-family mortgage
loans; and (iv) investing primarily in short-term U.S. Government securities.
As a traditional thrift lender, the Bank has a significant amount of its
earning assets invested in fixed-rate mortgages with contractual maturities
greater than one year. At December 31, 1999, an aggregate of $62.31 million,
or 40.4% of total assets, were invested in such assets.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1999 which mature or
reprice in the periods shown. Except as stated in the table, the amount of
assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity
<TABLE>
<CAPTION>
Interest Rate Sensitivity (in thousands)
At December 31, 1999
Over One Over Three Over Six
Month Months Months
Within Through Through Through
One Three Six Twelve Over One
Month Months Months Months Year Total
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing demand deposits $ 4,453 $ -- $ -- $ -- $ -- $ 4,453
Investment securities, net (1) 117 34 52 106 6,898 7,207
Loans (2) 3,249 6,077 5,591 6,668 106,143 127,728
--------------------------------------------------------------------------------
Total interest-earning assets $ 7,819 $ 6,111 $ 5,643 $ 6,774 $ 113,041 $ 139,388
================================================================================
Interest-bearing liabilities:
NOW, savings and insured
money market deposits $ 39,947 $ -- $ -- $ -- $ -- $ 39,947
Certificates of deposit 8,896 9,662 9,043 18,678 28,054 74,333
--------------------------------------------------------------------------------
Total interest-bearing deposits 48,843 9,662 9,043 18,678 28,054 114,280
FHLB advances and other
interest-bearing liabilities (3) -- -- -- 3,000 5,611 8,611
--------------------------------------------------------------------------------
Total interest-bearing liabilities 48,843 9,662 9,043 21,678 33,665 122,891
--------------------------------------------------------------------------------
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (41,024) $ (3,551) $ (3,400) $(14,904) $ 79,376 $ 16,497
================================================================================
Cumulative excess (deficiency) of
interest-earning assets over interest-
bearing liabilities $ (41,024) $(44,575) $(47,975) $(62,879) $ 16,497 $ 16,497
================================================================================
Cumulative interest-earning assets
divided by interest-bearing liabilities .16 .24 .29 .30 1.13 1.13
================================================================================
</TABLE>
(1) Includes FHLB stock and reflects repricing, contractual maturity or
anticipated call date.
(2) Loans are placed in the various interest-sensitive periods based on
historical prepayment tendencies as well as contractual terms.
(3) FHLB advances reflect contractual maturity or anticipated call date
The Company tends to be liability sensitive due to the levels of short-term
NOW, savings and insured money market deposits maintained. However, the
effect of rate increases on these deposits, which are mainly core retail
deposits, tends to lag behind the change in market rates. This lag generally
lessens the negative impact on net interest income during a period of rising
interest rates. Based on the information provided in the table, assuming no
management intervention, the effect of an increase in interest rates of 100
basis points would reduce annualized net interest income by approximately
$410,000 in the one month category or approximately $446,000 in the three
month category. A decrease in interest rates would have the opposite effect.
Management believes that the assumptions used to evaluate interest rate
sensitivity approximate actual experience and considers this method a
reasonable tool; however, the interest rate sensitivity of the Company's
assets and liabilities and the estimated effects of changes in interest rates
on net interest income could vary substantially if different assumptions were
used or actual experience differs from the historical experiences on which
these assumptions were based.
Year 2000 Compliance
An important business issue emerged during 1998 and 1999 regarding how
existing computer application software programs and operating systems would
be able to accommodate the change to the year 2000. Many existing
application software products were designed to accommodate only two digits.
If not corrected, many computer applications and systems may have failed or
created erroneous results by or at the Year 2000.
As of the report date, the Company's operations have not experienced any
problems or adverse reactions to the Year 2000 changeover. The Company's
Board of Directors had 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 was year 2000 compliant. During 1999,
the Year 2000 compliance officer tested this new software program and 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.
So far, the Company has not been indirectly affected by the Year 2000
changeover of its customers, significant suppliers and other vendors,
including those vendors that provide non-information and technology systems.
In the event that any of the Company's major customers, significant suppliers
or other vendors did not have a successful Year 2000 conversion, 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 Company's direct expenses to date (other than the salary of Company
employees involved in Year 2000 testing and compliance) have been less than
$50,000.
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.
In addition to historical information, this Annual Report may include certain
forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies
of the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or competition, changes in the
quality or composition of the Bank's loan and investment portfolios, changes
in accounting principles, policies or guidelines, and other economic,
competitive, governmental and technological factors affecting the Company's
operations, markets, products, services and prices. Further description of
the risks and uncertainties to the business are included in detail in Item 1,
"Business" of the Company's 1999 Form 10-KSB. The Company does not undertake
- - and specifically disclaims any obligation - to publicly release the result
of any revisions which may be made to any forward-looking statements to
reflect events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
Independent Auditor's Report
To the Stockholders and
Board of Directors
Great American Bancorp, Inc.
Champaign, Illinois
We have audited the accompanying consolidated balance sheet of Great American
Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income,
stockholders' equity, and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements described above present
fairly, in all material respects, the consolidated financial position of
Great American Bancorp, Inc. and subsidiary as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ Olive LLP
Champaign, Illinois
January 27, 2000
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheet (in thousands, except share data)
December 31 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $ 5,560 $ 6,429
Interest-bearing demand deposits 4,453 15,386
--------------------------
Cash and cash equivalents 10,013 21,815
Investment securities
Available for sale 2,977 1,001
Held to maturity (fair value of $3,338 and $1,988) 3,463 1,977
--------------------------
Total investment securities 6,440 2,978
Loans, net of allowance for loan losses of $703 and $925 127,728 121,747
Premises and equipment 7,188 7,551
Federal Home Loan Bank stock 767 736
Other assets 2,173 2,344
--------------------------
Total assets $ 154,309 $ 157,171
==========================
Liabilities
Deposits
Noninterest bearing $ 8,565 $ 8,401
Interest bearing 114,280 114,619
--------------------------
Total deposits 122,845 123,020
Loans sold under repurchase agreements -- 2,000
Federal Home Loan Bank advances 8,000 7,000
Other liabilities 1,693 1,999
--------------------------
Total liabilities 132,538 134,019
--------------------------
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, $0.01 par value
Authorized and unissued - 1,000,000 shares -- --
Common stock, $0.01 par value
Authorized - 7,000,000 shares
Issued and outstanding - 2,052,750 shares 21 21
Additional paid-in capital 19,968 19,877
Retained earnings 16,521 16,411
Accumulated other comprehensive income (13) 1
--------------------------
36,497 36,310
Less:
Treasury stock, at cost - 829,035 and
693,067 shares (14,019) (11,999)
Unallocated employee stock ownership plan
shares - 40,986 and 63,698 shares (410) (637)
Unearned incentive plan shares - 20,626 and
36,214 shares (297) (522)
--------------------------
Total stockholders' equity 21,771 23,152
--------------------------
Total liabilities and
stockholders' equity $ 154,309 $ 157,171
==========================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Income (in thousands, except share data)
Year Ended December 31 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans receivable $ 10,157 $ 10,183
Investment securities
Taxable 262 214
Tax exempt 28 19
Deposits with financial institutions and other 578 602
--------------------------
Total interest income 11,025 11,018
--------------------------
Interest Expense
Deposits 4,856 4,958
Other 459 183
--------------------------
Total interest expense 5,315 5,141
--------------------------
Net Interest Income 5,710 5,877
Provision for loan losses 573 456
--------------------------
Net Interest Income After
Provision for Loan Losses 5,137 5,421
--------------------------
Noninterest Income
Brokerage commissions 152 135
Insurance sales commissions 625 490
Service charges on deposit accounts 567 483
Loan servicing fees 19 25
Other customer fees 144 150
Net gains on loan sales -- 1
Other income 16 11
--------------------------
Total noninterest income 1,523 1,295
--------------------------
Noninterest Expenses
Salaries and employee benefits 2,908 2,894
Net occupancy expenses 567 580
Equipment expenses 598 385
Data processing fees 108 135
Deposit insurance expense 71 69
Printing and office supplies 282 255
Legal and professional fees 292 152
Directors and committee fees 100 104
Insurance expense 48 42
Marketing and advertising expenses 169 208
Other expenses 411 381
--------------------------
Total noninterest expenses 5,554 5,205
--------------------------
Income Before Income Tax 1,106 1,511
Income tax expense 462 663
--------------------------
Net Income $ 644 $ 848
==========================
Basic Earnings per Share $ 0.53 $ 0.61
==========================
Diluted Earnings per Share $ 0.52 $ 0.57
==========================
Dividends per Share $ 0.44 $ 0.43
==========================
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Comprehensive Income
(in thousands)
Year Ended December 31 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 644 $ 848
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
available for sale arising during the period,
net of income tax of $9 and $0 (14) (1)
---------------------------
Comprehensive income $ 630 $ 847
===========================
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
(in thousands, except share data)
Unallocated
Accumulated Employee Unearned
Additional Other Stock Owner- Incentive
Common Paid-in Retained Comprehensive Treasury ship Plan Plan
Stock Capital Earnings Income Stock Shares Shares Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1998 $ 21 $ 19,655 $ 16,167 $ 2 $ (5,925) $ (879) $ (747) $ 28,294
Net income -- -- 848 -- -- -- -- 848
Cash dividends ($.43 per share) -- -- (604) -- -- -- -- (604)
Other comprehensive income, net of tax -- -- -- (1) -- -- -- (1)
Employee stock ownership plan
shares allocated -- 226 -- -- -- 242 -- 468
Incentive plan shares earned -- (4) -- -- -- -- 225 221
Purchase of treasury stock -- -- -- -- (6,099) -- -- (6,099)
Exercise of stock options -- -- -- -- 25 -- -- 25
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1998 $ 21 $ 19,877 $ 16,411 $ 1 $(11,999) $ (637) $ (522) $ 23,152
Net income -- -- 644 -- -- -- -- 644
Cash dividends ($.44 per share) -- -- (534) -- -- -- -- (534)
Other comprehensive income, net of tax -- -- -- (14) -- -- -- (14)
Employee stock ownership plan
shares allocated -- 95 -- -- -- 227 -- 322
Incentive plan shares earned -- (4) -- -- -- -- 225 221
Purchase of treasury stock -- -- -- -- (2,020) -- -- (2,020)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, December 31, 1999 $ 21 $ 19,968 $ 16,521 $ (13) $(14,019) $ (410) $ (297) $ 21,771
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements
<TABLE>
<CAPTION>
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Consolidated Statement of Cash Flows (in thousands)
Year Ended December 31 1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $ 644 $ 848
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses 573 456
Depreciation and amortization 682 625
Amortization of deferred loan fees (7) (33)
Deferred income tax 37 (89)
Investment securities amortization (accretion), net 1 (1)
Net gain on loan sales -- (1)
Employees stock ownership plan
compensation expense 322 468
Incentive plan expense 221 221
Loans originated for sale -- (44)
Proceeds from sales of loans originated for resale -- 45
Net change in
Other assets 99 (249)
Other liabilities (295) 410
--------------------------
Net cash provided by operating activities 2,277 2,656
--------------------------
Investing Activities
Purchases of securities available for sale (3,000) (1,000)
Purchases of securities held to maturity (3,002) (1,777)
Proceeds from maturities of securities available for sale 1,000 1,997
Proceeds from maturities of securities held to maturity 1,450 1,100
Proceeds from principal repayments of
mortgage-backed securities 66 --
Purchase of Federal Home Loan Bank stock (31) (156)
Net change in loans (6,547) (10,355)
Purchases of premises and equipment (275) (1,045)
Purchases of insurance agencies -- (423)
--------------------------
Net cash used by investing activities (10,339) (11,659)
--------------------------
Financing Activities
Net change in
Noninterest-bearing, interest-bearing demand
and savings deposits 1,084 5,905
Certificates of deposit (1,259) 5,131
Loans sold under repurchase agreements (2,000) 2,000
Proceeds from Federal Home Loan Bank advances 1,000 7,000
Cash dividends (545) (620)
Purchase of treasury stock (2,020) (6,099)
Stock options exercised -- 25
--------------------------
Net cash provided (used) by financing activities (3,740) 13,342
--------------------------
Net Change in Cash and Cash Equivalents (11,802) 4,339
Cash and Cash Equivalents, Beginning of Period 21,815 17,476
--------------------------
Cash and Cash Equivalents, End of Period $ 10,013 $ 21,815
==========================
Additional Cash Flows Information
Interest paid $ 5,313 $ 5,116
Income tax paid 598 828
</TABLE>
See notes to consolidated financial statements.
GREAT AMERICAN BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Table dollar amounts in thousands, except share data)
Note 1 -- Nature of Operations and Summary of Significant Accounting Policies
The accounting and reporting policies of Great American Bancorp, Inc.
("Company"), its wholly owned subsidiary, First Federal Savings Bank of
Champaign-Urbana ("Bank") and the Bank's wholly owned subsidiary, Park Avenue
Service Corporation ("PASC"), conform to generally accepted accounting
principles and reporting practices followed by the thrift industry. The more
significant of the policies are described below.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
The Company is a thrift holding company whose principal activity is the
ownership and management of the Bank. The Bank operates under a federal
savings bank charter and provides full banking services. As a federally-
chartered thrift, the Bank is subject to regulation by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation.
The Bank generates commercial, mortgage and consumer loans and receives
deposits from customers located primarily in Champaign County, Illinois and
surrounding counties. The Bank's loans are generally secured by specific
items of collateral including real property, consumer assets and business
assets. Although the Bank has a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their contracts is dependent upon
economic conditions in the real estate industry.
The Bank's subsidiary, PASC, offers insurance and brokerage services to
customers located primarily in Champaign County, Illinois and surrounding
counties. GTPS Insurance Agency, a division of PASC, sells a variety of
insurance products to both individuals and businesses, including life,
health, auto, property and casualty insurance. PASC also provides full
service brokerage activities through a third-party broker-dealer and engages
in the sale of tax deferred annuities. The revenue generated by PASC is
dependent upon maintaining relationships with the current insurance and
brokerage providers.
Consolidation - The consolidated financial statements include the accounts of
the Company and the Bank after elimination of all material intercompany
transactions.
Investment Securities - Debt securities are classified as held to maturity
when the Company has the positive intent and ability to hold the securities
to maturity. Securities held to maturity are carried at amortized cost.
Debt securities not classified as held to maturity are classified as
available for sale. Securities available for sale are carried at fair value
with unrealized gains and losses reported separately in accumulated other
comprehensive income, net of tax.
Amortization of premiums and accretion of discounts are recorded as interest
income from securities. Realized gains and losses are recorded as net
security gains (losses). Gains and losses on sales of securities are
determined on the specific-identification method.
Loans are carried at the principal amount outstanding. Interest income is
accrued on the principal balances of loans. In applying the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 114, the Company
considers its investments in 1-4 residential loans and consumer installment
loans to be homogeneous and therefore excluded from separate identification
for valuation of impairment. The accrual of interest on impaired loans is
discontinued when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is discontinued, all
unpaid accrued interest is reversed when considered uncollectible. Interest
income is subsequently recognized only to the extent cash payments are
received. Certain loan fees and direct costs are deferred and amortized as an
adjustment of yield on the loans.
Allowance for loan losses is maintained to absorb loan losses based on
management's continuing review and evaluation of the loan portfolio and its
judgment as to the impact of economic conditions on the portfolio. The
evaluation by management includes consideration of past loss experience,
changes in the composition of the portfolio, the current condition and amount
of loans outstanding, and the probability of collecting all amounts due.
Impaired loans are measured by the present value of expected future cash
flows, or the fair value of the collateral of the loan, if collateral
dependent.
The determination of the adequacy of the allowance for loan losses is based
on estimates that are particularly susceptible to significant changes in the
economic environment and market conditions. Management believes that as of
December 31, 1999 the allowance for loan losses is adequate based on
information currently available. A worsening or protracted economic decline
in the areas within which the Bank operates would increase the likelihood of
additional losses due to credit and market risks and could create the need
for additional loss reserves.
Premises and equipment are carried at cost net of accumulated depreciation.
Depreciation is computed on the straight-line method for buildings, furniture
and fixtures based principally on the estimated useful lives of the assets.
Maintenance and repairs are expensed as incurred while major additions and
improvements are capitalized. Gains and losses on dispositions are included
in current operations.
Federal Home Loan Bank stock is a required investment for institutions that
are members of the Federal Home Loan Bank system. The required investment in
the common stock is based on a predetermined formula.
Intangible assets are being amortized on the straight-line basis over fifteen
years. Such assets are periodically evaluated as to the recoverability of
their carrying value.
Mortgage servicing rights on originated loans are capitalized by allocating
the total cost of the mortgage loans between the mortgage servicing rights
and the loans based on their relative fair values. Capitalized servicing
rights are amortized in proportion to and over the period of estimated
servicing revenues.
Treasury stock is stated at cost. Cost is determined by the first-in, first-
out method.
Incentive Plan - The Company accounts for its stock award program, or
incentive plan, in accordance with Accounting Principles Board Opinion
("APB") No. 25. The purchase price of unearned shares owned by the incentive
plan is reflected as a reduction of stockholders' equity. Compensation
expense is based on the market price of the Company's stock on the date the
shares are granted and is recorded over the vesting period. The difference
between the aggregate purchase price and the fair value on the date granted
of the shares earned is recorded as an adjustment to paid-in capital.
Employee Stock Ownership Plan - The Company accounts for its employee stock
ownership plan ("ESOP") in accordance with American Institute of Certified
Public Accountants ("AICPA") Statement of Position 93-6. The cost of shares
issued to the ESOP but not yet committed to be released to participants is
presented in the consolidated balance sheet as a reduction of stockholders'
equity. Compensation expense is recorded based on the market price of the
shares as they are committed to be released for allocation to participant
accounts. The difference between the market price and the cost of shares
committed to be released is recorded as an adjustment to paid-in capital.
Dividends on allocated ESOP shares are recorded as a reduction of retained
earnings; dividends on unallocated ESOP shares are not considered dividends
for financial statement purposes.
ESOP shares are considered outstanding for earnings per share calculations as
they are committed to be released; uncommitted shares are not considered
outstanding.
Stock options are granted for a fixed number of shares to employees with an
exercise price equal to the fair value of the shares at the date of grant.
The Company accounts for and will continue to account for stock option grants
in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and accordingly, recognizes no compensation expense for the stock
option grants.
Accounting for Postretirement Benefits - The Company is recognizing the
transition obligation using the straight-line method over the plan
participants' average future service period of twenty years.
Income tax in the consolidated statement of income includes deferred income
tax provisions or benefits for all significant temporary differences in
recognizing income and expenses for financial reporting and income tax
purposes. The Company files consolidated income tax returns with its
subsidiary.
Earnings per share - Basic earnings per share have been computed based upon
the weighted average common shares outstanding during each year. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company.
Reclassifications of certain amounts in the 1998 consolidated financial
statements have been made to conform to the 1999 presentation.
Note 2 -- Establishment of Insurance Agency
In March, 1998, the Company acquired the business of an insurance agency for
approximately $423,000. The excess of the purchase price over the fair value
of assets acquired is being amortized over fifteen years.
Note 3 -- Restriction on Cash and Due from Banks
The Bank is required to maintain reserve funds in cash and/or on deposit with
the Federal Reserve Bank. The reserve required at December 31, 1999 was
$1,050,000.
<TABLE>
<CAPTION>
Note 4 -- Investment Securities
1999
- ----------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 3,000 $ -- $ 23 $ 2,977
---------------------------------------------------
Total available for sale 3,000 -- 23 2,977
---------------------------------------------------
Held to maturity
Mortgage-backed securities 2,937 -- 120 2,817
State and municipal 526 -- 5 521
---------------------------------------------------
Total held to maturity 3,463 -- 125 3,338
---------------------------------------------------
Total investment securities $ 6,463 $ -- $ 148 $ 6,315
===================================================
<CAPTION>
1998
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
December 31 Cost Gains Losses Value
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale
Federal agencies $ 1,000 $ 1 $ -- $ 1,001
---------------------------------------------------
Total available for sale 1,000 1 -- 1,001
---------------------------------------------------
Held to maturity
Federal agencies 1,000 2 -- 1,002
State and municipal 977 9 -- 986
---------------------------------------------------
Total held to maturity 1,977 11 -- 1,988
---------------------------------------------------
Total investment securities $ 2,977 $ 12 $ -- $ 2,989
===================================================
</TABLE>
The amortized cost and fair value of securities at December 31, 1999, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held to Maturity Available for sale
---------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Within one year $ 100 $ 100 $ -- $ --
One to five years 426 421 3,000 2,977
---------------------------------------------------
526 521 3,000 2,977
Mortgage-backed securities 2,937 2,817 -- --
---------------------------------------------------
Totals $ 3,463 $ 3,338 $ 3,000 $ 2,977
===================================================
</TABLE>
There were no sales of securities during 1999 or 1998. There were no
securities transferred between classifications during 1999 or 1998.
With the exception of securities of Federal Agencies, the Company did not
hold any securities of a single issuer, payable from and secured by the same
source of revenue or taxing authority, the book value of which exceeded 10%
of stockholders' equity at December 31, 1999.
Note 5 -- Loans and Allowance
December 31 1999 1998
- ----------------------------------------------------------------------------
Mortgage loans:
One-to four-family $ 70,381 $ 66,853
Other loans secured by real estate 36,891 31,641
Construction 1,919 3,657
--------------------------
109,191 102,151
Undisbursed portion of loans (2) (94)
Deferred loan fees (69) (65)
--------------------------
Total mortgage loans 109,120 101,992
--------------------------
Commercial and consumer loans:
Commercial 7,747 9,435
Consumer 11,564 11,245
--------------------------
Total commercial and consumer loans 19,311 20,680
--------------------------
Total loans 128,431 122,672
Allowance for loan losses (703) (925)
--------------------------
$127,728 $ 121,747
==========================
December 31 1999 1998
- ----------------------------------------------------------------------------
Allowance for loan losses
Balances, January 1 $ 925 $ 497
Provision for losses 573 456
Recoveries on loans 6 8
Loans charged off (801) (36)
--------------------------
Balances, December 31 $ 703 $ 925
==========================
Information on impaired loans is summarized below.
December 31 1999 1998
- ----------------------------------------------------------------------------
Impaired loans with an allowance $ 537 $ 1,800
Allowance for impaired loans (included in the
Company's allowance for loan losses) 102 419
Year Ended December 31 1999 1998
- ----------------------------------------------------------------------------
Average balance of impaired loans $ 1,616 $ 889
Interest income recognized on impaired loans 38 98
Cash-basis interest included above 38 66
Note 6 -- Premises and Equipment
December 31 1999 1998
- ----------------------------------------------------------------------------
Land $ 1,545 $ 1,545
Buildings 5,233 5,226
Leasehold improvements 867 867
Furniture and equipment 3,135 2,858
--------------------------
Total cost 10,780 10,496
Accumulated depreciation (3,592) (2,945)
--------------------------
Net $ 7,188 $ 7,551
==========================
Note 7 -- Other Assets and Other Liabilities
December 31 1999 1998
- ----------------------------------------------------------------------------
Other assets
Interest receivable
Investment securities $ 100 $ 91
Loans 788 789
Cash value of insurance 223 213
Mortgage servicing rights 10 14
Excess of purchase price over the
fair value of assets acquired 556 642
Insurance premiums receivable 104 187
Deferred income tax asset 56 85
Income taxes receivable 138 --
Prepaid expenses and other assets 198 323
--------------------------
Total $ 2,173 $ 2,344
==========================
Other liabilities
Interest payable
Deposits $ 17 $ 19
Other borrowings 32 28
Deferred compensation - directors 611 548
Accrued real estate taxes 123 108
Insurance and real estate taxes held
in escrow for loan customers 259 268
Accrued postretirement benefit obligation 139 107
Dividends payable 129 140
Income taxes payable -- 37
Premiums due insurance companies 120 233
Accrued expenses and other 263 511
--------------------------
Total $ 1,693 $ 1,999
==========================
Note 8 -- Deposits
December 31 1999 1998
- ----------------------------------------------------------------------------
Demand deposits $ 24,475 $ 23,452
Savings deposits 14,705 15,105
Insured money market 9,332 8,871
Certificates of deposit of $100,000 or more 10,648 10,355
Other certificates of deposit 63,685 65,237
--------------------------
Total deposits $122,845 $ 123,020
==========================
Certificates of deposit maturing in years ending December 31,
2000 $ 46,279
2001 16,816
2002 2,837
2003 2,885
2004 1,924
Thereafter 3,592
---------
$ 74,333
=========
Note 9 - Loans Sold Under Agreements to Repurchase
December 31 1999 1998
- ----------------------------------------------------------------------------
Loans sold under repurchase agreements $ -- $ 2,000
==========================
Loans sold under agreements to repurchase consist of obligations of the
Company to other parties, including a related party. The obligations are
secured by loans held by the Company and matured during 1999. The maximum
amount of the outstanding agreements at any month-end during 1999 totaled
$2,500,000 and the daily average balance of such agreements totaled
$1,422,000. The maximum amount of the outstanding agreements at any month-
end during 1998 totaled $2,000,000 and the daily average balance of such
agreements totaled $1,167,000.
Note 10 -- Federal Home Loan Bank Advances
December 31 1999 1998
- ----------------------------------------------------------------------------
Federal Home Loan Bank advances, variable
rates, (4.30% to 5.50% at December 31),
due at various dates through October, 2008 $ 8,000 $ 7,000
==========================
The Federal Home Loan Bank advances are secured by first mortgage loans and
all stock in the FHLB. Advances are subject to restrictions or penalties in
the event of repayment.
Maturities in years ending December 31
2000 $ 2,000
2004 1,000
After 2004 5,000
---------
$ 8,000
=========
The $1,000,000 advance maturing in 2004 is callable quarterly beginning in
October, 2000. The rate on this advance is 5.50%. The $5,000,000 advance
matures in October 2008, is callable quarterly beginning in October 2001 and
the rate on this advance is 4.30%.
Note 11 -- Loan Servicing
Loans serviced for others are not included in the accompanying consolidated
balance sheet. The unpaid principal balances of loans serviced for others
totaled $6,271,000 and $8,028,000 at December 31, 1999 and December 31,
1998.
The aggregate fair value of capitalized mortgage servicing rights at December
31, 1999 and 1998 totaled $10,000 and $14,000. Comparable market values were
used to estimate fair value. For purposes of measuring impairment, risk
characteristics including product type, investor type, and interest rates,
were used to stratify the originated mortgage servicing rights.
1999 1998
- ----------------------------------------------------------------------------
Mortgage Servicing Rights
Balances, January 1 $ 14 $ 17
Servicing rights capitalized -- --
Amortization of servicing rights (4) (3)
--------------------------
Balances, December 31 $ 10 $ 14
==========================
Note 12 -- Income Tax
Year Ended December 31 1999 1998
- ----------------------------------------------------------------------------
Income tax expense
Currently payable
Federal $ 352 $ 622
State 73 130
Deferred
Federal 30 (72)
State 7 (17)
--------------------------
Total income tax expense $ 462 $ 663
==========================
Reconciliation of federal statutory to
actual tax expense
Federal statutory income tax at 34% $ 376 $ 514
Effect of state income taxes 53 75
Effect of allocating ESOP shares 30 79
Other 3 (5)
--------------------------
Actual tax expense $ 462 $ 663
==========================
A cumulative net deferred tax asset is included in other assets. The
components of the asset are as follows:
December 31 1999 1998
- ----------------------------------------------------------------------------
Assets
Deferred loan fees $ 15 $ 13
Allowance for loan losses 228 303
Deferred compensation 237 212
Postretirement benefit obligation 54 42
Net unrealized losses on securities
available for sale 9 1
Mortgage servicing rights 4 6
Other 35 31
--------------------------
Total assets 582 608
--------------------------
Liabilities
Federal Home Loan Bank stock basis (20) (20)
Depreciation (497) (465)
Other (9) (38)
--------------------------
Total liabilities (526) (523)
--------------------------
$ 56 $ 85
==========================
Retained earnings include approximately $4,300,000 for which no deferred
income tax liability has been recognized. This amount represents an
allocation of income to bad debt deductions as of December 31, 1987 for tax
purposes only. Reduction of amounts so allocated for purposes other than tax
bad debt losses or adjustments arising from carryback of net operating losses
would create income for tax purposes only, which income would be subject to
the then-current corporate income tax rate. The unrecorded deferred income
tax liability on the above amount is approximately $1,669,000.
Note 13 -- Commitments and Contingent Liabilities
In the normal course of business there are outstanding commitments and
contingent liabilities, such as commitments to extend credit and standby
letters of credit, which are not included in the accompanying financial
statements. The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instruments for
commitments to extend credit and standby letters of credit is represented by
the contractual or notional amount of those instruments. The Bank uses the
same credit policies in making such commitments as they do for instruments
that are included in the consolidated balance sheet.
Financial instruments whose contract amount represents credit risk as of
December 31 were as follows:
December 31 1999 1998
- ----------------------------------------------------------------------------
Commitments to extend credit
At variable rates $ 4,366 $ 2,478
At fixed rates (ranging from 5.93% to 10.50%
at December 31, 1999) 1,611 2,984
Standby letters of credit 225 622
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation. Collateral held varies
but may include accounts receivable, inventory, property and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party.
The Company and subsidiary are also subject to claims and lawsuits which
arise primarily in the ordinary course of business. It is the opinion of
management that the disposition or ultimate resolution of such claims and
lawsuits will not have a material adverse effect on the consolidated
financial position of the Company.
Note 14 -- Dividend and Capital Restrictions
Without prior approval, Office of Thrift Supervision ("OTS") regulations
allow the Bank to pay dividends to the Company not exceeding net profits (as
defined) for the current year plus those for the previous two years.
Note 15 -- Regulatory Capital
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies and is assigned to a capital category. The
assigned capital category is largely determined by three ratios that are
calculated according to the regulations: total risk adjusted capital, Tier 1
capital, and Tier 1 leverage ratios. The ratios are intended to measure
capital relative to assets and credit risk associated with those assets and
off-balance sheet exposures of the entity. The capital category assigned to
an entity can also be affected by qualitative judgements made by regulatory
agencies about the risk inherent in the entity's activities that are not part
of the calculated ratios.
There are five capital categories defined in the regulations, ranging from
well capitalized to critically undercapitalized. Classification of a bank in
any of the undercapitalized categories can result in actions by regulators
that could have a material effect on a bank's operations. At December 31,
1999 and 1998, the Bank is categorized as well capitalized and met all
subject capital adequacy requirements. There are no conditions or events
since December 31, 1999 that management believes have changed the Bank's
classification.
The Bank's actual and required capital amounts and ratios are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Required for To Be Well
Actual Adequate Capital* Capitalized*
-----------------------------------------------------------
December 31 Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------
As of December 31, 1999
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital*
(to risk-weighted assets) $ 10,420 12.2% $ 6,863 8.0% $ 8,579 10.0%
Tier 1 capital* (to risk-
weighted assets) 9,775 11.4 3,432 4.0 5,125 6.0
Core capital* (to adjusted
total assets) 9,775 6.8 5,736 4.0 7,170 5.0
Core capital* (to adjusted
tangible assets) 9,775 6.8 2,857 2.0 N/A
Tangible capital* (to
adjusted total assets) 9,775 6.8 2,156 1.5 N/A
<CAPTION>
As of December 31, 1998
<S> <C> <C> <C> <C> <C> <C>
Total risk-based capital*
(to risk-weighted assets) $ 12,366 13.8% $ 7,185 8.0% $ 8,982 10.0%
Tier 1 capital* (to risk
weighted assets) 11,441 12.8 3,593 4.0% 5,377 6.0
Core capital* (to adjusted
total assets) 11,441 7.9 5,793 4.0 7,241 5.0
Core capital* (to adjusted
tangible assets) 11,441 7.9 2,884 2.0 N/A
Tangible capital* (to
adjusted total assets) 11,441 7.9 2,172 1.5 N/A
</TABLE>
*As defined by regulatory agencies
Note 16 -- Employee Benefits
The Company has an employee stock ownership plan ("ESOP") covering
substantially all of its employees. The ESOP borrowed $1,642,000 from the
Company and used those funds to acquire 164,220 shares of the Company's
common stock at $10 per share. The ESOP covers employees who complete at
least twelve consecutive months of service for the Bank during which the
employee performs at least 1,000 hours of service. A participant is 100
percent vested after seven years of credited service.
The ESOP shares are held in trust and allocated to ESOP participants based on
the interest and principal payments made by the ESOP on the loan from the
Company. The loan is secured by shares purchased with the loan proceeds and
is being repaid by the ESOP with funds from the Company's discretionary
contributions to the ESOP and earnings on ESOP assets. Dividends on
unallocated ESOP shares are applied to reduce the loan. Principal
payments are scheduled to occur in even annual amounts over a seven year
period. However, in the event Company contributions exceed the minimum debt
service requirements, additional principal payments will be made.
During the year ended December 31, 1999, 22,712 shares of stock with an
average fair value of $14.22 were committed to be released, resulting in ESOP
compensation expense of $322,000. During the year ended December 31, 1998,
24,193 shares of stock with an average fair value of $19.34 were committed to
be released, resulting in ESOP compensation expense of $468,000. The
following table reflects the shares held by the plan:
As of and for Year Ended December 31 1999 1998
- ----------------------------------------------------------------------------
Shares earned by participants 123,234 100,522
Shares distributed to participants (15,244) (7,159)
Unallocated shares 40,986 63,698
---------------------------
Total ESOP shares 148,976 157,061
===========================
Fair value of unallocated shares $ 507 $ 924
===========================
The Board of Directors of the Company may direct payment of cash dividends on
shares allocated to participants to be paid in cash to the participants or to
be credited to participant accounts and invested.
The Company has a stock-based compensation program which provides for the
granting of stock of the Company as stock awards and options to purchase
stock of the Company (the "Incentive Plan").
The Incentive Plan covers key employees and directors and is authorized to
acquire and grant as stock awards 82,110 shares of the Company's common stock
or 4 percent of the shares issued in the Company's initial public offering.
The 82,110 shares were acquired in 1997 by funds contributed by the Company.
Participants in the Incentive Plan vest at a rate of 20 percent per year
commencing one year after the date such shares are granted. In the event of
a change in control or death or disability, all unvested stock awards will
vest immediately.
The following is a summary of the status of the stock awards and changes in
the stock awards:
As of and for Year Ended December 31 1999 1998
- ----------------------------------------------------------------------------
Stock Awards Shares Shares
- ---------------------------------------------------------------------------
Outstanding, beginning of year 47,863 63,455
Granted -- --
Distributed (15,592) (15,592)
Forfeited (1,880) --
--------------------------
Outstanding, end of year 30,391 47,863
Shares available for future stock awards 4,429 2,549
--------------------------
Total stock awards 34,820 50,412
==========================
During the year ended December 31, 1999, 15,588 shares representing stock
awards were earned by participants and resulted in compensation expense of
$221,000. For the year ended December 31, 1998, 15,588 shares were earned
and resulted in compensation expense of $221,000. The shares forfeited in
1999 were shares that would have been earned by the participants subsequent
to 1999.
Note 17 -- Related Party Transactions
The Company has entered into transactions with certain directors, executive
officers, significant stockholders and their affiliates or associates
(related parties). Such transactions were made in the ordinary course of
business on substantially the same terms and conditions, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with other customers, and did not, in the opinion of management,
involve more than normal credit risk or present other unfavorable features.
The aggregate amount of loans, as defined, to such related parties at
December 31, 1999 and 1998 was $1,125,000 and $1,070,000.
The aggregate amount of loans, as defined, to such related parties were as
follows:
Balances, January 1, 1999 $ 1,070
Changes in composition of related parties (10)
New loans, including renewals 384
Payments, etc. (319)
---------
Balances, December 31, 1999 $ 1,125
=========
Deposits from related parties held by the Company at December 31, 1999 and
1998 totaled $512,000 and $785,000.
During 1998, the Company entered into a short-term borrowing arrangement for
$2,000,000 with a related party. This borrowing was a loan sold under a
repurchase agreement and matured in 1999.
Note 18 -- Leases
The Company leases one branch office and another office previously operated
as a branch office under operating leases. The branch office is rented on a
twenty-five year lease with four ten-year options with escalating rental
payments.
The previous branch office is currently on a thirty-month lease which is
renewable for three additional thirty-month terms at the lessee's option.
This office is being subleased to an unrelated party. In addition, the
lessee is required to pay the property taxes, normal maintenance and
insurance on the property.
The total minimum lease commitment at December 31, 1999 under these leases is
$379,000 which is due as follows:
Lease Rent from Net Lease
Payments Sublease Payment
------------------------------------------
Years ending December 31
2000 $ 57 $ 32 $ 25
2001 57 29 28
2002 57 29 28
2003 57 29 28
2004 57 29 28
During the remaining lease term 94 162 (68)
------------------------------------------
Total $ 379 $ 310 $ 69
==========================================
Total rent expense was $51,000 and $52,000 for the years ended December 31,
1999 and 1998.
Note 19 -- Stock Option Plan
Under the Company's incentive stock option plan, which is accounted for in
accordance with APB No. 25, "Accounting for Stock Issued to Employees," and
related interpretations, the Company grants directors, selected executives
and other key employees stock option awards which vest at a rate of 20
percent per year commencing one year after the date the shares are granted.
The plan provides that in the event of a change in control or death or
disability, all unvested options will be immediately exercisable. During
1996, the Company authorized the grant of options for up to 205,275 shares of
the Company's common stock or 10 percent of the shares issued in the
Company's initial public offering. The exercise price of each option, which
has a 10-year life, was equal to the market price of the Company's stock on
the date of grant; therefore, no compensation expense was recognized.
Although the Company has elected to follow APB No. 25, SFAS No. 123 requires
pro forma disclosures of net income and earnings per share as if the Company
had accounted for its stock options under that Statement. The fair value of
each option grant was estimated on the grant date using an option-pricing
model.
Under SFAS No. 123, compensation cost is recognized in the amount of the
estimated fair value of the options and amortized to expense over the
options' vesting period. The pro forma effect on net income and earnings per
share of this statement are as follows:
1999 1998
--------------------------
Net income As reported $ 644 $ 848
Pro forma 505 705
Basic earnings per share As reported $ 0.53 $ 0.61
Pro forma 0.42 0.50
Diluted earnings per share As reported $ 0.52 $ 0.57
Pro forma 0.41 0.47
The following is a summary of the status of the Company's stock option plan
and changes in that plan as of and for the years ended December 31, 1999 and
1998.
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998
- -------------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Shares Price Shares Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding, beginning of year 193,101 $ 14.20 194,901 $ 14.20
Granted -- -- -- --
Exercised -- -- (1,800) 14.00
Forfeited (5,500) 14.00 -- --
------- -------
Outstanding, end of year 187,601 $ 14.21 193,101 $ 14.21
======= =======
Options exercisable at
year end 112,704 75,084
</TABLE>
As of December 31, 1999, the 187,601 options outstanding have exercise prices
ranging from $14.00 to $16.38 and a weighted-average remaining contractual
life of 6.3 years.
Note 20 -- Postretirement Plan
The Company sponsors a defined benefit postretirement plan that covers both
salaried and non salaried employees. The following table sets forth the
plan's funded status, and amounts recognized in the consolidated financial
statements:
December 31 1999 1998
- ----------------------------------------------------------------------------
Change in benefit obligation
Benefit obligation at beginning of year $ 184 $ 128
Service cost 15 10
Interest cost 15 10
Actuarial gain (loss) 20 41
Benefits paid (6) (5)
--------------------------
Benefit obligation at end of year 228 184
--------------------------
Change in plan assets
Fair value of plan assets at
end of year -- --
--------------------------
Funded status (228) (184)
Unrecognized net actuarial gain (34) (55)
Unrecognized transition liability 123 132
--------------------------
Accrued benefit cost $ (139) $ (107)
==========================
Components of net periodic benefit cost
Service cost 15 10
Interest cost 15 10
Amortization of prior service cost 6 5
--------------------------
Net periodic benefit cost $ 36 $ 25
==========================
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 9 percent, gradually declining to 5
percent in the year 2003.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent in 1999 and 1998.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one percentage-point change in assumed
health care cost trend rates would have the following effects:
One Percentage Point
--------------------------
Increase Decrease
--------------------------
Effect on total service components $ 8 $ (6)
Effect on postretirement benefit obligation 54 (40)
Note 21 -- Deferred Compensation
The Company has a deferred compensation plan for its directors whereby each
director may elect to defer his annual fees. For the years ended December
31, 1999 and 1998, expense related to this plan was $32,000 and $31,000, with
payments to directors totaling $26,000 in 1999 and $21,000 in 1998.
Note 22 -- Business Industry Segments
The Company's primary business involves the typical banking services of
generating loans and receiving deposits. Through PASC, the Company also
provides insurance and brokerage services to customers. The following
schedule is a summary of selected data for the Company's various business
segments:
<TABLE>
<CAPTION>
Insurance/
Banking Brokerage
Services Services Company Eliminations Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Total interest income $ 11,025 $ -- $ 11,025 $ -- $ 11,025
Total noninterest income 839 777 1,616 (93) 1,523
Total interest expense 5,315 -- 5,315 -- 5,315
Total noninterest expense 4,998 649 5,647 (93) 5,554
Income before income tax 978 128 1,106 -- 1,106
Income tax expense 407 55 462 -- 462
Net income 571 73 644 -- 644
Total assets 154,195 835 155,030 (721) 154,309
1998
Total interest income $ 11,018 $ -- $ 11,018 $ -- $ 11,018
Total noninterest income 748 625 1,373 (78) 1,295
Total interest expense 5,141 -- 5,141 -- 5,141
Total noninterest expense 4,753 530 5,283 (78) 5,205
Income before income tax 1,416 95 1,511 -- 1,511
Income tax expense 625 38 663 -- 663
Net income 791 57 848 -- 848
Total assets 156,762 1,055 157,817 (646) 157,171
</TABLE
Note 23 -- Earnings per share
</TABLE>
<TABLE>
<CAPTION>
Earnings per share (EPS) were computed as follows:
Year Ended December 31, 1999
---------------------------------------
Weighted
Average Per-Share
Income Shares Amount
---------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $ 644 1,207,068 $ 0.53
Effect of Dilutive Securities
Stock options 237
Unearned incentive plan shares 28,940
-------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $ 644 1,236,245 $ 0.52
=======================================
<CAPTION>
Year Ended December 31, 1998
---------------------------------------
Weighted
Average Per-Share
Income Shares Amount
---------------------------------------
<S> <C> <C> <C>
Basic Earnings Per Share
Income available to common stockholders $ 848 1,396,800 $ 0.61
Effect of Dilutive Securities
Stock options 51,114
Unearned incentive plan shares 40,465
-------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversions $ 848 1,488,379 $ 0.57
=======================================
</TABLE>
Note 24 -- Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and Cash Equivalents -- The fair value of cash and cash equivalents
approximates carrying value.
Securities -- Fair values are based on quoted market prices.
Loans -- For both short-term loans and variable-rate loans that reprice
frequently and with no significant change in credit risk, fair values are
based on carrying values. The fair values for certain mortgage loans,
including one-to-four family residential, are based on quoted market prices
of similar loans sold in conjunction with securitization transactions,
adjusted for differences in loan characteristics. The fair value of other
loans is estimated using discounted cash flow analyses using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality.
Interest Receivable/Payable -- The fair values of interest receivable/payable
approximate carrying values.
FHLB stock -- Fair value of FHLB stock is based on the price at which it may
be resold to the FHLB.
Cash Surrender Value of Life Insurance -- Fair values are based on estimated
net realizable value.
Deposits -- The fair values of noninterest-bearing demand, interest-bearing
demand and savings accounts are equal to the amount payable on demand at the
balance sheet date. Fair values for fixed-rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on such time deposits.
Loans Sold Under Repurchase Agreements -- Loans sold under repurchase
agreements are short-term borrowing arrangements. The rates at December 31,
1998 approximate market rates, thus the fair value approximates carrying
value.
FHLB Advances -- The fair value of these borrowings are estimated using a
discounted cash flow calculation, based on current rates for similar debt.
Off-Balance Sheet Commitments -- Commitments include commitments to purchase
and originate mortgage loans, commitments to sell mortgage loans, and standby
letters of credit and are generally of a short-term nature. The fair value
of such commitments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the
counterparties' credit standing.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
1999 1998
----------------------------------------------------
Carrying Fair Carrying Fair
December 31 Amount Value Amount Value
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 10,013 $ 10,013 $ 21,815 $ 21,815
Investment securities
Available for sale 2,977 2,977 1,001 1,001
Held to maturity 3,463 3,338 1,977 1,988
Loans, net 127,728 126,281 121,747 123,312
Interest receivable 888 888 880 880
Federal Home Loan Bank stock 767 767 736 739
Cash surrender value of life insurance 223 223 213 213
Liabilities
Deposits 122,845 122,077 123,020 123,101
Loans sold under repurchase agreements -- -- 2,000 2,000
Federal Home Loan Bank advances 8,000 7,254 7,000 6,396
Interest payable 49 49 47 47
Off-balance sheet assets
Commitments to extend credit -- -- -- --
Standby letters of credit -- -- -- --
</TABLE>
GREAT AMERICAN BANCORP, INC.
SHAREHOLDER INFORMATION
Stock Listing and Price Information
The Company's common stock trades on The Nasdaq Stock Market under the symbol
"GTPS". At December 31, 1999, 1,223,715 shares of the Company's common stock
were held of record by 388 persons or entities, not including the number of
persons or entities holding stock in nominee or street name through various
brokers or banks.
The following schedule shows the high and low sales prices for each of the
quarters in the years ended December 31, 1999 and 1998:
Quarter Ended: High Low
------------------ ------ ------
March 31, 1998 21.25 18.50
June 30, 1998 23 20
September 30, 1998 22.75 15.625
December 31, 1998 17.875 13.50
March 31, 1999 16.25 13.50
June 30, 1999 15.938 13.125
September 30, 1999 15.50 12.75
December 31, 1999 14.125 12.375
At December 31, 1999 the closing price of a common share was $12.38. Such
prices do not necessarily reflect retail markups, markdowns, or commissions.
During the years ended December 31, 1999 and 1998, the Company declared
dividends as follows:
Date Declared Record Date Payable Date Amount
- ---------------- ----------------- ----------------- ------
February 9, 1998 March 13, 1998 April 1, 1998 .10
May 11, 1998 June 15, 1998 July 1, 1998 .11
August 10, 1998 September 15, 1998 October 1, 1998 .11
November 9, 1998 December 14, 1998 January 4, 1999 .11
February 8, 1999 March 15, 1999 April 1, 1999 .11
May 10, 1999 June 15, 1999 July 1, 1999 .11
August 9, 1999 September 15, 1999 October 1, 1999 .11
November 8, 1999 December 15, 1999 January 3, 2000 .11
-------
$ .87
=======
Investor Information
Stockholders, investors and analysts interested in additional information may
contact:
Jane F. Adams
Chief Financial Officer
Great American Bancorp, Inc.
1311 S. Neil Street
Champaign, IL 61820
Annual Report on Form 10-KSB
A copy of the annual report on Form 10-KSB for the fiscal year ended December
31, 1999, which has been filed with the Securities and Exchange Commission is
available to stockholders (excluding exhibits) at no charge, upon written
request to the above address.
Corporate Counsel
Muldoon Murphy and Faucette LLP
5101 Wisconsin Avenue N.W.
Washington, D C 20016
Independent Auditors
Olive LLP
100 Trade Center
Champaign, IL 61820
Annual Meeting of Stockholders
The Annual Meeting of Stockholders of Great American Bancorp, Inc. will be
held at 9:30 a.m. April 25, 2000 at:
First Federal Savings Bank of Champaign-Urbana
1311 S. Neil Street
Champaign IL 61820
Shareholders are welcome to attend.
Stock Transfer Agent and Registrar
Inquiries regarding stock transfer, registration, lost certificates or
changes in name and address should be directed to the transfer agent and
registrar:
American Securities Transfer and Trust, Inc.
P.O. Box 1596
Denver, CO 80228
Exhibit 23.0 Consent of Independent Accountants
INDEPENDENT ACCOUNTANTS' CONSENT
The Board of Directors
Great American Bancorp, Inc.
We have issued our report dated January 27, 2000 accompanying the
consolidated financial statements of Great American Bancorp, Inc. and
Subsidiary appearing in the Company's 1999 Annual Report to Stockholders. We
consent to the incorporation by reference in this Form 10-KSB of the
aforementioned report.
Olive, LLP
/s/ Olive LLP
Decatur, Illinois
March 28, 2000
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This schedule contains summary financial information extracted from SEC
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