UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
----------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File Number: 0-25808
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GREAT AMERICAN BANCORP, INC.
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(Exact name of small business issuer as specified 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, IL 61824-1010
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(Address of principal executive offices)
(217) 356-2265
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(Issuer's telephone number)
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 [ ]
At October 31, 2003, the Registrant had 757,432 shares of Common Stock
outstanding, for ownership purposes, which excludes 1,295,318 shares held as
treasury stock.
Transitional Small Business Disclosure Format (Check One): Yes No X
--- ---
Table of Contents
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Cash Flows
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis or
Plan of Operation
Item 3. Controls and Procedures
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
As of September 30, 2003 and December 31, 2002
(in thousands except share data)
September 30, 2003 Dec. 31, 2002
(unaudited)
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ASSETS
Cash and due from banks $ 4,395 $ 4,990
Interest-bearing demand deposits 14,069 27,344
--------------------------------
Cash and cash equivalents 18,464 32,334
Interest-bearing time deposits 35,000 --
Held-to-maturity securities (fair value of
$682 and $1,329 at September 30, 2003 and
December 31, 2002, respectively) 648 1,262
Mortgage loans held for sale 105 1,658
Loans, net of allowance for loan losses
of $1,187 and $1,188 in 2003 and 2002,
respectively 99,046 122,336
Premises and equipment 6,288 6,146
Federal Home Loan Bank stock 1,302 1,227
Interest receivable 501 683
Cash value of life insurance 280 268
Insurance premiums receivable 339 225
Deferred income taxes 98 46
Income taxes receivable 71 --
Mortgage servicing rights 172 192
Other 753 873
--------------------------------
Total assets $ 163,067 $ 167,250
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Noninterest-bearing deposits $ 12,731 $ 12,399
Interest-bearing deposits
Savings, NOW and money market 60,816 57,343
Time 57,013 61,549
--------------------------------
Total deposits 130,560 131,291
Federal Home Loan Bank advances 13,000 15,000
Deferred compensation - directors 649 645
Advances from borrowers for taxes
and insurance 46 265
Accrued postretirement benefit obligation 295 255
Accrued real estate taxes 107 138
Premiums due insurance companies 315 201
Dividend payable 84 90
Income taxes payable -- 55
Interest payable 50 62
Other 344 310
--------------------------------
Total liabilities 145,450 148,312
--------------------------------
Commitments and Contingent Liabilities
(continued
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Balance Sheets (Continued)
As of September 30, 2003 and December 31, 2002
(in thousands except share data)
September 30, 2003 Dec. 31, 2002
(unaudited)
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STOCKHOLDERS' EQUITY
Preferred stock, $0.01 par value
Authorized and unissued --
1,000,000 shares $ -- $ --
Common stock, $0.01 par value
Authorized -- 7,000,000 shares
Issued -- 2,052,750 shares
Outstanding: 2003 - 756,232 shares,
2002 - 818,490 shares 21 21
Additional paid-in-capital 20,166 20,166
Retained earnings 20,433 19,374
--------------------------------
40,620 39,561
Treasury stock, at cost
Common: 2003 - 1,296,518 shares,
2002 - 1,234,260 shares (22,939) (20,557)
Unearned incentive plan shares:
2003 - 4,409 shares,
2002 - 4,589 shares (64) (66)
--------------------------------
Total stockholders' equity 17,617 18,938
--------------------------------
Total liabilities and
stockholders' equity $ 163,067 $ 167,250
================================
See notes to condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited, in thousands except share data)
2003 2002
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Interest income
Loans $ 6,122 $ 7,812
Held-to-maturity securities 46 85
Deposits with banks and other 368 196
--------------------------------
Total interest income 6,536 8,093
--------------------------------
Interest expense
Deposits 1,801 2,638
Federal Home Loan Bank advances 453 647
Other 19 22
--------------------------------
Total interest expense 2,273 3,307
--------------------------------
Net interest income 4,263 4,786
Provision for loan losses -- 140
--------------------------------
Net interest income after
provision for loan losses 4,263 4,646
--------------------------------
Noninterest income
Insurance sales commissions 1,279 1,148
Brokerage commissions 68 89
Customer service fees 432 435
Other service charges and fees 177 151
Net gains on loan sales 647 404
Loan servicing fees 94 32
Other 5 8
--------------------------------
Total noninterest income 2,702 2,267
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited, in thousands except share data)
2003 2002
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Noninterest expense
Salaries and employee benefits $ 2,763 $ 2,546
Net occupancy expense 429 433
Equipment expense 383 373
Data processing fees 52 56
Deposit insurance premium 16 17
Printing and office supplies 228 208
Legal and professional fees 178 177
Directors and committee fees 108 82
Insurance expense 54 46
Marketing and advertising expense 184 161
Amortization of mortgage servicing rights 150 16
Other 361 381
--------------------------------
Total noninterest expense 4,906 4,496
--------------------------------
Income before income taxes 2,059 2,417
Provision for income taxes 747 922
--------------------------------
Net income $ 1,312 $ 1,495
================================
Per Share Data:
Earnings
Basic:
Net income $ 1.71 $ 1.77
================================
Average number of shares 766,854 843,525
================================
Diluted:
Net income $ 1.54 $ 1.63
================================
Average number of shares 851,092 915,889
================================
Dividends $ 0.33 $ 0.33
================================
See notes to condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Three Months Ended September 30, 2003 and 2002
(Unaudited, in thousands except share data)
2003 2002
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Interest income
Loans $ 1,870 $ 2,556
Held-to-maturity securities 12 23
Deposits with banks and other 124 75
--------------------------------
Total interest income 2,006 2,654
--------------------------------
Interest expense
Deposits 529 809
Federal Home Loan Bank advances 149 205
Other 6 7
--------------------------------
Total interest expense 684 1,021
--------------------------------
Net interest income 1,322 1,633
Provision for loan losses -- 30
--------------------------------
Net interest income after
provision for loan losses 1,322 1,603
--------------------------------
Noninterest income
Insurance sales commissions 478 337
Brokerage commissions 23 21
Customer service fees 155 162
Other service charges and fees 58 57
Net gains on loan sales 95 183
Loan servicing fees 39 15
Other -- 1
--------------------------------
Total noninterest income 848 776
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Three Months Ended September 30, 2003 and 2002
(Unaudited, in thousands except share data)
2003 2002
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Noninterest expense
Salaries and employee benefits $ 910 $ 874
Net occupancy expense 146 147
Equipment expense 136 125
Data processing fees 18 19
Deposit insurance premium 5 6
Printing and office supplies 76 68
Legal and professional fees 51 70
Directors and committee fees 35 32
Insurance expense 18 16
Marketing and advertising expense 61 58
Amortization of mortgage servicing rights 38 9
Other 110 137
--------------------------------
Total noninterest expense 1,604 1,561
--------------------------------
Income before income taxes 566 818
Provision for income taxes 162 296
--------------------------------
Net income $ 404 $ 522
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.53 $ 0.63
================================
Average number of shares 756,233 830,965
================================
Diluted:
Net income $ 0.48 $ 0.57
================================
Average number of shares 843,729 911,134
================================
Dividends $ 0.11 $ 0.11
================================
See notes to condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited, in thousands)
2003 2002
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Operating Activities
Net income $ 1,312 $ 1,495
Items not requiring (providing) cash
Depreciation expense 332 359
Provision for loan losses -- 140
Amortization of premiums and discounts
on securities -- 4
Amortization of loan-servicing rights 150 16
Amortization of deferred loan fees (26) (22)
Deferred income taxes (52) 6
Federal Home Loan Bank stock dividends (75) (46)
Incentive plan expense 2 6
Net gains on loan sales (647) (404)
Loans originated for sale (30,834) (15,191)
Proceeds from loan sales 32,904 16,216
Net gain on sales of premises and equipment -- (4)
Changes in:
Interest receivable 182 56
Prepaid expenses and other assets (6) (160)
Interest payable (12) (17)
Other liabilities 161 244
Income taxes (126) 10
--------------------------------
Net cash provided by
operating activities 3,265 2,708
--------------------------------
Investing Activities
Net change in interest-bearing time deposits (35,000) --
Proceeds from paydowns of mortgage backed
securities 614 549
Net collections of loans 23,316 12,650
Purchase of premises and equipment (474) (227)
Proceeds from sales of premises and equipment -- 4
--------------------------------
Net cash provided by (used in)
investing activities (11,544) 12,976
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 30, 2003 and 2002
(Unaudited, in thousands)
2003 2002
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Financing Activities:
Net increase in demand deposits,
money market, NOW and savings accounts $ 3,805 $ 8,306
Net decrease in certificates of deposits (4,536) (6,929)
Proceeds from Federal Home Loan Bank advances -- 2,000
Repayment of Federal Home Loan Bank advances (2,000) (4,500)
Proceeds from stock options exercised 305 --
Purchase of treasury stock (2,687) (800)
Dividends paid (259) (282)
Net decrease in advances from
borrowers for taxes and insurance (219) (244)
--------------------------------
Net cash provided by (used in)
financing activities (5,591) (2,449)
--------------------------------
Increase (decrease) in Cash
and Cash Equivalents (13,870) 13,235
Cash and Cash Equivalents, Beginning
of Period 32,334 11,166
--------------------------------
Cash and Cash Equivalents, End of
Period $ 18,464 $ 24,401
================================
Supplemental Cash Flows Information
Interest paid $ 2,285 $ 3,324
================================
Income taxes paid (net of refunds) $ 926 $ 906
================================
See notes to condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Notes to Condensed Consolidated Financial Statements
1. Background Information
Great American Bancorp, Inc. (the "Company") was organized in 1995 to be
the savings and loan holding company of First Federal Savings Bank of
Champaign-Urbana, Illinois, (the "Bank") in connection with the Bank's
conversion from a federally chartered mutual savings bank to a federally
chartered stock savings bank. The Company's common stock trades on the
Nasdaq SmallCap Market under the symbol "GTPS."
2. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and Item 310(b) of
Regulation S-B, and, in the opinion of management, contain all adjustments
necessary to present fairly the financial position as of September 30, 2003
and December 31, 2002, the results of operations for the nine months and
three months ended September 30, 2003 and 2002, and the cash flows for the
nine months ended September 30, 2003 and 2002. All adjustments to the
financial statements were normal and recurring in nature. These results have
been determined on the basis of accounting principles generally accepted in
the United States of America. Reclassifications of certain amounts in the
2002 financial statements have been made to conform to the 2003 presentation.
The results of operations for the nine months and three months ended
September 30, 2003 are not necessarily indicative of the results to be
expected for the entire fiscal year.
The condensed consolidated financial statements are those of the Company
and the Bank. Certain information and note disclosures normally included in
the Company's financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's 2002 Annual Report to Shareholders. The
condensed consolidated balance sheet of the Company as of December 31, 2002
has been derived from the audited consolidated balance sheet of the Company
as of that date.
3. Stock Options
The Company has a stock-based employee compensation plan, which is
described more fully in Notes to Financial Statements included in the 2002
Annual Report to Shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based
employee compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the grant date. The following table illustrates
the effect on net income and earnings per share if the Company had applied
the fair value provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2003 2002 2003 2002
--------------------- ---------------------
Net income as reported $ 404 $ 522 $ 1,312 $ 1,495
Less: Total stock-based
employee compensation
cost determined under the
fair value based method,
net of income taxes (--) (1) (1) (7)
--------------------- ---------------------
Pro forma net income $ 404 $ 521 $ 1,311 $ 1,488
===================== =====================
Earnings per share:
Basic - as reported $ 0.53 $ 0.63 $ 1.71 $ 1.77
===================== =====================
Basic - pro forma $ 0.53 $ 0.63 $ 1.71 $ 1.76
===================== =====================
Diluted - as reported $ 0.48 $ 0.57 $ 1.54 $ 1.63
===================== =====================
Diluted - pro forma $ 0.48 $ 0.57 $ 1.54 $ 1.63
===================== =====================
PART I -- Item 2.
GREAT AMERICAN BANCORP, INC.
Management's Discussion and Analysis
or Plan of Operation
Forward-Looking Information
In addition to historical information, this Report on Form 10-QSB may
include certain forward-looking statements based on current management
expectations. The Company's actual results could differ materially from
those management expectations. Factors that could cause future results to
vary from current management expectations include, but are not limited to,
general economic conditions, legislative and regulatory changes, monetary and
fiscal policies of the federal government, changes in tax policies, rates and
regulations of federal, state and local tax authorities, changes in interest
rates, deposit flows, the cost of funds, demand for loan products, demand for
financial services, competition, changes in the quality or competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and
other economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices. Further
description of the risks and uncertainties to the business are included in
detail under the caption: Liquidity and Capital Resources.
General
The Company is the holding company for the Bank. The Bank operates a
wholly owned subsidiary, Park Avenue Service Corporation ("PASC"). PASC
operates the GTPS Insurance Agency ("Agency") which offers a variety of
insurance products, including life, health, automobile, and property and
casualty insurance. Prior to October 1, 2003, PASC also offered full service
brokerage activities through UMB Scout Brokerage Services, Inc., ("UMB") a
subsidiary of United Missouri Bank. Effective October 1, 2003, the contract
between PASC and UMB was terminated and a new contract was entered into
between the Bank and UMB. All brokerage activities are now being conducted
through the Bank.
Financial Condition
The Company's total assets decreased $4.18 million from $167.25 million
at December 31, 2002 to $163.07 million at September 30, 2003. This decline
was primarily in loans and cash and cash equivalents. Cash and cash
equivalents decreased $13.87 million, from $32.33 million at December 31,
2002 to $18.46 million at September 30, 2003. Cash and cash equivalents
declined mainly due to the purchase of a Federal Home Loan Bank ("FHLB")
short-term time deposit totaling $35.00 million, the repayment of FHLB
advances totaling $2.00 million, a decline in customer deposits of $731,000
and the purchase of treasury stock of $2.69 million, offset by a decrease in
loans, including loans held for sale, of $24.84 million. The short-term time
deposit of $35.00 million at September 30, 2003 was a 14-day deposit with a
yield of 0.95%.
Held-to-maturity securities declined from $1.26 million at December 31,
2002 to $648,000 at September 30, 2003 due to repayments of mortgage-backed
securities.
Mortgage loans held for sale decreased from $1.66 million at December
31, 2002 to $105,000 at September 30, 2003. During the nine months ended
September 30, 2003, the Company sold $32.39 million in fixed rate one-to-
four-family home mortgage loans to the Federal National Mortgage Association
("FNMA"). During 2003, home mortgage rates declined to historically low
levels. Interest rates on 30-year fixed rate loans declined to levels not
experienced since the 1950's. The Company's 30-year mortgage rate decreased
to as low as 5.50% during 2003, while the 15-year rate dropped as low as
4.75%. These low rates prompted a significant number of customers to
refinance their existing home mortgage loans. In order to reduce the
Company's interest rate risk exposure, the Company sold the majority of these
refinanced loans to FNMA. By the end of the third quarter of 2003, the
number of customers refinancing their home mortgage loans had significantly
declined. During September 2003, the Company implemented a program to hold
the majority of new home mortgage loans as held for investment. The balance
of mortgage loans held for sale at September 30, 2003 of $105,000 is
comprised of one loan which the Company committed to sale to FNMA in August
2003. This loan was sold to FNMA in early October 2003.
During the nine months ended September 30, 2003, the Company originated
$30.83 million in mortgage loans held for sale, including refinanced loans.
During this period, the Company sold $32.39 million in loans. At September
30, 2003 and December 31, 2002, residential mortgage loans serviced for
others totaled $46.93 million and $30.68 million, respectively. During 2002
and 2003, the Company maintained the servicing for all residential loans
sold.
The following schedule shows the balances by loan category at September
30, 2003 compared to December 31, 2002, along with the change and percentage
change:
Balance Balance
September 30, December 31, Percentage
2003 2002 Change Change
- ----------------------------------------------------------------------------
One-to-four-family mortgage
loans held for investment $ 41,537 $ 60,644 $(19,107) (31.5)%
Multi-family mortgage loans 18,681 20,249 (1,568) (7.7)
Commercial mortgage loans 12,186 16,092 (3,906) (24.3)
Construction loans 1,451 2,077 (626) (30.1)
- ----------------------------------------------------------------------------
Total real estate loans 73,855 99,062 (25,207) (25.4)
Commercial loans 11,764 10,063 1,701 16.9
Consumer loans 14,614 14,399 215 1.5
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Total loans 100,233 123,524 (23,291) (18.9)
Allowance for loan losses (1,187) (1,188) 1 (0.1)
- ----------------------------------------------------------------------------
Total loans, net $ 99,046 $ 122,336 $(23,290) (19.0)%
============================================================================
Net loans declined from $122.34 million at December 31, 2002 to $99.05
million at September 30, 2003, a decrease of $23.29 million, or 19.0%. Net
loans, which do not include mortgage loans held for sale, declined mostly due
to principal repayments on one-to-four-family residential mortgage loans
exceeding loan originations and decreases in multifamily residential loans
and commercial mortgage loans. The majority of new and refinanced one-to-
four-family residential mortgage loans in 2003 were originated for sale
rather than for investment. Mortgage loans held for sale are separately
reported on the consolidated balance sheets. One-to-four-family mortgage
loans decreased $19.11 million from December 31, 2002 to September 30, 2003.
Multifamily residential mortgage loans declined $1.57 million in 2003
mainly due to the sale of $1.31 million in loans held by the holding company.
The Company sold these loans as participations to other banks mainly to
provide funds for the purchase of treasury stock. Commercial mortgage loans
declined $3.91 million primarily due to the payoff of two loans totaling
$3.33 million in the third quarter of 2003.
Total deposits decreased $731,000 from $131.29 million at December 31,
2002 to $130.56 million at September 30, 2003. Noninterest-bearing deposits
increased by $332,000 and savings, NOW and money market deposits grew by
$3.48 million, while time deposits declined by $4.54 million during the first
nine months of 2003. The decline in time deposits was mainly in certificates
of deposit maturing in one to two years.
The growth in savings, NOW and money market accounts was partly due to
customers transferring matured certificates of deposit into short-term,
interest-bearing demand accounts in anticipation that market interest rates
will climb in the near future. The growth in savings, NOW and money market
accounts was also due to seasonal fluctuations in these accounts.
The following table summarizes the balances of deposits at September 30,
2003 and December 31, 2002, the change in the balances and the percentage
change:
Balance Balance
September 30, December 31, Percentage
2003 2002 Change Change
- -----------------------------------------------------------------------------
Noninterest bearing
checking accounts $ 12,731 $ 12,399 $ 332 2.7%
Interest bearing:
NOW accounts 21,104 20,388 716 3.5
IMMA accounts 21,089 19,507 1,582 8.1
Savings accounts 18,623 17,448 1,175 6.7
Certificates of deposit 57,013 61,549 (4,536) (7.4)
- -----------------------------------------------------------------------------
Total interest
bearing deposits 117,829 118,892 (1,063) (0.9)
- -----------------------------------------------------------------------------
Total deposits $ 130,560 $ 131,291 $ (731) (0.6)%
=============================================================================
FHLB advances totaled $13.00 million at September 30, 2003 compared to
$15.00 million at December 31, 2002. In March 2003, a $1.00 million FHLB
advance with a rate of 3.06% matured. In September 2003, a $1.00 million
FHLB advance with a rate of 3.58% matured. The following schedule presents
FHLB advances at September 30, 2003, by maturity date:
Date Fixed First or
of Interest or Maturity Next Call
Advance Rate Variable Date Date Amount
- -----------------------------------------------------------------------------
October 1998 4.30 Fixed October 2008 October 2003 5,000
January 2001 4.55 Fixed January 2011 October 2003 5,000
September 2001 3.80 Fixed September 2011 September 2004 3,000
-------
$13,000
=======
The $10.00 million in advances callable in October 2003 were not called.
Both of these advances are callable quarterly. The $3.00 million advance has
only a one-time call date in September 2004.
Total stockholders' equity decreased $1.32 million, from $18.94 million
at December 31, 2002 to $17.62 million at September 30, 2003. Book value per
outstanding voting share increased from $23.14 at December 31, 2002 to $23.30
at September 30, 2003.
The decrease in stockholders' equity is summarized as follows (in
thousands):
Stockholders' equity, December 31, 2002 $ 18,938
Net income 1,312
Purchase of treasury stock (2,687)
Stock options exercised 305
Dividends declared (253)
Incentive plan shares allocated 2
------
Stockholders' equity, September 30, 2003 $ 17,617
======
In February 2003, the Company announced a 5% common stock repurchase
program that was equal to 38,875 shares. This stock repurchase program was
completed in September 2003 at an average price of $30.67. In July 2003, the
Company announced an additional 5% common stock repurchase program totaling
38,187 shares. As of October 31, 2003, the Company has repurchased 2,621
shares as part of the latest stock repurchase program at an average price of
$33.50. All repurchased shares will be held as treasury shares to be used
for issuing stock under stock option agreements and for general corporate
purposes.
Results of Operations
Comparison of Nine Month Periods Ended September 30, 2003 and 2002
Net income totaled $1,312,000 for the nine months ended September 30,
2003 compared to $1,495,000 for the nine months ended September 30, 2002, a
decrease of $183,000, or 12.2%. Basic earnings per share were $1.71 for the
nine months ended September 30, 2003, compared to $1.77 for the nine months
ended September 30, 2002. Diluted earnings per share were $1.54 for the nine
months ended September 30, 2003 compared to $1.63 for the same period in
2002. Net income decreased in 2003 primarily due to lower net interest
income and an increase in noninterest expense, offset by a reduction in the
provision for loan losses and an increase in noninterest income.
Net interest income decreased $523,000, or 10.9%, from $4,786,000 for
the nine months ended September 30, 2002 to $4,263,000 for the same period in
2003. Interest income declined $1,557,000, or 19.2%, from $8,093,000 for the
nine months ended September 30, 2002 to $6,536,000 for the first nine months
of 2003. Interest expense decreased $1,034,000, or 31.3%, from $3,307,000 in
2002 to $2,273,000 in 2003.
Interest income from loans was $6,122,000 for the first nine months of
2003, $1,690,000, or 21.6% less than the $7,812,000 recorded for the first
nine months of 2002. Interest income from loans declined mainly as a result
of a decrease in total loans from a year ago and a reduction in average loan
yields. The average balance of total net loans, including mortgage loans
held for sale, decreased by $26.13 million in 2003, from $136.81 million in
2002 to $110.68 million in 2003.
The following schedule compares average total loan balances by major
categories for the first nine months of fiscal 2003 to the same period in
2002:
Average Average
Balance Balance Percentage
2003 2002 Change Change
- ----------------------------------------------------------------------------
One-to-four-family
mortgage loans $ 49,805 $ 77,652 $(27,847) (35.9)%
Multi-family mortgage loans 19,486 19,298 188 1.0
Commercial mortgage loans 15,538 15,699 (161) (1.0)
Construction loans 1,961 2,970 (1,009) (34.0)
- ----------------------------------------------------------------------------
Total real estate loans 86,790 115,619 (28,829) (24.9)
Commercial loans 10,527 9,303 1,224 13.2
Consumer loans 14,556 13,009 1,547 11.9
- ----------------------------------------------------------------------------
Total loans 111,873 137,931 (26,058) (18.9)
Allowance for loan losses (1,189) (1,126) (63) 5.6
- ----------------------------------------------------------------------------
Total loans, net $110,684 $136,805 $(26,121) (19.1)%
============================================================================
The average balance of total loans declined in 2003 mainly due to the
Company selling the majority of new and refinanced one-to-four-family
residential mortgage loans during 2003. The average balance of total one-to-
four-family mortgage loans decreased $27.85 million in 2003, from $77.65
million for the nine months ended September 30, 2002 to $49.81 million for
the nine months ended September 30, 2003. The average balance of one-to-
four-family loans serviced for others increased $23.37 million from $15.92
million for the nine months ended September 30, 2002 to $39.29 million for
the nine months ended September 30, 2003.
The $1.22 million increase in the average total balance of commercial
loans is primarily due to one commercial loan customer maintaining a higher
balance on their line of credit during 2003. Average total consumer loans
were $1.55 million higher in 2003 due mainly to the average balance of total
home equity loans. The average balance of total home equity loans increased
$2.16 million, from $2.80 million for the nine months ended September 30,
2002 to $4.96 million for the period ending September 30, 2003. The average
total balances of other secured consumer loans declined during 2003.
Interest income from loans also declined in 2003 due to lower average
yields, which resulted from declining interest rates during 2002 and 2003.
The prime rate, the rate used by financial institutions in establishing the
majority of loan offering rates, was at 4.75% from January 2002 until the
rate dropped to 4.25% in November 2002. The prime rate declined again on
June 30, 2003 to 4.00%. The average yield on the Company's net loans
decreased from 7.63% for the first nine months of 2002 to 7.40% for the first
nine months of 2003.
Interest income from held-to-maturity securities declined from $85,000
for the nine months ended September 30, 2002 to $46,000 for the same period
in 2003, mainly due to a decline in the average balance of these investments.
The total average balance of held-to-maturity securities declined from $1.78
million during the first nine months of 2002 to $965,000 during the first
nine months of 2003. Held-to-maturity securities were comprised of mortgage-
backed securities during both 2003 and 2002. The average yield on held-to-
maturity securities was 6.37% in both 2002 and 2003.
Interest income from deposits with banks and other increased $172,000,
from $196,000 for the nine months ended September 30, 2002 to $368,000 for
the period ended September 30, 2003, due to an increase in the average
balance of these investments. The average balance of total deposits with
banks and other increased from $13.97 million during the first nine months of
2002 to $42.25 million during the same period in 2003. The average yield on
deposits with banks and other decreased from 1.88% for the nine months ended
September 30, 2002 to 1.16% for the nine months ended September 30, 2003.
The majority of these deposits are overnight funds or short-term deposits
with the FHLB, which were affected by a decline in short-term market interest
rates during 2003.
Interest expense decreased by $1,034,000, or 31.3%, from $3,307,000 for
the nine months ended September 30, 2002 to $2,273,000 for the same period in
2003, mainly interest expense on deposits and FHLB advances. Interest
expense on deposits declined $837,000, or 31.7%, from $2,638,000 for the nine
months ended September 30, 2002 to $1,801,000 for the nine months ended
September 30, 2003. This decrease was primarily in interest expense on
certificates of deposit, which declined $716,000, or 33.9% in 2003. Interest
expense on certificates of deposit was $1,399,000 for the first nine months
of 2003 compared to $2,115,000 for the first nine months of 2002.
Certificates of deposit interest expense declined due to a reduction in
the total average balance of certificates and a decrease in the average rate.
Average total certificates of deposit declined $5.64 million, from $64.97
million in the first nine months of 2002 to $59.33 million in the first nine
months of 2003. The decline in average certificates of deposit was primarily
in the one-year to two-year maturity categories. Because of the decline in
market interest rates during 2002 and 2003, the Company lowered offering
rates for new and renewing certificates. As a result, many customers moved
maturing certificates to shorter-term certificates or into demand or savings
accounts. The average rate on certificates of deposit declined from 4.35%
for the nine months ended September 30, 2002 to 3.15% for the same period in
2003.
Interest expense on interest-bearing demand and savings deposits
declined in 2003, from $523,000 for the nine months ended September 30, 2002
to $402,000 for the nine months ended September 30, 2003. The average
balance of interest-bearing demand and savings accounts increased $11.14
million, or 22.0%, from $50.72 million in the first nine months of 2002 to
$61.86 million for the same period in 2003. The weighted average rate
accrued on interest-bearing demand and savings deposits decreased from 1.38%
for the nine months ended September 30, 2002 to 0.87% for the nine months
ended September 30, 2003.
Interest expense on FHLB advances was $453,000 for the nine months ended
September 30, 2003 compared to $647,000 for the same period in 2002. The
average balance of FHLB advances was $14.19 million for the first nine months
of 2003 compared to $18.78 million for the same period in 2002. The average
rate on FHLB advances decreased from 4.61% for the nine months ended
September 30, 2002 to 4.27% for the nine months ended September 30, 2003.
Net interest income as a percent of interest earning assets was 3.70%
for the nine months ended September 30, 2003 versus 4.19% for the same period
in 2002. The spread between the yield on interest-earning assets and the
rate on interest bearing liabilities was 3.44% and 3.82% for the nine months
ended September 30, 2003 and 2002, respectively.
The Company recorded no provision for loan losses for the nine months
ended September 30, 2003 compared to $140,000 for the nine months ended
September 30, 2002. Management's analyses of the allowance for loan losses
during the first nine months of 2003 determined that no additional allocation
to the allowance was warranted for the period, primarily due to a decrease in
non-performing loans and a decrease in total loans. Management assesses the
adequacy of the allowance for loan losses based on evaluating known and
inherent risks in the loan portfolio and upon management's continuing
analysis of the factors underlying the quality of the loan portfolio. While
management believes that, based on information currently available, the
allowance for loan losses is sufficient to cover losses inherent in its loan
portfolio at this time, no assurance can be given that the level of the
allowance for loan losses will be sufficient to cover future possible loan
losses incurred by the Company or that future adjustments to the allowance
for loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for loan losses. Management may
in the future increase the level of the allowance for loan losses as a
percentage of total loans and non-performing loans in the event it increases
the level of commercial real estate, multifamily, or consumer lending as a
percentage of its total loan portfolio. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. Such agencies may require the Company
to provide additions to the allowance based upon judgements different from
management.
During the nine months ended September 30, 2003, the Company charged-off
two consumer loans totaling $4,000 and collected $3,000 in loans previously
charged-off. For the nine months ended September 30, 2002, the Company
charged-off $34,000 in loans and collected $5,000 in recoveries.
Non-performing loans, which are loans past due 90 days or more and non-
accruing loans, totaled $76,000 at September 30, 2003, compared to $324,000
at September 30, 2002. Non-performing loans at September 30, 2003 consisted
of one residential mortgage loan totaling $72,000 and one consumer loan
totaling $4,000. These loans were both past due 90 days or more at September
30, 2003, with the consumer loan in non-accrual status. Non-performing loans
at September 30, 2002 consisted of four residential mortgage loans totaling
$277,000, one commercial loan totaling $12,000 and five consumer loans
totaling $35,000. All of these loans were past due 90 days or more at
September 30, 2002, with two consumer loans totaling $20,000 in non-accrual
status. Both of the non-performing loans at September 30, 2003 were included
in non-performing loans at September 30, 2002. The Company stops accruing
interest on loans, including past due loans, at such time that the ultimate
collection of all principal and interest becomes doubtful. The ratio of the
Company's allowance for loan losses to total loans was 1.18% at September 30,
2003 and .87% at September 30, 2002.
Noninterest income totaled $2,702,000 for the nine months ended
September 30 2003, compared to $2,267,000 for the same period in 2002, an
increase of $435,000, or 19.2%. This increase was mostly due to an increase
in insurance sales commissions and an increase in net gains from the sale of
mortgage loans, net of commissions. Insurance sales commissions increased
$131,000, or 11.4%, from $1,148,000 to $1,279,000. This increase was mainly
due to growth in new commercial customers and group life and health insurance
customers. The Company sold $32.39 million in loans during the first nine
months of 2003. The Company recorded total net gains of $647,000 related to
these sales, including gains on the sale of loans totaling $517,000 and gains
from capitalizing mortgage servicing rights of $130,000. During the first
nine months of 2002, the Company sold $17.60 million in loans, recording
total net gains of $404,000, which was comprised of net cash gains of
$241,000 and gains from capitalizing mortgage servicing rights of $163,000.
The Company sold loans in order to provide funding for additional loans and
also to reduce interest rate risk due to the decline in home mortgage rates.
During September 2003, the Company implemented a program to hold the majority
of new home mortgage loans as held for investment.
Brokerage commissions declined $21,000, or 23.6%, from $89,000 for the
period ended September 30, 2002 to $68,000 for the nine months ended
September 30, 2003 due to a reduction in brokerage activity. Other service
charges and fees increased $26,000, or 17.2%, from $151,000 for the first
nine months of 2002 to $177,000 for the first nine months of 2003, primarily
ATM fees, credit card income and debit card fees. Loan servicing fees
increased from $32,000 for the first nine months of 2002 to $94,000 for the
nine months ended September 30, 2003 due to the increase in total residential
mortgage loans serviced for others.
Noninterest expense was $4,906,000 for the nine months ended September
30, 2003, $410,000 or 9.1% higher than the $4,496,000 recorded for the first
nine months of 2002. Noninterest expense was higher in 2003 mainly due to
increases in salaries and employee benefits expense, printing and office
supplies, directors and committee fees, marketing expenses and amortization
of mortgage servicing rights. Salaries and employee benefits expense
increased $217,000, or 8.5%, from $2,546,000 for the nine months ended
September 30, 2002 to $2,763,000 for the first nine months of 2003, due
partly to normal salary raises, higher health insurance premiums, and an
increase in staffing at the Agency. Also, the Agency changed its method of
compensating some of the Agency's insurance producers from a salary basis to
a commission basis beginning in 2003. This resulted in higher salary costs
at the Agency compared to 2002 amounts. Printing and office supplies expense
was $20,000 higher in 2003, primarily postage and normal supplies expense.
Directors and committee fees were $26,000 higher in 2003 due to an increase
in the monthly fee paid to directors, which was implemented in the third
quarter of 2002. Marketing expense was $23,000 higher in 2003 due mainly to
the additional costs of implementing a new web site for local area youth
sports: www.firstfedsports.com. The web site provides an additional
marketing source for the Company. The site highlights various teams in the
community involved in leagues and school sports, such as baseball and soccer.
Amortization of mortgage servicing rights increased by $134,000, from $16,000
in 2002 to $150,000 in 2003, mainly due to the increase in residential loans
serviced for others.
Total income taxes were $747,000 for the nine months ended September 30,
2003 and $922,000 for the same period in 2002. The effective tax rates for
the nine months ended September 30, 2003 and 2002 were 36.3% and 38.1%
respectively. The lower effective rate for 2003 reflects deductions for
stock options exercised during 2003.
Comparison of Three Month Periods Ended September 30, 2003 and 2002
Net income for the three months ended September 30, 2003 was $404,000, a
decrease of $118,000, or 22.6%, from the $522,000 recorded for the three
months ended September 30, 2002. Basic earnings per share decreased $0.10,
from $0.63 for the three months ended September 30, 2002 to $0.53 for the
same period in 2003, while diluted earnings per share decreased $0.09, from
$0.57 for 2002 to $0.48 in 2003.
Net income for the third quarter of 2003 was lower than net income for
the third quarter of 2002 mainly due to lower net interest income and an
increase in noninterest expense, offset by an increase in noninterest income
and the recording of no provision for loan losses for 2003.
Net interest income was $1,322,000 for the quarter ended September 30,
2003 compared to $1,633,000 for the quarter ended September 30, 2002, a
decrease of $311,000, or 19.0%. Because of the significant decline in
general interest rates during 2003, both interest income and interest expense
were lower in the third quarter of 2003 compared to the third quarter in
2002; however, the decline in interest income was greater.
Interest income decreased $648,000, or 24.4%, from $2,654,000 for the
quarter ended September 30, 2002 to $2,006,000 for the third quarter of 2003,
primarily due to reductions in interest income from loans. Interest income
from loans decreased $686,000, or 26.8%, from $2,556,000 for the quarter
ended September 30, 2002 to $1,870,000 for the same quarter in 2003 due
primarily to declines in both average outstanding net loans and the average
yield on net loans. Total average outstanding net loans, including loans
held for sale, declined from $133.20 million for the quarter ended September
30, 2002 to $100.95 million for the quarter ended September 30, 2003, a
decline of $32.25 million, or 24.2%. This decrease occurred primarily as a
result of the Company selling the majority of new and refinanced home
mortgage loans to FNMA during 2002 and 2003. The average yield on net loans
decreased from 7.61% for the third quarter of 2002 to 7.35% for the third
quarter of 2003.
Interest income on investment securities decreased from $23,000 for the
three months ended September 30, 2002 to $12,000 for the same period in 2003,
due to a reduction in average total investments. Average total investments
for the third quarter of 2003 were $759,000, down $856,000, or 53.0%, from
$1,615,000 for the third quarter of 2002. This decline was due to principal
repayments on mortgage-backed securities. The average yield on investment
securities for the three months ended September 30, 2003 was 6.27%, while the
average yield was 5.65% for the same period in 2002.
Interest income on deposits with banks and other was $124,000 for the
quarter ended September 30, 2003 compared to $75,000 for the quarter ended
September 30, 2002. The average balance of deposits with banks and other was
$51.04 million for the quarter ended September 30, 2003 compared to $16.09
million for the same quarter in 2002. The increase was primarily in
interest-bearing demand deposits, which grew as a result of proceeds from
loan sales and an increase in customer deposits. The average yield on
deposits with banks and other was 0.96% for the quarter ended September 30,
2003 compared to 1.85% for the quarter ended September 30, 2002. The yield
declined as a result of the decline in short-term interest rates during 2003.
Interest expense decreased $337,000, or 33.0%, from $1,021,000 for the
three months ended September 30, 2002 to $684,000 for the same period in
2003. The decrease was mainly due to a decline in interest expense on
deposits. This decline was due to the decrease in market interest rates
during 2003 and a shift in deposits from longer-term, higher rate
certificates of deposit to savings, NOW and money market accounts. The
average rate on interest-bearing deposits declined from 2.79% for the quarter
ended September 30, 2002 to 1.74% for the quarter ended September 30, 2003.
Average total interest-bearing deposits increased $5.42 million in 2003, from
$115.05 million for the quarter ended September 30, 2002 to $120.47 million
for the quarter ended September 30, 2003. Average total interest-bearing
demand deposits - NOW, savings and money market accounts increased $10.00
million, from $52.44 million for the third quarter of 2002 to $62.44 million
for the third quarter of 2003. Average total certificates of deposit
declined $4.58 million, from $62.61 million for the third quarter of 2002 to
$58.03 million for the third quarter of 2003. The majority of the decrease
in average certificates of deposit occurred in one-year to two-year
certificates.
Interest expense on FHLB advances decreased $56,000, from $205,000 for
the three months ended September 30, 2002 to $149,000 for the same period in
2003, due to a decline in total outstanding advances. The average total
balance of FHLB advances decreased from $18.00 million for the third quarter
of 2002 to $13.79 million for the third quarter of 2003. The average rate on
FHLB advances was 4.29% for the three months ended September 30, 2003,
compared to 4.52% for the three months ended September 30, 2002.
Net interest income as a percent of interest earning assets was 3.43%
for the three months ended September 30, 2003 compared to 4.29% for the same
period in 2002. The spread between the yield on interest earning assets and
the rate on interest bearing liabilities was 3.20% and 3.95% for the three
months ended September 30, 2003 and 2002, respectively.
The Company recorded no provision for loan losses for the three months
ended September 30, 2003 compared to $30,000 for the three months ended
September 30, 2002. Management's analyses of the allowance for loan losses
during the third quarter of 2003 determined that no additional allocation to
the allowance was warranted for the period.
Noninterest income increased $72,000, or 9.3%, from $776,000 for the
quarter ended September 30, 2002 to $848,000 for the three months ended
September 30, 2003. The increase was mainly due to higher commission income
from insurance activities, offset by lower net gains from loan sales.
Insurance sales commissions were $478,000 for the quarter ended September 30,
2003 compared to $337,000 for the same period in 2002, an increase of
$141,000, or 41.8%. The Company sold $10.16 million in one-to-four-family
residential mortgage loans during the third quarter of 2003, recording net
gains of $95,000, which includes both the cash gains on the sale of loans
totaling $55,000 and the gains from capitalizing mortgage servicing rights of
$40,000. During the third quarter of 2002, the Company sold $7.12 million in
home mortgage loans, recording net gains of $183,000, including both the cash
gains on the sale of loans totaling $135,000 and the gains from capitalizing
mortgage servicing rights of $48,000.
Noninterest expense was $1,604,000 for the three months ended September
30, 2003 compared to $1,561,000 for the same period in 2002, an increase of
$43,000, or 2.8%. Noninterest expense was higher in 2003 primarily due to
increases in salary and benefits expense, which was $36,000, or 4.1%, higher
in the third quarter of 2003 compared to the third quarter of 2002. Salary
and benefits expense was higher in 2003 due mainly to normal salary raises,
higher salary costs at the Agency compared to 2002 amounts due to changing to
a commission basis for certain producers in 2003, and increases in health
insurance premiums and payroll taxes.
Total income taxes for the three months ended September 30, 2003 were
$162,000, compared to $296,000 recorded for the same period in 2002, a
decrease of $134,000, or 45.3%. Income taxes were lower for the quarter
ended September 30, 2003 compared to the same quarter in 2002 due to lower
earnings and deductions for stock options exercised during 2003. The
effective tax rates for the three months ended September 30, 2003 and 2002
were 28.6% and 36.2%, respectively.
Business Industry Segments
The Company's primary business involves the typical banking services of
generating loans and receiving deposits. Through PASC, for 2003 and 2002,
the Company also provided insurance and brokerage services to customers. The
following segment financial information has been derived from the internal
profitability reporting system used by management to monitor and manage the
financial performance of the Company.
Nine Months Ended September 30, 2003
(unaudited, in thousands)
Insurance/
Banking Brokerage
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 6,536 $ -- $ 6,536 $ -- $ 6,536
Interest expense 2,273 -- 2,273 -- 2,273
Noninterest income 1,414 1,351 2,765 (63) 2,702
Noninterest expense 3,910 1,059 4,969 (63) 4,906
Net income 1,135 177 1,312 -- 1,312
Total assets 163,459 1,673 165,132 (2,065) 163,067
Nine Months Ended September 30, 2002
(unaudited, in thousands)
Insurance/
Banking Brokerage
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 8,093 $ -- $ 8,093 $ -- $ 8,093
Interest expense 3,307 -- 3,307 -- 3,307
Noninterest income 1,089 1,238 2,327 (60) 2,267
Noninterest expense 3,665 891 4,556 (60) 4,496
Net income 1,278 217 1,495 -- 1,495
Total assets 167,866 1,210 169,076 (1,442) 167,634
Three Months Ended September 30, 2003
(unaudited, in thousands)
Insurance/
Banking Brokerage
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 2,006 $ -- $ 2,006 $ -- $ 2,006
Interest expense 684 -- 684 -- 684
Noninterest income 369 500 869 (21) 848
Noninterest expense 1,285 340 1,625 (21) 1,604
Net income 307 97 404 -- 404
Three Months Ended September 30, 2002
(unaudited, in thousands)
Insurance/
Banking Brokerage
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 2,654 -- 2,654 -- 2,654
Interest expense 1,021 -- 1,021 -- 1,021
Noninterest income 437 359 796 (20) 776
Noninterest expense 1,266 315 1,581 (20) 1,561
Net income 492 30 522 -- 522
Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance
with accounting principles generally accepted in the United States and
conform to general practices within the banking industry. The notes to the
consolidated financial statements contain a summary of the Company's
significant accounting policies, including significant estimates, presented
on pages 34 through 38 of the Annual Report to Shareholders for the year
ended December 31, 2002. The preparation of financial statements in
conformity with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions. The
financial position and results of operations can be affected by these
estimates and assumptions and are integral to the understanding of reported
results. Critical accounting policies are those policies that management
believes are the most important to the portrayal of the Company's financial
condition and results, and they require management to make estimates that are
difficult, subjective, or complex.
Allowance for Loan Losses - The allowance for loan losses provides
coverage for probable losses inherent in the Company's loan portfolio.
Management evaluates the adequacy of the allowance for credit losses each
quarter based on changes, if any, in underwriting activities, the loan
portfolio composition (including product mix and geographic, industry or
customer-specific concentrations), trends in loan performance, regulatory
guidance and economic factors. This evaluation is inherently subjective, as
it requires the use of significant management estimates. Many factors can
affect management's estimates of specific and expected losses, including
volatility of default probabilities, rating migrations, loss severity and
economic and political conditions. The allowance is increased through
provisions charged to operating earnings and reduced by net charge-offs.
The Company determines the amount of the allowance based on relative
risk characteristics of the loan portfolio. The allowance recorded for
commercial loans is based on reviews of individual credit relationships and
an analysis of the migration of commercial loans and actual loss experience.
The allowance recorded for homogeneous consumer loans is based on an analysis
of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy
experiences, and historical losses, adjusted for current trends, for each
homogeneous category or group of loans. The allowance for credit losses
relating to impaired loans is based on the loan's observable market price,
the collateral for certain collateral-dependent loans, or the discounted cash
flows using the loan's effective interest rate. A loan is considered
impaired when, based on current information and events, it is probable that
the Company will be unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan agreement.
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case
basis, taking into consideration all of the circumstances surrounding the
loan and the borrower, including the length of the delay, the reasons for the
delay, the borrower's prior payment record and the amount of the shortfall in
relation to the principal and interest owed. Because the Company reviews
loans on an individual basis for impairment, the Company does not use a
specific timeframe of delinquency after which a specific loan is assumed to
be impaired.
Large groups of smaller balance homogenous loans are collectively
evaluated for impairment. Accordingly, the Company does not separately
identify individual consumer and residential loans for impairment
disclosures.
Regardless of the extent of the Company's analysis of customer
performance, portfolio trends or risk management processes, certain inherent
but undetected losses are probable within the loan portfolio. This is due to
several factors including inherent delays in obtaining information regarding
a customer's financial condition or changes in their unique business
conditions, the judgmental nature of individual loan evaluations, collateral
assessments and the interpretation of economic trends. Volatility of
economic or customer-specific conditions affecting the identification and
estimation of losses for larger non-homogeneous credits and the sensitivity
of assumptions utilized to establish allowances for homogenous groups of
loans are among other factors. The Company estimates a range of inherent
losses related to the existence of these exposures. The estimates are based
upon the Company's evaluation of imprecision risk associated with the
commercial and consumer allowance levels and the estimated impact of the
current economic environment.
Mortgage Servicing Rights - Mortgage servicing rights ("MSRs")
associated with loans originated and sold, where servicing is retained, are
capitalized and included in the consolidated balance sheet. The value of the
capitalized servicing rights represents the present value of the future
servicing fees arising from the right to service loans in the portfolio.
Critical accounting policies for MSRs relate to the initial valuation and
subsequent impairment tests. The methodology used to determine the valuation
of MSRs requires the development and use of a number of estimates, including
anticipated principal amortization and prepayments of that principal balance.
Events that may significantly affect the estimates used are changes in
interest rates, mortgage loan prepayment speeds and the payment performance
of the underlying loans. The carrying value of the MSRs is periodically
reviewed for impairment based on a determination of fair value. For purposes
of measuring impairment, the servicing rights are compared to a valuation
prepared based on a discounted cash flow methodology, utilizing current
prepayment speeds and discount rates. Impairment, if any, is recognized
through a valuation allowance and is recorded as amortization of intangible
assets. As of September 30, 2003 and December 31, 2002, mortgage servicing
rights had carrying values of $172,000 and $192,000, respectively.
Postretirement Benefit Obligation - Management obtains an independent
actuarial calculation to estimate the postretirement benefit obligation. The
calculation is largely dependent on estimates relating to future health care
cost trends and the number of employees that will retire and be eligible for
benefits under the plan.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, principal and interest
payments on loans, FHLB advances and proceeds from mortgage loan sales.
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. Office of
Thrift Supervision regulations require the Bank to maintain sufficient
liquidity to ensure its safe and sound operation.
A review of the Condensed Consolidated Statements of Cash Flows included
in the accompanying financial statements shows that the Company's cash and
cash equivalents ("cash") decreased $13.87 million from December 31, 2002 to
September 30, 2003, compared to an increase of $13.24 million for the nine
months ended September 30, 2002. During the nine months ended September 30,
2003, cash was primarily provided from earnings, proceeds from sales of one-
to-four-family residential mortgage loans, loan repayments in excess of loan
originations, and an increase in demand, money market, NOW and savings
accounts. During this period, cash was primarily used to fund the purchase
of short-term interest bearing time deposits, originations of loans held for
sale, a decrease in certificates of deposit, repayment of FHLB advances, and
to purchase treasury stock.
During the nine months ended September 30, 2002, cash was primarily
provided from earnings, proceeds from sales of one-to-four-family residential
mortgage loans, loan repayments in excess of loan originations, an increase
in demand, money market, NOW and savings accounts, and proceeds from FHLB
advances. During this period, cash was primarily used to fund originations
of loans held for sale, a decrease in certificates of deposit, the repayment
of FHLB advances and to purchase treasury stock.
The Company's primary investment activity during the nine months ended
September 30, 2003 was the origination of loans, including mortgage loans
held for sale. During the nine months ended September 30, 2003 and 2002, the
Company disbursed funds for mortgage loans (not including refinanced mortgage
loans) in the amounts of $22.53 million and $23.55 million, respectively,
commercial loans in the amounts of $10.17 million and $8.29 million,
respectively, and consumer loans in the amounts of $10.41 million and $9.54
million, respectively.
As of September 30, 2003, the Company had outstanding commitments
(including undisbursed loan proceeds) of $3.68 million. The Company
anticipates it will have sufficient funds available to meet its current loan
origination commitments. Certificates of deposit, which are scheduled to
mature in one year or less from September 30, 2003, totaled $41.63 million.
Management believes a significant portion of such deposits will remain with
the Company.
At September 30, 2003, the Bank exceeded all of its regulatory capital
requirements with tangible capital and core capital both at $11.79 million or
7.50% of total adjusted tangible assets, core capital at $11.79 million or
7.50% of adjusted total assets, and risk-based capital at $12.87 million or
14.88% of total risk-weighted assets. The required ratios are 1.5% for
tangible capital to tangible assets, 2% 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.
Item 3. Controls and Procedures
The Company's management, including the Company's principal executive
officer and principal financial officer, have evaluated the effectiveness of
the Company's "disclosure controls and procedures," as such term is defined
in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act"). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the
end of the period covered by this report, the Company's disclosure controls
and procedures were effective for the purpose of ensuring that the
information required to be disclosed in the reports that the Company files or
submits under the Exchange Act with the Securities and Exchange Commission
(the "SEC") (1) is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and (2) is accumulated
and communicated to the Company's management, including its principal
executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure. In addition, based on that
evaluation, no change in the Company's internal control over financial
reporting occurred during the quarter ended September 30, 2003 that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
The Company 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 financial condition or results of
operations.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Great American Bancorp, Inc.*
3.2 By-laws of Great American Bancorp, Inc.*
11.0 Statement re: computation of per share earnings
31.1 Rule 13a-14(a)/15d-14(a) Chief Executive Officer Certification
31.2 Rule 13a-14(a)/15d-14(a) Chief Financial Officer Certification
32.0 Section 1350 Certifications
b. Reports on Form 8-K
1. On July 15, 2003, the Registrant furnished a Current Report on
Form 8-K reporting information under Item 9, incorporating by reference a
press release dated July 15, 2003, relating to the Registrant's unaudited
results for the six months and quarter ended June 30, 2003.
2. On July 15, 2003, the Registrant filed a Current Report on
Form 8-K reporting information under Items 5 and 7, incorporating by
reference a press release dated July 15, 2003 relating to the Company's
announcement that its Board of Directors has approved a 5% stock repurchase
program.
_________________
* Incorporated herein by reference into this document from Form
S-1 Registration Statement, as amended, filed on March 24, 1995,
Registration No. 33-90614.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Great American Bancorp, Inc.
Dated: November 13, 2003 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: November 13, 2003 /s/ Jane F. Adams
-------------------------- ----------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasure
Exhibit 11.0
Statement re: computation of per share earnings
Earnings per share (unaudited)
Earnings per share (EPS) were computed as follows
(dollar amounts in thousands except share data):
Nine Months Ended
September 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 1,312 766,854 $ 1.71
Effect of Dilutive Securities
Stock options 78,886
Unearned incentive plan shares 5,352
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 1,312 851,092 $ 1.54
===============================
Nine Months Ended
September 30, 2002
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 1,495 843,525 $ 1.77
Effect of Dilutive Securities
Stock options 66,977
Unearned incentive plan shares 5,387
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 1,495 915,889 $ 1.63
===============================
Three Months Ended
September 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 404 756,233 $ 0.53
Effect of Dilutive Securities
Stock options 82,182
Unearned incentive plan shares 5,314
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 404 843,729 $ 0.48
===============================
Three Months Ended
September 30, 2002
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 522 830,965 $ 0.63
Effect of Dilutive Securities
Stock options 74,814
Unearned incentive plan shares 5,355
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 522 911,134 $ 0.57
===============================
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a)
CHIEF EXECUTIVE OFFICER CERTIFICATION
I, George R. Rouse, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Great American
Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the small business
issuer, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which
this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the small business issuer's
internal control over financial reporting that occurred during the small
business issuer's most recent fiscal quarter (the small business
issuer's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the
small business issuer's internal control over financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 13, 2003 /s/ George R. Rouse
----------------------- -----------------------
George R. Rouse
President and Chief Executive Officer
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a)
CHIEF FINANCIAL OFFICER CERTIFICATION
I, Jane F. Adams, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Great American
Bancorp, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the small business issuer as of, and for, the periods presented in
this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the small
business issuer, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
(c) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the
audit committee of the small business issuer's board of directors (or
persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the small business
issuer's internal control over financial reporting.
Date: November 13, 2003 /s/ Jane F. Adams
--------------------------- -----------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
EXHIBIT 32.0
SECTION 1350 CERTIFICATIONS
In connection with the Quarterly Report of Great American Bancorp, Inc.
(the "Company") on Form 10-QSB for the fiscal quarter ended September 30,
2003 as filed with the Securities and Exchange Commission (the "Report"), the
undersigned certify, pursuant to 18 U.S.C. - 1350, as added by Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company as of and for the period covered by the
Report.
/s/ George R. Rouse
-------------------------------------
George R. Rouse
President and Chief Executive Officer
/s/ Jane F. Adams
-------------------------------------
Jane F. Adams
Chief Financial Officer, Secretary and
Treasurer
Date: November 13, 2003
--------------------------------
37