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 June 30, 2004
----------------------
[ ] 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 July 31, 2004, the Registrant had 735,003 shares of Common Stock
outstanding, for ownership purposes, which excludes 1,317,747 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 (Unaudited)
Condensed Consolidated Balance Sheets
Condensed Consolidated Statements of Income
Condensed Consolidated Statements of Cash Flows
Notes to Unaudited 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 and Small Business Issuer Purchases of
Equity 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 June 30, 2004 and December 31, 2003
(in thousands except share data)
June 30, 2004 Dec. 31, 2003
(unaudited)
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ASSETS
Cash and due from banks $ 4,056 $ 4,388
Interest-bearing demand deposits 5,942 9,674
Federal Home Loan Bank term deposit 20,000 30,000
--------------------------------
Cash and cash equivalents 29,998 44,062
Available-for-sale securities 3,554 4,200
Held-to-maturity securities (fair value of
$406 and $562) 387 532
Loans, net of allowance for loan losses
of $1,202 and $1,190) 113,183 100,772
Premises and equipment 6,111 6,299
Federal Home Loan Bank stock 1,366 1,324
Other assets 2,662 2,261
--------------------------------
Total assets $ 157,261 $ 159,450
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 13,223 $ 13,008
Savings, NOW and money market 62,498 59,945
Time 49,350 53,711
--------------------------------
Total deposits 125,071 126,664
Federal Home Loan Bank advances 13,000 13,000
Other liabilities 2,219 2,150
--------------------------------
Total liabilities 140,290 141,814
--------------------------------
Commitments and Contingent Liabilities
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Balance Sheets (Continued)
As of June 30, 2004 and December 31, 2003
(in thousands except share data)
June 30, 2004 Dec. 31, 2003
(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: 735,003 and 756,003 shares 21 21
Additional paid-in-capital 20,636 20,412
Retained earnings 20,966 20,508
Unearned incentive plan shares (61) (63)
Accumulated other comprehensive income (loss) (45) 20
Treasury stock, at cost, 1,317,747 and
1,296,747 shares (24,546) (23,262)
--------------------------------
Total stockholders' equity 16,971 17,636
--------------------------------
Total liabilities and
stockholders' equity $ 157,261 $ 159,450
================================
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Six Months Ended June 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
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Interest income
Loans $ 3,519 $ 4,252
Securities 94 34
Dividends on Federal Home Loan Bank stock 41 36
Deposits with financial institutions
and other 154 208
--------------------------------
Total interest and dividend income 3,808 4,530
--------------------------------
Interest expense
Deposits 793 1,272
Federal Home Loan Bank advances 281 304
Other 11 13
--------------------------------
Total interest expense 1,085 1,589
--------------------------------
Net interest income 2,723 2,941
Provision for loan losses -- --
--------------------------------
Net interest income after
provision for loan losses 2,723 2,941
--------------------------------
Noninterest income
Insurance sales commissions 1,094 801
Customer service fees 263 277
Other service charges and fees 119 119
Net gains on loan sales 14 552
Loan servicing fees 85 55
Other 70 50
--------------------------------
Total noninterest income 1,645 1,854
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Six Months Ended June 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
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Noninterest expense
Salaries and employee benefits $ 1,978 $ 1,853
Net occupancy expense 279 283
Equipment expense 319 247
Professional fees 154 127
Marketing expense 86 123
Printing and office supplies 138 152
Directors and committee fees 69 73
Amortization of mortgage servicing rights 47 111
Other 280 333
--------------------------------
Total noninterest expense 3,350 3,302
--------------------------------
Income before income taxes 1,018 1,493
Provision for income taxes 396 585
--------------------------------
Net income 622 908
Other Comprehensive Income
Change in unrealized depreciation
on available-for-sale securities,
net of income tax benefit
of $45 for 2004 (65) --
--------------------------------
Total comprehensive income $ 557 $ 908
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.83 $ 1.18
================================
Average number of shares 745,084 772,244
================================
Diluted:
Net income $ 0.77 $ 1.06
================================
Average number of shares 809,025 856,851
================================
Dividends $ 0.22 $ 0.22
================================
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Three Months Ended June 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
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Interest income
Loans $ 1,804 $ 2,044
Securities 44 15
Dividends on Federal Home Loan Bank stock 20 21
Deposits with financial institutions
and other 71 121
--------------------------------
Total interest and dividend income 1,939 2,201
--------------------------------
Interest expense
Deposits 383 595
Federal Home Loan Bank advances 140 150
Other 6 6
--------------------------------
Total interest expense 529 751
--------------------------------
Net interest income 1,410 1,450
Provision for loan losses -- --
--------------------------------
Net interest income after
provision for loan losses 1,410 1,450
--------------------------------
Noninterest income
Insurance sales commissions 423 395
Customer service fees 139 151
Other service charges and fees 61 59
Net gains on loan sales 2 293
Loan servicing fees 44 30
Other 43 30
--------------------------------
Total noninterest income 712 958
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Three Months Ended June 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
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Noninterest expense
Salaries and employee benefits $ 965 $ 945
Net occupancy expense 141 142
Equipment expense 171 125
Professional fees 92 54
Marketing expense 46 71
Printing and office supplies 66 75
Directors and committee fees 35 36
Amortization of mortgage servicing rights 22 66
Other 138 164
--------------------------------
Total noninterest expense 1,676 1,678
--------------------------------
Income before income taxes 446 730
Provision for income taxes 175 287
--------------------------------
Net income 271 443
Other Comprehensive Income
Change in unrealized depreciation on
available-for-sale securities, net of
income tax benefit of $64 for 2004 (91) --
--------------------------------
Total comprehensive income $ 180 $ 443
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.37 $ 0.58
================================
Average number of shares 738,198 764,747
================================
Diluted:
Net income $ 0.34 $ 0.52
================================
Average number of shares 801,194 849,894
================================
Dividends $ 0.11 $ 0.11
================================
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003
(Unaudited, in thousands)
2004 2003
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Operating Activities
Net income $ 622 $ 908
Items not requiring (providing) cash
Depreciation 255 213
Amortization of mortgage servicing rights 47 111
Net gains on loan sales (14) (552)
Loans originated for sale (732) (22,190)
Proceeds from loan sales 742 22,696
Federal Home Loan Bank stock dividends (42) (54)
Changes in:
Other assets (176) (276)
Other liabilities 35 387
Other operating activities 14 (16)
--------------------------------
Net cash provided by
operating activities 751 1,227
--------------------------------
Investing Activities
Proceeds from maturities of available-
for-sale securities 533 --
Proceeds from maturities of held-to-
maturity securities 145 426
Net change in loans (12,419) 16,282
Purchase of premises and equipment (67) (229)
--------------------------------
Net cash provided by (used in)
investing activities (11,808) 16,479
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows (Continued)
For the Six Months Ended June 30, 2004 and 2003
(Unaudited, in thousands)
2004 2003
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Financing Activities:
Net increase in demand deposits,
money market, NOW and savings accounts $ 2,768 $ 5,958
Net decrease in certificates of deposits (4,361) (2,702)
Repayment of Federal Home Loan Bank advances -- (1,000)
Proceeds from stock options exercised 406 249
Purchase of treasury stock (1,690) (2,135)
Dividends paid (164) (175)
Net increase (decrease) in advances from
borrowers for taxes and insurance 34 (54)
--------------------------------
Net cash provided by (used in)
financing activities (3,007) 141
--------------------------------
Increase (decrease) in Cash
and Cash Equivalents (14,064) 17,847
Cash and Cash Equivalents, Beginning
of Period 44,062 32,334
--------------------------------
Cash and Cash Equivalents, End of
Period $ 29,998 $ 50,181
================================
Supplemental Cash Flows Information
Interest paid $ 1,087 $ 1,596
Income taxes paid (net of refunds) 347 769
Tax benefit related to stock 224 --
options exercised
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Notes to Unaudited 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 June 30, 2004 and
December 31, 2003, the results of operations for the three months and six
months ended June 30, 2004 and 2003, and the cash flows for the six months
ended June 30, 2004 and 2003. 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 2003 financial
statements have been made to conform to the 2004 presentation. The results
of operations for the three months and six months ended June 30, 2004 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 2003 Annual Report to Shareholders. The
condensed consolidated balance sheet of the Company as of December 31, 2003
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 2003
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 Six Months Ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------------------- ---------------------
(in thousands, except per share data)
Net income as reported $ 271 $ 443 $ 622 $ 908
Less: Total stock-based
employee compensation
cost determined under the
fair value based method,
net of income taxes (1) (1) (1) (1)
--------------------- ---------------------
Pro forma net income $ 270 $ 442 $ 621 $ 907
===================== =====================
Earnings per share:
Basic - as reported $ 0.37 $ 0.58 $ 0.83 $ 1.18
===================== =====================
Basic - pro forma $ 0.37 $ 0.58 $ 0.83 $ 1.17
===================== =====================
Diluted - as reported $ 0.34 $ 0.52 $ 0.77 $ 1.06
===================== =====================
Diluted - pro forma $ 0.34 $ 0.52 $ 0.77 $ 1.06
===================== =====================
The Company did not grant additional stock options during the three
month or six month periods ended June 30, 2004 and 2003.
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 $2.19 million from $159.45 million
at December 31, 2003 to $157.26 million at June 30, 2004. This decline was
primarily in cash and cash equivalents. Cash and cash equivalents decreased
$14.06 million, from $44.06 million at December 31, 2003 to $30.00 million at
June 30, 2004. Cash and cash equivalents declined mainly due to cash used to
fund an increase in loans and a decline in total deposits. The Federal Home
Loan Bank ("FHLB") term deposit declined $10.00 million from December 31,
2003 to June 30, 2004, comprising the majority of the decrease in cash and
cash equivalents. The FHLB short-term time deposit of $20.00 million at June
30, 2004 was a 14-day deposit with a yield of 0.95%.
Available-for-sale securities and held-to-maturity securities declined
$646,000 and $145,000, respectively, from December 31, 2003 to June 30, 2004.
Available-for-sale securities, which are all mortgage-backed securities,
decreased due to repayments totaling $533,000, premium amortization of
$3,000, and depreciation in market value of $110,000. Held-to-maturity
securities, which are also mortgage-backed securities, decreased due to
repayments totaling $145,000.
Total loans increased from $100.77 million at December 31, 2003 to
$113.18 million at June 30, 2004, mainly due to growth in one-to-four-family
residential mortgage loans, commercial mortgage loans, and construction
loans.
The following schedule shows the balances by loan category at June 30,
2004 compared to December 31, 2003 balances, along with the change and
percentage change:
Balance Balance
June 30, December 31, Percentage
2004 2003 Change Change
- ----------------------------------------------------------------------------
(dollar amounts in thousands)
One-to-four-family
mortgage loans $ 54,490 $ 44,305 $ 10,185 23.0%
Multi-family mortgage loans 18,739 18,347 392 2.1
Commercial mortgage loans 11,891 10,749 1,142 10.6
Construction loans 3,577 2,125 1,452 68.3
- ----------------------------------------------------------------------------
Total real estate loans 88,697 75,526 13,171 17.4
Commercial loans 10,839 12,022 (1,183) (9.8)
Consumer loans 14,849 14,414 435 3.0
- ----------------------------------------------------------------------------
Total loans 114,385 101,962 12,423 12.2
Allowance for loan losses (1,202) (1,190) (12) 1.0
- ----------------------------------------------------------------------------
Total loans, net $ 113,183 $ 100,772 $ 12,411 12.3%
============================================================================
One-to-four-family mortgage loans increased $10.19 million due primarily
to the Company maintaining the majority of new home loans in the loan
portfolio rather than selling loans to the secondary market. During the six
months ended June 30, 2004, the Company did sell $732,000 in one-to-four-
family home mortgage loans to the Federal National Mortgage Association
("FNMA"). These loans were sold according to a management strategy
implemented during the first quarter of 2004 to sell lower rate 30-year fixed
rate home mortgage loans.
Commercial mortgage loans increased $1.14 million from December 31, 2003
due mainly to one loan totaling $1,500,000. The Company reclassified
$593,000 of this loan from commercial loans to commercial mortgage loans
during the second quarter of 2004 due to obtaining additional collateral, and
advanced an additional $907,000 to the borrower. Construction loans
increased $1.45 million from December 31, 2003 due partly to $826,000 in
construction funds advanced to one commercial borrower. The remainder of the
increase in construction loans was for single-family home construction.
Commercial loans declined $1.18 million from December 31, 2003 partly
due to the $593,000 loan that was reclassified from commercial loans to
commercial mortgage loans during the second quarter of 2004. An additional
$305,000 of the decline in commercial loans was due to payments received on a
line of credit to one borrower.
Total deposits decreased $1.59 million from $126.66 million at December
31, 2003 to $125.07 million at June 30, 2004. Time deposits declined by
$4.36 million, while noninterest bearing demand accounts increased $215,000
and savings, NOW and money market deposits grew by $2.55 million during the
first six months of 2004. 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 of
a rise in market interest rates. The growth in savings, NOW and money market
accounts was also due to seasonal fluctuations in these accounts. The
decline in time deposits was mainly in certificates of deposit maturing in
two to three years.
The following table summarizes the balances of deposits at June 30, 2004
and December 31, 2003, the change in the balances and the percentage change:
Balance Balance
June 30, December 31, Percentage
2004 2003 Change Change
- -----------------------------------------------------------------------------
(dollar amounts in thousands)
Noninterest bearing
checking accounts $ 13,223 $ 13,008 $ 215 1.7 %
Interest bearing:
NOW accounts 22,852 22,210 642 2.9
IMMA accounts 19,129 18,991 138 0.7
Savings accounts 20,517 18,744 1,773 9.5
Certificates of deposit 49,350 53,711 (4,361) (8.1)
- -----------------------------------------------------------------------------
Total interest
bearing deposits 111,848 113,656 (1,808) (1.6)
- -----------------------------------------------------------------------------
Total deposits $ 125,071 $ 126,664 $ (1,593) (1.3)%
=============================================================================
FHLB advances totaled $13.00 million at both June 30, 2004 and December
31, 2003. The following schedule presents FHLB advances at June 30, 2004, by
maturity date (dollar amounts in thousands):
Date Fixed First or
of Interest or Maturity Next Call
Advance Rate Variable Date Date Amount
- -----------------------------------------------------------------------------
October 1998 4.30 Fixed October 2008 July 2004 $ 5,000
January 2001 4.55 Fixed January 2011 July 2004 5,000
September 2001 3.80 Fixed September 2011 September 2004 3,000
-------
$13,000
=======
The $10.00 million in advances callable in July 2004 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 $665,000, from $17.64 million at
December 31, 2003 to $16.97 million at June 30, 2004. Book value per
outstanding voting share decreased from $23.33 at December 31, 2003 to $23.09
at June 30, 2004.
The decrease in stockholders' equity is summarized as follows (in
thousands):
Stockholders' equity, December 31, 2003 $ 17,636
Net income 622
Purchase of treasury stock (1,690)
Stock options exercised 406
Tax benefit related to stock options exercised 224
Dividends declared (164)
Change in unrealized net gain (loss) on
available-for-sale securities (65)
Incentive plan shares allocated 2
------
Stockholders' equity, March 31, 2004 $ 16,971
======
In July 2003, the Company announced a 5% common stock repurchase program
totaling 38,187 shares. This repurchase program completed in April 2004 at
an average price of $34.53. In February 2004, the Company announced an
additional 5% stock repurchase program totaling 37,555 shares. As of July
31, 2004, 29,434 shares had been repurchased under this program at an average
price of $33.11. All repurchased shares will be held as treasury shares to
be used for issuing stock under stock option agreements and for general
corporate purposes. (See Part II, Item 2. Changes in Securities and Small
Business Issuer Purchases of Equity Securities for additional disclosures
relating to stock repurchase programs).
Results of Operations
Comparison of Six Month Periods Ended June 30, 2004 and 2003
Net income totaled $622,000 for the six months ended June 30, 2004
compared to $908,000 for the six months ended June 30, 2003, a decrease of
$286,000, or 31.5%. Basic earnings per share were $0.83 for the six months
ended June 30, 2004, compared to $1.18 for the six months ended June 30,
2003. Diluted earnings per share were $0.77 for the six months ended June
30, 2004 compared to $1.06 for the same period in 2003. Net income decreased
in 2004 primarily due to reductions in both net interest income and
noninterest income and an increase in noninterest expense, offset by lower
income tax expense.
Net interest income decreased $218,000, or 7.4%, from $2,941,000 for the
six months ended June 30, 2003 to $2,723,000 for the same period in 2004.
Interest income declined $722,000, or 15.9%, from $4,530,000 for the six
months ended June 30, 2003 to $3,808,000 for the first six months of 2004.
Interest expense decreased $504,000, or 31.7%, from $1,589,000 in 2003 to
$1,085,000 in 2004.
Interest income from loans was $3,519,000 for the first six months of
2004, $733,000, or 17.2%, less than the $4,252,000 recorded for the first six
months of 2003. Interest income from loans declined mainly as a result of a
decrease in the average balance of total net loans from a year ago and a
reduction in loan yields. Total net loans averaged $105.19 million during
the six months ended June 30, 2004, a decrease of $10.37 million from the
average of total net loans during the first six months of 2003.
The following schedule compares average total loan balances by major
categories for the first six months of fiscal 2004 to the same period in
2003:
Average Average
Balance Balance Percentage
2004 2003 Change Change
- ----------------------------------------------------------------------------
(dollar amounts in thousands)
One-to-four-family
mortgage loans $ 48,571 $ 53,668 $ (5,097) (9.5)%
Multi-family mortgage loans 17,826 19,777 (1,951) (9.9)
Commercial mortgage loans 10,463 16,470 (6,007) (36.5)
Construction loans 3,341 2,126 1,215 57.2
- ----------------------------------------------------------------------------
Total real estate loans 80,201 92,041 (11,840) (12.9)
Commercial loans 11,342 10,211 1,131 11.1
Consumer loans 14,835 14,488 347 2.4
- ----------------------------------------------------------------------------
Total loans 106,378 116,740 (10,362) (8.9)
Allowance for loan losses (1,193) (1,189) (4) 0.3
- ----------------------------------------------------------------------------
Total loans, net $105,185 $115,551 $(10,366) (9.0)%
============================================================================
The average balance of total one-to-four-family residential mortgage
loans declined from the level maintained during the first six months of 2003
primarily due to the Company selling the majority of new and refinanced one-
to-four-family residential mortgage loans during 2003. The Company
originated and sold $30.83 million in home mortgage loans during 2003. The
average balance of total one-to-four-family loans serviced for others
increased $6.37 million, from $36.50 million for the six months ended June
30, 2003 to $42.87 million for the six months ended June 30, 2004. The
Company maintains the servicing for all sold loans.
The $1.95 million decrease in the average total balance of multi-family
mortgage loans is due mainly to the sale during 2003 of $1.51 million in
loans to one borrower that were held by the holding company and the payoff of
one large loan totaling $415,000 in early January 2004. The $6.01 million
decrease in commercial mortgage loans is mainly due to three large payoffs
totaling $3.58 million in the second and third quarters of 2003 and several
smaller loan payoffs in December 2003, January 2004 and March 2004. Average
total commercial loans increased $1.13 million in the first six months of
2004 compared to the first six months of 2003, due mainly to one large loan
originated in August 2003 and several smaller commercial loans originated in
late 2003 and in 2004.
Interest income from loans also declined in 2004 due to lower average
yields, mainly the result of declining interest rates during 2003. The prime
rate, the rate used by financial institutions in establishing the majority of
commercial, commercial mortgage, and multi-family loan offering rates,
declined on June 30, 2003 from 4.25% to 4.00%. The prime rate remained at
4.00% during the last six months of 2003 and during the first six months of
2004. The prime rate did increase to 4.25% on July 1, 2004. The average
yield on the Company's net loans decreased from 7.42% for the first six
months of 2003 to 6.73% for the first six months of 2004.
Interest income from securities increased from $34,000 for the six
months ended June 30, 2003 to $94,000 for the same period in 2004, due
primarily to the purchase of adjustable-rate mortgage-backed securities in
November 2003 totaling $4.19 million. The average balance of total
securities was $4.45 million for the six months ended June 30, 2004 compared
to $1.07 million for the first six months of 2003. The average yield on
securities was 4.25% for the six months ended June 30, 2004, down from 6.42%
for the same period in 2003.
Interest income from deposits with financial institutions and other
decreased $54,000, from $208,000 for the six months ended June 30, 2003 to
$154,000 for the six months ended June 30, 2004. This decrease occurred as a
result of smaller balances on deposit and a reduction in the average yield.
The average balance of total deposits with financial institutions and other
decreased from $36.60 million for the first six months of 2003 to $33.80
million for the same period in 2004. The average yield on deposits with
financial institutions and other decreased from 1.15% for the six months
ended June 30, 2003 to 0.92% for the six months ended June 30, 2004. 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 the latter half of 2003 and in 2004.
Interest expense decreased by $504,000, or 31.7%, from $1,589,000 for
the six months ended June 30, 2003 to $1,085,000 for the same period in 2004,
mainly interest expense on deposits. Interest expense on deposits declined
$479,000, or 37.7%, from $1,272,000 for the six months ended June 30, 2003 to
$793,000 for the six months ended June 30, 2004. Interest expense on
interest-bearing demand deposits decreased $148,000, or 49.2%, from $301,000
for the first six months of 2003 to $153,000 for the first six months of
2004. Interest expense on certificates of deposit declined $331,000, or
34.1%, from $971,000 for the six months ended June 30, 2003 to $640,000 for
the six months ended June 30, 2004.
Interest expense on interest-bearing demand and savings deposits
declined mainly as a result of the Company lowering deposit rates during the
latter half of 2003. The average balance of total interest-bearing demand
and savings deposits increased only slightly from $61.57 million for the six
months ended June 30, 2003 to $61.85 million for the six months ended June
30, 2004. The average rate on interest-bearing demand and savings deposits
decreased from 0.99% for the six months ended June 30, 2003 to 0.50% for the
six months ended June 30, 2004.
Interest expense on certificates of deposits decreased due to a decline
in the balance of total average certificates and a reduction in the average
rate. Average total certificates of deposit declined $8.80 million, from
$59.99 million in the first six months of 2003 to $51.19 million in the first
six months of 2004. 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 2003, the Company lowered offering
rates for new and renewing certificates during the latter half of 2003. 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 3.26% for the six months ended June 30,
2003 to 2.51% for the same period in 2004.
Interest expense on FHLB advances was $281,000 for the six months ended
June 30, 2004 compared to $304,000 for the same period in 2003. Interest
expense on FHLB advances declined in 2004 due to the maturity of advances in
March and September, 2003. The average balance of total FHLB advances was
$13.00 million for the first six months of 2004 compared to $14.39 million
for the same period in 2003. The average rate on FHLB advances increased
from 4.26% for the six months ended June 30, 2003 to 4.35% for the six months
ended June 30, 2004.
Net interest income as a percent of interest earning assets was 3.78%
for the six months ended June 30, 2004 versus 3.84% for the same period in
2003. The spread between the yield on interest-earning assets and the rate
on interest bearing liabilities was 3.57% and 3.56% for the six months ended
June 30, 2004 and 2003, respectively.
The Company recorded no provision for loan losses during either of the
six month periods ended June 30, 2004 and 2003. Management's analyses of the
allowance for loan losses during these periods determined that no additional
allocation to the allowance was warranted, primarily due to the low level of
non-performing loans during both periods and a decrease in commercial 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 probable 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 six months ended June 30, 2004, the Company had no loans
charged-off and collected $12,000 in payments for loans previously charged-
off. For the six months ended June 30, 2003, the Company had $3,000 in loans
charged-off and collected $2,000 in recoveries.
Non-performing loans, which are loans past due 90 days or more and non-
accruing loans, totaled $62,000 at June 30, 2004, compared to $19,000 at June
30, 2003. Non-performing loans at June 30, 2004 consisted of one residential
mortgage loan totaling $32,000 and four consumer loans totaling $30,000.
These loans were past due 90 days or more at June 30, 2004, with two consumer
loans totaling $3,000 in non-accrual status. Non-performing loans at June
30, 2003 consisted of one residential mortgage loan totaling $12,000 and two
consumer loans totaling $7,000. All of the loans were past due 90 days or
more at June 30, 2003, with one of the consumer loans totaling $5,000 in
non-accrual status. 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 1.05% at June 30, 2004 and 1.11% at June 30, 2003.
Noninterest income totaled $1,645,000 for the six months ended June 30,
2004, compared to $1,854,000 for the same period in 2003, decreasing
$209,000, or 11.3%. This decrease was primarily due to a reduction in net
gains on loan sales, offset by an increase in insurance sales commissions.
Total net gains on loan sales totaled $14,000 for the first six months of
2004 compared to $552,000 for the first six months of 2003. The Company sold
$732,000 in loans during the six months ended June 30, 2004 compared to
$22.19 million in loan sales for the first six months of 2003. The Company
sold loans in 2003 mainly in order to reduce interest rate risk due to the
decline in home mortgage rates. In October 2003, the Company suspended this
strategy which management had implemented in July 2001. The mortgage loans
sold in 2004 were sold according to a management strategy implemented in the
first quarter of 2004 to sell lower rate 30-year fixed-rate home mortgage
loans. Insurance sales commissions increased $293,000, or 36.6%, from
$801,000 in 2003 to $1,094,000 in 2004. This increase was mainly due to
growth in new commercial and group life and health insurance customers and an
increase in contingent commissions which are commissions paid by an insurance
company based on the overall profit and/or volume of business placed with
that insurance company.
Noninterest expense was $3,350,000 for the six months ended June 30,
2004, $48,000 or 1.5% higher than the $3,302,000 recorded for the first six
months of 2003. Noninterest expense was higher in 2004 mainly due to
increases in salaries and employee benefits expense, equipment expense, and
professional fees, offset by reductions in marketing expense, amortization of
mortgage servicing rights and other expenses. Salaries and employee benefits
expense increased $125,000, or 6.8%, from $1,853,000 for the six months ended
June 30, 2003 to $1,978,000 for the first six months of 2004, due primarily
to normal salary raises and higher commissions earned by producers at the
Agency. Equipment expenses were $72,000 higher in 2004, due mainly to
depreciation and maintenance expense related to new computers, item
processing software and hardware, a new phone system, and internet banking
installed in the latter half of 2003. Professional fees increased by $27,000
from 2003 to 2004, mainly legal and audit fees. Marketing expense was
$37,000 lower in 2004 due mainly to the costs of implementing a new web site
for local area youth sports in 2003. Amortization of mortgage servicing
rights decreased by $64,000, from $111,000 in 2003 to $47,000 in 2004, mainly
due to a significant number of sold loans being paid off in the first and
second quarters of 2003. The remaining unamortized portion of mortgage
servicing rights recorded for a loan is immediately amortized at the time a
loan is paid off. Other expenses were $53,000 lower in 2004, mainly due to
decreases in charitable contributions, check losses, and travel and meeting
expenses.
Total income taxes were $396,000 for the six months ended June 30, 2004
and $585,000 for the same period in 2003. The effective tax rates for the
six months ended June 30, 2004 and 2003 were 38.9% and 39.2% respectively.
Comparison of Three Month Periods Ended June 30, 2004 and 2003
Net income for the three months ended June 30, 2004 was $271,000, a
decrease of $172,000, or 38.8%, from the $443,000 recorded for the three
months ended June 30, 2003. Basic earnings per share decreased $0.21, from
$0.58 for the three months ended June 30, 2003 to $0.37 for the same period
in 2004, while diluted earnings per share decreased $0.18, from $0.52 for
2003 to $0.34 in 2004.
Net income for the second quarter of 2004 was lower than net income for
the second quarter of 2003 mainly due to reductions in net interest income
and noninterest income, offset by a decrease in income tax expense.
Noninterest expense was slightly lower in 2004 compared to 2003.
Net interest income was $1,410,000 for the quarter ended June 30, 2004
compared to $1,450,000 for the quarter ended June 30, 2003, a decrease of
$40,000, or 2.8%. Because of the decline in market interest rates during the
second half of 2003, both interest income and interest expense were lower in
the second quarter of 2004 compared to the second quarter in 2003; however,
the decline in interest income was greater.
Interest income decreased $262,000, or 11.9%, from $2,201,000 for the
quarter ended June 30, 2003 to $1,939,000 for the second quarter of 2004,
primarily due to a reduction in interest income from loans. Interest income
from loans decreased $240,000, or 11.7%, from $2,044,000 for the quarter
ended June 30, 2003 to $1,804,000 for the same quarter in 2004 due primarily
to declines in both average outstanding loans and the average yield on net
loans. Total average outstanding net loans declined from $111.65 million for
the quarter ended June 30, 2003 to $108.58 million for the quarter ended June
30, 2004, a decline of $3.07 million, or 2.7%. This decrease occurred
primarily as a result of the Company selling the majority of new and
refinanced home mortgage loans to FNMA during 2003. The average yield on net
loans decreased from 7.34% for the second quarter of 2003 to 6.68% for the
second quarter of 2004.
Interest income on investment securities increased from $15,000 for the
three months ended June 30, 2003 to $44,000 for the same period in 2004, due
to mortgage-backed securities purchased in November 2003. Average total
investments for the second quarter of 2004 were $4.25 million, compared to
$967,000 for the second quarter of 2003. The average yield on investment
securities for the three months ended June 30, 2004 was 4.16%, while the
average yield was 6.22% for the same period in 2003.
Interest income on deposits with financial institutions and other was
$71,000 for the quarter ended June 30, 2004 compared to $121,000 for the
quarter ended June 30, 2003. The average balance of deposits with banks and
other was $30.56 million for the quarter ended June 30, 2004 versus $40.92
million for the same quarter in 2003. This decrease was primarily in
interest-bearing demand deposits, which were used to fund loan growth and a
decline in customers' deposits. The average yield on deposits with financial
institutions and other was 0.93% for the quarter ended June 30, 2004 compared
to 1.19% for the quarter ended June 30, 2003.
Interest expense decreased $222,000, or 29.6%, from $751,000 for the
three months ended June 30, 2003 to $529,000 for the same period in 2004.
This decrease was mainly due to a decline in the balance of certificates of
deposit and a decrease in the average rate paid on interest-bearing deposits.
The average balance of total certificates of deposit declined $8.42 million,
from $58.51 million for the second quarter of 2003 to $50.09 million for the
second quarter of 2004. The majority of the decrease in certificates of
deposit occurred in one-year to two-year certificates. The average balance
of total interest-bearing demand deposits also declined, from $63.41 million
for the quarter ended June 30, 2003 to $62.63 million for the same quarter in
2004, a decline of $780,000. The average rate on interest-bearing deposits
declined from 1.96% for the quarter ended June 30, 2003 to 1.37% for the
quarter ended June 30, 2004. This decline was due to the decrease in market
interest rates during the latter half of 2003.
Interest expense on FHLB advances decreased $10,000, from $150,000 for
the three months ended June 30, 2003 to $140,000 for the same period in 2004,
due to a decline in total outstanding advances. The average total balance of
FHLB advances decreased from $14.00 million for the second quarter of 2003 to
$13.00 million for the second quarter of 2004. The average rate on FHLB
advances was relatively unchanged: 4.33% for the three months ended June 30,
2004, compared to 4.30% for the three months ended June 30, 2003.
Net interest income as a percent of interest earning assets was 3.92%
for the three months ended June 30, 2004 versus 3.76% for the same period in
2003. The spread between the yield on interest earning assets and the rate
on interest bearing liabilities was 3.71% and 3.49% for the three months
ended June 30, 2004 and 2003, respectively.
The Company recorded no provision for loan losses for the three months
ended June 30, 2004 and the three months ended June 30, 2003. Management's
analyses of the allowance for loan losses during each of these quarters
determined that no additional allocation to the allowance was warranted for
the period.
Noninterest income decreased $246,000, or 25.7%, from $958,000 for the
quarter ended June 30, 2003 to $712,000 for the three months ended June 30,
2004. This decrease was mainly due to lower net gains from loan sales.
During the second quarter of 2004, the Company sold one 30-year fixed rate
residential loan totaling $83,000, recording a net gain of $2,000. The
Company sold $13.39 million in fixed rate one-to-four-family residential
mortgage loans during the second quarter of 2003, recording net gains of
$293,000.
Noninterest expense was $1,676,000 for the three months ended June 30,
2004, slightly lower than the $1,678,000 recorded for the same period in
2003. Salary and employee benefits expense was $20,000 higher in 2004, due
to normal salary raises and an increase in health insurance premiums.
Equipment expense was $46,000 higher in 2004 due to higher depreciation and
maintenance for new computers, item processing equipment and software, and
internet banking installed in the latter half of 2003. Professional fees
were $38,000 higher in 2004, mainly legal fees. Amortization of mortgage
servicing rights was $44,000 lower in 2004 due to a significant amount of
sold loans being paid off in the second quarter of 2003. Marketing expenses
were $25,000 lower in 2004 due primarily to the costs incurred in 2003
related to the new web site for area youth sports. Other expenses were
$26,000 lower in 2004 due to decreases in check losses and charitable
contributions.
Total income tax expense for the three months ended June 30, 2004 was
$175,000, compared to $287,000 recorded for the same period in 2003, a
decrease of $112,000, or 39.0%. The effective tax rates for the three months
ended June 30, 2004 and 2003 were 39.2% and 39.3%, respectively.
Business Industry Segments
The Company's primary business involves the typical banking services of
generating loans and receiving deposits. Through PASC, for 2004 and 2003,
the Company also provided insurance 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.
Six Months Ended June 30, 2004
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 3,808 $ -- $ 3,808 $ -- $ 3,808
Interest expense 1,085 -- 1,085 -- 1,085
Noninterest income 592 1,095 1,687 (42) 1,645
Noninterest expense 2,667 725 3,392 (42) 3,350
Net income 396 226 622 -- 622
Total assets 157,733 1,801 159,534 (2,273) 157,261
Six Months Ended June 30, 2003
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 4,530 $ -- $ 4,530 $ -- $ 4,530
Interest expense 1,589 -- 1,589 -- 1,589
Noninterest income 1,084 805 1,889 (35) 1,854
Noninterest expense 2,693 644 3,337 (35) 3,302
Net income 809 99 908 -- 908
Total assets 168,952 1,833 170,785 (2,097) 168,688
Three Months Ended June 30, 2004
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 1,939 $ -- $ 1,939 $ -- $ 1,939
Interest expense 529 -- 529 -- 529
Noninterest income 309 424 733 (21) 712
Noninterest expense 1,359 338 1,697 (21) 1,676
Net income 220 51 271 -- 271
Three Months Ended June 30, 2003
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 2,201 $ -- $ 2,201 $ -- $ 2,201
Interest expense 751 -- 751 -- 751
Noninterest income 581 396 977 (19) 958
Noninterest expense 1,369 328 1,697 (19) 1,678
Net income 404 39 443 -- 443
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 36 through 41 of the Annual Report to Shareholders for the year
ended December 31, 2003. 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 June 30, 2004 and December 31, 2003, mortgage servicing rights
had carrying values of $109,000 and $151,000, 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. The total amount of contributions paid for the six
months ended June 30, 2004 and 2003 were $108 and $7,094. The amount of
contributions paid for 2004 included credits totaling $7,538 for adjustments
to prior years' billings for two retirees. The net periodic benefit cost
recognized for the six months and three months ended June 30, 2004 and 2003
is as follows:
For the Three For the Six
Months Ended Months Ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
2004 2003 2004 2003
--------------------- ---------------------
(in thousands)
Service cost $ 8 $ 5 $ 17 $ 10
Interest cost 7 6 14 11
Amortization of
prior service cost 2 2 3 4
Amortization of (gain) loss 1 -- 2 --
--------------------- ---------------------
Total net periodic
benefit cost $ 18 $ 13 $ 36 $ 25
===================== =====================
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 $14.06 million from December 31, 2003 to
June 30, 2004, compared to an increase of $17.85 million for the six months
ended June 30, 2003. During the six months ended June 30, 2004, cash was
primarily provided from earnings, proceeds from sales of one-to-four-family
residential mortgage loans, proceeds from maturities of securities and an
increase in demand, money market, NOW and savings accounts. During this
period, cash was primarily used to fund the origination of loans, a decrease
in certificates of deposit, and to purchase treasury stock.
During the six months ended June 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 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 six months ended
June 30, 2004 was the origination of loans. During the six months ended June
30, 2004 and 2003, the Company disbursed funds for mortgage loans (not
including refinanced mortgage loans) in the amounts of $24.41 million and
$13.54 million, respectively, commercial loans in the amounts of $6.66
million and $4.98 million, respectively, and consumer loans in the amounts of
$3.53 million and $7.22 million, respectively.
As of June 30, 2004, the Company had outstanding commitments (including
undisbursed loan proceeds) of $6.41 million. The Company anticipates it will
have sufficient funds available to meet its current loan origination
commitments. Certificates of deposit, which are scheduled to mature in one
year or less from June 30, 2004, totaled $37.30 million. Management believes
a significant portion of such deposits will remain with the Company.
At June 30, 2004, the Bank exceeded all of its regulatory capital
requirements with tangible capital and core capital both at $11.99 million or
7.87% of total adjusted tangible assets, core capital at $11.99 million or
7.87% of adjusted total assets, and risk-based capital at $13.07 million or
15.13% 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.
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 and Small Business Issuer Purchases of
Equity Securities
The following schedule discloses common stock repurchased by the
Company during the three months ended June 30, 2004:
Total Number Maximum
of Shares (or Number (or
Units) Approximate
Purchased as Dollar Value) of
Part of Shares (or Units)
Total Number Average Publicly that May Yet Be
of Shares (or Price Paid Announced Purchased Under
Units) per Share Plans or the Plans or
Period Purchased (or Unit) Programs Programs
- -----------------------------------------------------------------------------
April 2004 15,000 (a) $34.55 15,000 28,121 (b)
May 2004 20,000 (c) $32.43 20,000 8,121 (d)
June 2004 -- -- -- 8,121 (d)
- -----------------------------------------------------------------------------
Total 35,000 $33.34 35,000 8,121
=============================================================================
(a) Includes 5,566 shares purchased pursuant to a stock repurchase program
announced on July 15, 2003 ("2003 Program") and 9,434 shares purchased
pursuant to a stock repurchase program announced on February 11, 2004 ("2004
Program"). The purchase of the 5,566 shares completed the 2003 Program. The
2004 Program is for a total of 37,555 shares which is equal to 5% of the
outstanding common shares on the date the 2004 Program was announced. All
common stock repurchased under both the 2003 Program and the 2004 Program was
purchased in open-market transactions. There is no expiration date for the
2004 Program.
(b) Includes 28,121 shares to be repurchased under the 2004 Program.
(c) Repurchased under the 2004 Program.
(d) Includes 8,121 shares to be repurchased under the 2004 Program.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders held on April 27, 2004,
the Company's stockholders approved the following items:
1. Elected Ronald E. Guenther to a three-year term as
director:
Broker
For Withheld Non-Votes
----- -------- ---------
Number 710,244 14,815 0
Percent 98.0% 2.0% 0%
2. Elected George R. Rouse to a three-year term as director:
Broker
For Withheld Non-Votes
----- -------- ---------
Number 712,044 13,015 0
Percent 98.2% 1.8% 0%
3. Approved the appointment of McGladrey & Pullen, LLP, as
independent auditors of Great American Bancorp, Inc., for
the fiscal year ending December 31, 2004:
Broker
For Against Abstain Non-Votes
----- ------- ------- ---------
Number 708,364 14,005 2,690 0
Percent 97.7% 1.9% 0.4% 0%
The following directors held terms of office which continued
after the meeting:
Mr. Clinton C. Atkins
Mr. Ronald L. Kiddoo
Mr. Jack B. Troxell
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 April 13, 2004, the Registrant furnished a Current Report
on Form 8-K reporting information under Items 7 and 12, attaching as an
exhibit a press release dated April 13, 2004, relating to the Registrant's
unaudited results for the quarter ended March 31, 2004.
_________________
* 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: August 10, 2004 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: August 10, 2004 /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):
Six months Ended
June 30, 2004
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 622 745,084 $ 0.83
Effect of Dilutive Securities
Stock options 58,794
Unearned incentive plan shares 5,147
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 622 809,025 $ 0.77
===============================
Six months Ended
June 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 908 772,244 $ 1.18
Effect of Dilutive Securities
Stock options 79,239
Unearned incentive plan shares 5,368
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 908 856,851 $ 1.06
===============================
Three months Ended
June 30, 2004
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 271 738,198 $ 0.37
Effect of Dilutive Securities
Stock options 57,888
Unearned incentive plan shares 5,108
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 271 801,194 $ 0.34
===============================
Three months Ended
June 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 443 764,747 $ 0.58
Effect of Dilutive Securities
Stock options 79,810
Unearned incentive plan shares 5,337
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 443 849,894 $ 0.52
===============================
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: August 10, 2004 /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: August 10, 2004 /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 June 30, 2004 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 periods 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: August 10, 2004
--------------------------------
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