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, 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 October 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. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits
SIGNATURES
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
As of September 30, 2004 and December 31, 2003
(in thousands except share data)
Sept. 30, 2004 Dec. 31, 2003
(unaudited)
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ASSETS
Cash and due from banks $ 3,786 $ 4,388
Interest-bearing demand deposits 6,132 9,674
Federal Home Loan Bank term deposit 15,000 30,000
--------------------------------
Cash and cash equivalents 24,918 44,062
Available-for-sale securities 3,351 4,200
Held-to-maturity securities (fair value of
$342 and $562) 333 532
Loans, net of allowance for loan losses
of $1,203 and $1,190) 117,857 100,772
Premises and equipment 6,020 6,299
Federal Home Loan Bank stock 1,386 1,324
Other assets 2,649 2,261
--------------------------------
Total assets $ 156,514 $ 159,450
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits
Demand $ 12,150 $ 13,008
Savings, NOW and money market 62,756 59,945
Time 47,359 53,711
--------------------------------
Total deposits 122,265 126,664
Federal Home Loan Bank advances 15,000 13,000
Other liabilities 1,912 2,150
--------------------------------
Total liabilities 139,177 141,814
--------------------------------
Commitments and Contingent Liabilities
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Balance Sheets (Continued)
As of September 30, 2004 and December 31, 2003
(in thousands except share data)
Sept. 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 21,297 20,508
Unearned incentive plan shares (60) (63)
Accumulated other comprehensive income (loss) (11) 20
Treasury stock, at cost, 1,317,747 and
1,296,747 shares (24,546) (23,262)
--------------------------------
Total stockholders' equity 17,337 17,636
--------------------------------
Total liabilities and
stockholders' equity $ 156,514 $ 159,450
================================
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
- ----------------------------------------------------------------------------
Interest income
Loans $ 5,420 $ 6,122
Securities 135 46
Dividends on Federal Home Loan Bank stock 62 56
Deposits with financial institutions
and other 230 312
--------------------------------
Total interest and dividend income 5,847 6,536
--------------------------------
Interest expense
Deposits 1,167 1,801
Federal Home Loan Bank advances 429 453
Other 17 19
--------------------------------
Total interest expense 1,613 2,273
--------------------------------
Net interest income 4,234 4,263
Provision for loan losses -- --
--------------------------------
Net interest income after
provision for loan losses 4,234 4,263
--------------------------------
Noninterest income
Insurance sales commissions 1,552 1,279
Customer service fees 415 432
Other service charges and fees 179 177
Net gains on loan sales 16 647
Loan servicing fees 128 94
Other 91 73
--------------------------------
Total noninterest income 2,381 2,702
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
- ----------------------------------------------------------------------------
Noninterest expense
Salaries and employee benefits $ 2,938 $ 2,763
Net occupancy expense 417 429
Equipment expense 472 383
Professional fees 220 178
Marketing expense 150 184
Printing and office supplies 200 228
Directors and committee fees 103 108
Amortization of mortgage servicing rights 63 150
Other 419 483
--------------------------------
Total noninterest expense 4,982 4,906
--------------------------------
Income before income taxes 1,633 2,059
Provision for income taxes 600 791
--------------------------------
Net income 1,033 1,268
Other Comprehensive Income
Change in unrealized depreciation
on available-for-sale securities,
net of income tax benefit
of $22 for 2004 (31) --
--------------------------------
Total comprehensive income $ 1,002 $ 1,268
================================
Per Share Data:
Earnings
Basic:
Net income $ 1.40 $ 1.65
================================
Average number of shares 740,286 766,854
================================
Diluted:
Net income $ 1.29 $ 1.49
================================
Average number of shares 801,662 851,092
================================
Dividends $ 0.33 $ 0.33
================================
See notes to unaudited condensed consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income
For the Three Months Ended September 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
- ----------------------------------------------------------------------------
Interest income
Loans $ 1,901 $ 1,870
Securities 41 12
Dividends on Federal Home Loan Bank stock 21 21
Deposits with financial institutions
and other 76 103
--------------------------------
Total interest and dividend income 2,039 2,006
--------------------------------
Interest expense
Deposits 374 529
Federal Home Loan Bank advances 148 149
Other 6 6
--------------------------------
Total interest expense 528 684
--------------------------------
Net interest income 1,511 1,322
Provision for loan losses -- --
--------------------------------
Net interest income after
provision for loan losses 1,511 1,322
--------------------------------
Noninterest income
Insurance sales commissions 458 478
Customer service fees 152 155
Other service charges and fees 60 58
Net gains on loan sales 2 95
Loan servicing fees 43 39
Other 21 23
--------------------------------
Total noninterest income 736 848
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Income (Continued)
For the Three Months Ended September 30, 2004 and 2003
(Unaudited, in thousands except share data)
2004 2003
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Noninterest expense
Salaries and employee benefits $ 960 $ 910
Net occupancy expense 138 146
Equipment expense 153 136
Professional fees 66 51
Marketing expense 64 61
Printing and office supplies 62 76
Directors and committee fees 34 35
Amortization of mortgage servicing rights 16 38
Other 139 151
--------------------------------
Total noninterest expense 1,632 1,604
--------------------------------
Income before income taxes 615 566
Provision for income taxes 204 206
--------------------------------
Net income 411 360
Other Comprehensive Income
Change in unrealized depreciation on
available-for-sale securities, net of
income taxes of $24 for 2004 34 --
--------------------------------
Total comprehensive income $ 445 $ 360
================================
Per Share Data:
Earnings
Basic:
Net income $ 0.56 $ 0.48
================================
Average number of shares 730,794 756,233
================================
Diluted:
Net income $ 0.52 $ 0.43
================================
Average number of shares 786,146 843,729
================================
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 Nine Months Ended September 30, 2004 and 2003
(Unaudited, in thousands)
2004 2003
- ----------------------------------------------------------------------------
Operating Activities
Net income $ 1,033 $ 1,268
Items not requiring (providing) cash
Depreciation 379 332
Amortization of mortgage servicing rights 63 150
Net gains on loan sales (16) (647)
Loans originated for sale (936) (30,834)
Proceeds from loan sales 947 32,904
Tax benefit related to stock options exercised 224 44
Federal Home Loan Bank stock dividends (62) (75)
Changes in:
Other assets (425) 132
Other liabilities (127) 67
Other operating activities 27 (76)
--------------------------------
Net cash provided by
operating activities 1,107 3,265
--------------------------------
Investing Activities
Proceeds from maturities of available-
for-sale securities 792 --
Proceeds from maturities of held-to-
maturity securities 199 614
Net change in loans (17,100) 23,316
Purchase of premises and equipment (104) (474)
--------------------------------
Net cash provided by (used in)
investing activities (16,213) 23,456
--------------------------------
(continued)
Great American Bancorp, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 30, 2004 and 2003
(Unaudited, in thousands)
2004 2003
- ----------------------------------------------------------------------------
Financing Activities:
Net increase in demand deposits,
money market, NOW and savings accounts $ 1,953 $ 3,805
Net decrease in certificates of deposits (6,352) (4,536)
Repayment of Federal Home Loan Bank advances (3,000) (2,000)
Proceeds from Federal Home Loan Bank advances 5,000 --
Proceeds from stock options exercised 406 305
Purchase of treasury stock (1,690) (2,687)
Dividends paid (244) (259)
Net decrease in advances from
borrowers for taxes and insurance (111) (219)
--------------------------------
Net cash used in financing activities (4,038) (5,591)
--------------------------------
Increase (decrease) in Cash
and Cash Equivalents (19,144) 21,130
Cash and Cash Equivalents, Beginning
of Period 44,062 32,334
--------------------------------
Cash and Cash Equivalents, End of
Period $ 24,918 $ 53,464
================================
Supplemental Cash Flows Information
Interest paid $ 1,610 $ 2,285
Income taxes paid (net of refunds) 500 926
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 September 30, 2004
and December 31, 2003, the results of operations for the three months and
nine months ended September 30, 2004 and 2003, and the cash flows for the
nine months ended September 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 nine months ended
September 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 Nine Months Ended
--------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------------------- ---------------------
(in thousands, except per share data)
Net income as reported $ 411 $ 360 $ 1,033 $ 1,268
Less: Total stock-based
employee compensation
cost determined under the
fair value based method,
net of income taxes (--) (--) (1) (1)
--------------------- ---------------------
Pro forma net income $ 411 $ 360 $ 1,032 $ 1,267
===================== =====================
Earnings per share:
Basic - as reported $ 0.56 $ 0.48 $ 1.40 $ 1.65
===================== =====================
Basic - pro forma $ 0.56 $ 0.48 $ 1.39 $ 1.65
===================== =====================
Diluted - as reported $ 0.52 $ 0.43 $ 1.29 $ 1.49
===================== =====================
Diluted - pro forma $ 0.52 $ 0.43 $ 1.29 $ 1.49
===================== =====================
The Company did not grant additional stock options during the three
month or nine month periods ended September 30, 2004 and 2003.
4. Securities
A summary of securities at September 30, 2004 and December 31, 2003 is as
follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- --------
(in thousands)
At September 30, 2004:
Securities available-for-sale:
Mortgage-backed securities $ 3,369 $ -- $ (18) $ 3,351
========== ========= ========== ========
Securities held-to-maturity:
Mortgage-backed securities $ 333 $ 9 $ -- $ 342
========== ========= ========== ========
A summary of unrealized loss information for investment securities,
categorized by security type, at September 30, 2004 is as follows:
Less Than 12 Months 12 Months or Longer Total
--------------------- --------------------- ---------------------
Fair Unrealized Fair Unrealized Fair Unrealized
Value Losses Value Losses Value Losses
--------- ---------- --------- ---------- --------- ----------
(in thousands)
<s> <c> <c> <c> <c> <c> <c>
Securities available-
for-sale:
Mortgage-backed $ 3,351 $ (18) $ -- $ -- $ 3,351 $ (18)
========= ========== ========= ========== ========= ==========
For all of the above investment securities, the unrealized losses are
generally due to changes in interest rates and as such, are considered to be
temporary by the Company.
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 $2.94 million from $159.45 million
at December 31, 2003 to $156.51 million at September 30, 2004. This decline
was primarily in cash and cash equivalents. Cash and cash equivalents
decreased $19.14 million, from $44.06 million at December 31, 2003 to $24.92
million at September 30, 2004. Cash and cash equivalents declined mainly due
to cash used to fund an increase in loans and a decline in customer deposits.
The Federal Home Loan Bank ("FHLB") term deposit declined $15.00 million from
December 31, 2003 to September 30, 2004, comprising the majority of the
decrease in cash and cash equivalents. The FHLB short-term time deposit of
$15.00 million at September 30, 2004 was a 14-day deposit with a yield of
1.70%.
Available-for-sale securities and held-to-maturity securities declined
$849,000 and $199,000, respectively, from December 31, 2003 to September 30,
2004. Available-for-sale securities, which are all mortgage-backed
securities, decreased due to repayments totaling $792,000, premium
amortization of $4,000, and depreciation in market value of $53,000. Held-
to-maturity securities, which are also mortgage-backed securities, decreased
due to repayments totaling $199,000.
Total net loans increased from $100.77 million at December 31, 2003 to
$117.86 million at September 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 September
30, 2004 compared to December 31, 2003 balances, along with the change and
percentage change:
Balance Balance
September 30, December 31, Percentage
2004 2003 Change Change
- ----------------------------------------------------------------------------
(dollar amounts in thousands)
One-to-four-family
mortgage loans $ 57,444 $ 44,305 $ 13,139 29.7%
Multi-family mortgage loans 19,119 18,347 772 4.2
Commercial mortgage loans 12,628 10,749 1,879 17.5
Construction loans 3,788 2,125 1,663 78.3
- ----------------------------------------------------------------------------
Total real estate loans 92,979 75,526 17,453 23.1
Commercial loans 11,405 12,022 (617) (5.1)
Consumer loans 14,676 14,414 262 1.8
- ----------------------------------------------------------------------------
Total loans 119,060 101,962 17,098 16.8
Allowance for loan losses (1,203) (1,190) (13) 1.1
- ----------------------------------------------------------------------------
Total loans, net $ 117,857 $ 100,772 $ 17,085 17.0%
============================================================================
One-to-four-family mortgage loans increased $13.14 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 nine
months ended September 30, 2004, the Company did sell $936,000 in one-to-
four-family home mortgage loans to the Federal National Mortgage Association
("FNMA").
Commercial mortgage loans increased $1.88 million from December 31, 2003
due mainly to one loan totaling $1.50 million. 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 $1.66 million from December 31, 2003 due partly to $1.09 million 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 $617,000 from December 31, 2003 mainly due to
the $593,000 loan that was reclassified from commercial loans to commercial
mortgage loans during the second quarter of 2004.
The allowance for loan losses was $1,203,000 at September 30, 2004
compared to $1,190,000 at December 31, 2004. The Company recorded no
provision for loan losses during the nine months ended September 30, 2004.
During this period, the Company had no loans charged-off and collected
$13,000 in payments for loans previously charged-off. Management's analyses
of the allowance for loan losses during the period ended September 30, 2004
determined that no additional allocation to the allowance was warranted,
primarily due to the low level of non-performing loans during the period 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 judgments different from management.
Non-performing loans, which are loans past due 90 days or more and non-
accruing loans, totaled $36,000 at September 30, 2004, compared to $4,000 at
December 31, 2003. Non-performing loans at September 30, 2004 consisted of
one residential mortgage loan totaling $31,000 and three consumer loans
totaling $5,000. These loans were past due 90 days or more at September 30,
2004, and the consumer loans were also in non-accrual status. At December
31, 2003, there was only one non-performing loan, a consumer loan totaling
$4,000. This loan was also non-performing at September 30, 2004. 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 1.01% at September 30, 2004 and 1.17% at December 31, 2003.
Total deposits decreased $4.39 million from $126.66 million at December
31, 2003 to $122.27 million at September 30, 2004. Time deposits declined by
$6.35 million, while noninterest bearing demand accounts decreased $858,000
and savings, NOW and money market deposits grew by $2.81 million during the
first nine 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
six months to two years.
The following table summarizes the balances of deposits at September 30,
2004 and December 31, 2003, the change in the balances and the percentage
change:
Balance Balance
September 30, December 31, Percentage
2004 2003 Change Change
- -----------------------------------------------------------------------------
(dollar amounts in thousands)
Noninterest bearing
checking accounts $ 12,150 $ 13,008 $ (858) (6.6)%
Interest bearing:
NOW accounts 21,790 22,210 (420) (1.9)
IMMA accounts 20,988 18,991 1,997 10.5
Savings accounts 19,978 18,744 1,234 6.6
Certificates of deposit 47,359 53,711 (6,352) (11.8)
- -----------------------------------------------------------------------------
Total interest
bearing deposits 110,115 113,656 (3,541) (3.1)
- -----------------------------------------------------------------------------
Total deposits $ 122,265 $ 126,664 $ (4,399) (3.5)%
=============================================================================
FHLB advances totaled $15.00 million at September 30, 2004 and $13.00
million at December 31, 2003. During September 2004, a $3.00 million advance
was called and the Company borrowed an additional $5.00 million. The
following schedule presents FHLB advances at September 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
- -----------------------------------------------------------------------------
September 2004 2.32% Fixed September 2005 Non callable $ 3,000
September 2004 3.32 Fixed September 2007 Non callable 2,000
October 1998 4.30 Fixed October 2008 October 2004 5,000
January 2001 4.55 Fixed January 2011 October 2004 5,000
-------
$15,000
=======
The $10.00 million in advances callable in October 2004 were not called.
Both of these advances are callable quarterly.
Total stockholders' equity decreased $300,000, from $17.64 million at
December 31, 2003 to $17.34 million at September 30, 2004. Book value per
outstanding voting share increased from $23.33 at December 31, 2003 to $23.59
at September 30, 2004.
The decrease in stockholders' equity is summarized as follows (in
thousands):
Stockholders' equity, December 31, 2003 $ 17,636
Net income 1,033
Purchase of treasury stock (1,690)
Stock options exercised 406
Tax benefit related to stock options exercised 224
Dividends declared (244)
Change in unrealized net gain (loss) on
available-for-sale securities (31)
Incentive plan shares allocated 3
------
Stockholders' equity, September 30, 2004 $ 17,337
======
In February 2004, the Company announced an additional 5% stock
repurchase program totaling 37,555 shares. Prior to July 1, 2004, 29,434
shares had been repurchased under this program at an average price of $33.11.
The Company did not repurchase any treasury shares during the quarter ended
September 30, 2004. 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. Unregistered Sales of Equity
Securities and Use of Proceeds for additional disclosures relating to stock
repurchase programs).
Results of Operations
Comparison of Nine Month Periods Ended September 30, 2004 and 2003
Net income totaled $1,033,000 for the nine months ended September 30,
2004 compared to $1,268,000 for the nine months ended September 30, 2003, a
decrease of $235,000, or 18.5%. Basic earnings per share were $1.40 for the
nine months ended September 30, 2004, compared to $1.65 for the nine months
ended September 30, 2003. Diluted earnings per share were $1.29 for the nine
months ended September 30, 2004 compared to $1.49 for the same period in
2003. Net income decreased in 2004 primarily due to a decrease in
noninterest income and an increase in noninterest expense, offset by lower
income tax expense.
Net interest income decreased $29,000, from $4,263,000 for the nine
months ended September 30, 2003 to $4,234,000 for the same period in 2004.
Interest income declined $689,000, or 10.5%, from $6,536,000 for the nine
months ended September 30, 2003 to $5,847,000 for the first nine months of
2004. Interest expense decreased $660,000, or 29.0%, from $2,273,000 in 2003
to $1,613,000 in 2004.
Interest income from loans was $5,420,000 for the first nine months of
2004, $702,000, or 11.5%, less than the $6,122,000 recorded for the same
period in 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 $108.71 million during
the nine months ended September 30, 2004, a decrease of $1.98 million from
the average of total net loans during the first nine months of 2003.
The following schedule compares average total loan balances by major
categories for the nine months ended September 30, 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 $ 51,070 $ 49,805 $ 1,265 2.5%
Multi-family mortgage loans 18,217 19,486 (1,269) (6.5)
Commercial mortgage loans 11,091 15,538 (4,447) (28.6)
Construction loans 3,454 1,961 1,493 76.1
- ----------------------------------------------------------------------------
Total real estate loans 83,832 86,790 (2,958) (3.4)
Commercial loans 11,338 10,527 811 7.7
Consumer loans 14,735 14,556 179 1.2
- ----------------------------------------------------------------------------
Total loans 109,905 111,873 (1,968) (1.8)
Allowance for loan losses (1,196) (1,189) (7) 0.6
- ----------------------------------------------------------------------------
Total loans, net $108,709 $110,684 $ (1,975) (1.8)%
============================================================================
The average balance of total one-to-four-family residential mortgage
loans increased from the level maintained during the first nine months of
2003 due primarily to the Company maintaining the majority of new home loans
in the loan portfolio rather than selling loans to the secondary market. In
October 2003, the Company suspended a strategy of selling the majority of new
and refinanced mortgage loans to the secondary market. Loans sold in 2004
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.
The $1.27 million decrease in the average balance of total 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. The $4.45
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 construction loans grew $1.49 million mainly due to one large
commercial construction project.
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 has increased three times during the quarter ended
September 30, 2004, with each increase equal to 25 basis points. The prime
rate is currently 4.75%. The average yield on the Company's net loans
decreased from 7.40% for the first nine months of 2003 to 6.66% for the first
nine months of 2004.
Interest income from securities increased from $46,000 for the nine
months ended September 30, 2003 to $135,000 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 $4.25 million for the nine months ended September 30, 2004
compared to $965,000 for the first nine months of 2003. The average yield on
securities was 4.25% for the nine months ended September 30, 2004, down from
6.37% for the same period in 2003.
Interest income from deposits with financial institutions and other
decreased $82,000, from $312,000 for the nine months ended September 30, 2003
to $230,000 for the nine months ended September 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 $40.99 million for the first nine
months of 2003 to $30.38 million for the same period in 2004. The average
yield on deposits with financial institutions and other decreased only
slightly from 1.02% for the nine months ended September 30, 2003 to 1.01% for
the nine months ended September 30, 2004. The majority of these deposits are
overnight funds or short-term deposits with the FHLB.
Interest expense decreased by $660,000, or 29.0%, from $2,273,000 for
the nine months ended September 30, 2003 to $1,613,000 for the same period in
2004, mainly interest expense on deposits. Interest expense on deposits
declined $634,000, or 35.2%, from $1,801,000 for the nine months ended
September 30, 2003 to $1,167,000 for the nine months ended September 30,
2004. Interest expense on interest-bearing demand and savings deposits
decreased $169,000, or 42.0%, from $402,000 for the first nine months of 2003
to $233,000 for the first nine months of 2004. Interest expense on
certificates of deposit declined $465,000, or 33.2%, from $1,399,000 for the
nine months ended September 30, 2003 to $934,000 for the nine months ended
September 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 $61.86 million for the nine
months ended September 30, 2003 to $62.48 million for the nine months ended
September 30, 2004. The average rate on interest-bearing demand and savings
deposits decreased from 0.87% for the nine months ended September 30, 2003 to
0.50% for the nine months ended September 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 $9.07 million, or
15.3%, from $59.33 million in the first nine months of 2003 to $50.26 million
in the first nine 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 3.15% for the nine months ended
September 30, 2003 to 2.48% for the same period in 2004.
Interest expense on FHLB advances was $429,000 for the nine months ended
September 30, 2004 compared to $453,000 for the same period in 2003.
Interest expense on FHLB advances declined in 2004 due mainly to the maturity
of advances in March and September, 2003. The average balance of total FHLB
advances was $13.31 million for the first nine months of 2004 compared to
$14.19 million for the same period in 2003. The average rate on FHLB
advances increased from 4.27% for the nine months ended September 30, 2003 to
4.31% for the nine months ended September 30, 2004.
Net interest income as a percent of interest earning assets was 3.91%
for the nine months ended September 30, 2004 versus 3.70% for the same period
in 2003. The spread between the yield on interest-earning assets and the
rate on interest bearing liabilities was 3.70% and 3.45% for the nine months
ended September 30, 2004 and 2003, respectively.
The Company recorded no provision for loan losses during either of the
nine month periods ended September 30, 2004 and 2003. Management's analyses
of the allowance for loan losses during the periods ended September 30, 2004
and 2003 determined that no additional allocations to the allowance was
warranted.
Noninterest income totaled $2,381,000 for the nine months ended
September 30, 2004, compared to $2,702,000 for the same period in 2003,
decreasing $321,000, or 11.9%. 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 $16,000 for the
first nine months of 2004 compared to $647,000 for the first nine months of
2003. The Company sold $936,000 in loans during the nine months ended
September 30, 2004 compared to $30.83 million in loan sales for the first
nine 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.
Insurance sales commissions increased $273,000, or 21.3%, from $1,279,000 in
2003 to $1,552,000 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 $4,982,000 for the nine months ended September
30, 2004, $76,000, or 1.5%, higher than the $4,906,000 recorded for the first
nine 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 $175,000, or 6.3%, from $2,763,000 for the nine months
ended September 30, 2003 to $2,938,000 for the first nine months of 2004, due
primarily to normal salary raises and higher commissions earned by producers
at the Agency. Equipment expenses were $89,000 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 $42,000
from 2003 to 2004, mainly legal and audit fees. Marketing expense was
$34,000 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 $87,000, from $150,000 in 2003 to $63,000 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 $64,000 lower in 2004, mainly due to
decreases in charitable contributions, check losses, and travel and meeting
expenses.
Total income taxes were $600,000 for the nine months ended September 30,
2004 and $791,000 for the same period in 2003. The effective tax rates for
the nine months ended September 30, 2004 and 2003 were 36.7% and 38.4%
respectively.
Comparison of Three Month Periods Ended September 30, 2004 and 2003
Net income for the three months ended September 30, 2004 was $411,000,
an increase of $51,000, or 14.2%, from the $360,000 recorded for the three
months ended September 30, 2003. Basic earnings per share increased $0.08,
from $0.48 for the three months ended September 30, 2003 to $0.56 for the
same period in 2004, while diluted earnings per share increased $0.09, from
$0.43 for 2003 to $0.52 in 2004.
Net income for the third quarter of 2004 was higher than net income for
the third quarter of 2003 mainly due to an increase in net interest income,
offset by a decrease in noninterest income. Noninterest expense was slightly
higher in 2004 compared to 2003.
Net interest income was $1,511,000 for the quarter ended September 30,
2004 compared to $1,322,000 for the quarter ended September 30, 2003, an
increase of $189,000, or 14.3%. Net interest income was higher in 2004 due
primarily to a decline in interest-bearing deposits, mainly certificates of
deposit.
Interest income increased $33,000, or 1.6%, from $2,006,000 for the
quarter ended September 30, 2003 to $2,039,000 for the third quarter of 2004,
primarily due to increases in interest income from loans and securities.
Interest income from loans increased $31,000, or 1.7%, from $1,870,000 for
the quarter ended September 30, 2003 to $1,901,000 for the same quarter in
2004, due primarily to an increase in average outstanding loans, offset by a
decline in the average yield on net loans. Total average outstanding net
loans increased from $100.95 million for the quarter ended September 30, 2003
to $115.76 million for the quarter ended September 30, 2004, an increase of
$14.81 million, or 14.7%. This increase occurred primarily in residential
mortgage loans. The average balance of total residential mortgage loans was
$56.07 million for the third quarter of 2004, $13.99 million higher than the
$42.08 million total average for the same quarter of 2003. The average yield
on net loans decreased from 7.35% for the third quarter of 2003 to 6.53% for
the third quarter of 2004. The lower yield for 2004 is due partly to the
decrease in market interest rates during the latter half of 2003 and partly
due to a reduction in loan fees.
Interest income on investment securities increased from $12,000 for the
three months ended September 30, 2003 to $41,000 for the same period in 2004,
due to mortgage-backed securities purchased in November 2003. Average total
investments for the third quarter of 2004 were $3.85 million, compared to
$759,000 for the third quarter of 2003. The average yield on investment
securities for the three months ended September 30, 2004 was 4.24%, while the
average yield was 6.27% for the same period in 2003.
Interest income on deposits with financial institutions and other was
$76,000 for the quarter ended September 30, 2004 compared to $103,000 for the
quarter ended September 30, 2003. The average balance of deposits with banks
and other was $23.54 million for the quarter ended September 30, 2004 versus
$49.76 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 total customers' deposits. The average yield on deposits with
financial institutions and other was 1.28% for the quarter ended September
30, 2004 compared to 0.82% for the quarter ended September 30, 2003. The
higher yield in 2004 reflects an increase in short-term market interest rates
during the quarter.
Interest expense decreased $156,000, or 22.8%, from $684,000 for the
three months ended September 30, 2003 to $528,000 for the same period in
2004. This decrease was mainly due to a decline in the average balance of
total certificates of deposit and a decrease in the average rate paid on
interest-bearing deposits. The average balance of total certificates of
deposit declined $9.64 million, from $58.03 million for the third quarter of
2003 to $48.39 million for the third quarter of 2004. The majority of this
decrease occurred in one-year to two-year certificates. The average balance
of total interest-bearing demand deposits increased $1.30 million, from
$62.44 million for the quarter ended September 30, 2003 to $63.74 million for
the same quarter in 2004. This increase was mainly due to customers
transferring matured certificates of deposit to demand accounts. The average
rate on interest-bearing deposits declined from 1.74% for the quarter ended
September 30, 2003 to 1.33% for the quarter ended September 30, 2004. This
decline was mainly due to maturing certificates of deposits renewing at lower
rates during the latter half of 2003 and in 2004 and the shift from
certificates of deposit to lower rate interest-bearing demand accounts.
Interest expense on FHLB advances decreased only slightly, from $149,000
for the three months ended September 30, 2003 to $148,000 for the same period
in 2004, due mainly to a decline in the average rate on outstanding advances.
The average total balance of FHLB advances increased from $13.79 million for
the third quarter of 2003 to $13.92 million for the third quarter of 2004 due
to advances entered into in September 2004. The average rate on FHLB
advances declined from 4.29% for the three months ended September 30, 2003 to
4.23% for the three months ended September 30, 2004.
Net interest income as a percent of interest earning assets was 4.16%
for the three months ended September 30, 2004 versus 3.43% for the same
period in 2003. The spread between the yield on interest earning assets and
the rate on interest bearing liabilities was 3.95% and 3.20% for the three
months ended September 30, 2004 and 2003, respectively.
The Company recorded no provision for loan losses for the three months
ended September 30, 2004 and the three months ended September 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 $112,000, or 13.2%, from $848,000 for the
quarter ended September 30, 2003 to $736,000 for the three months ended
September 30, 2004. This decrease was mainly due to lower net gains from
loan sales. During the third quarter of 2004, the Company sold two fixed
rate residential mortgage loans totaling $204,000, recording a net gain of
$2,000. The Company sold $10.16 million in fixed rate one-to-four-family
residential mortgage loans during the third quarter of 2003, recording net
gains of $95,000.
Noninterest expense was $1,632,000 for the three months ended September
30, 2004, $28,000 higher than the $1,604,000 recorded for the same period in
2003. Salary and employee benefits expense was $50,000 higher in 2004, due
to normal salary raises and an increase in health insurance premiums.
Equipment expense was $17,000 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 $15,000 higher in 2004, mainly legal fees. Amortization of mortgage
servicing rights was $22,000 lower in 2004 due to a significant amount of
sold loans being paid off in the latter half of 2003.
Total income tax expense for the three months ended September 30, 2004
was $204,000, compared to $206,000 recorded for the same period in 2003. The
effective tax rates for the three months ended September 30, 2004 and 2003
were 33.2% and 36.4%, respectively. The lower effective tax rate for 2004
reflects adjustments recorded relating to the federal and state tax returns
filed for 2003.
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.
Nine Months Ended September 30, 2004
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 5,847 $ 1 $ 5,848 $ (1) $ 5,847
Interest expense 1,614 -- 1,614 (1) 1,613
Noninterest income 892 1,552 2,444 (63) 2,381
Noninterest expense 3,968 1,077 5,045 (63) 4,982
Net income 744 289 1,033 -- 1,033
Total assets 157,097 1,804 158,901 (2,387) 156,514
Nine Months Ended September 30, 2003
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 6,536 $ -- $ 6,536 $ -- $ 6,536
Interest expense 2,273 -- 2,273 -- 2,273
Noninterest income 1,474 1,283 2,757 (55) 2,702
Noninterest expense 4,012 949 4,961 (55) 4,906
Net income 1,064 204 1,268 -- 1,268
Total assets 163,459 1,673 165,132 (2,065) 163,067
Three Months Ended September 30, 2004
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 2,039 $ 1 $ 2,040 $ (1) $ 2,039
Interest expense 529 -- 529 (1) 528
Noninterest income 300 457 757 (21) 736
Noninterest expense 1,302 351 1,653 (21) 1,632
Net income 346 65 411 -- 411
Three Months Ended September 30, 2003
(unaudited, in thousands)
Banking Insurance
Services Services Company Eliminations Total
- -----------------------------------------------------------------------------
Interest income $ 2,006 $ -- $ 2,006 $ -- $ 2,006
Interest expense 684 -- 684 -- 684
Noninterest income 390 478 868 (20) 848
Noninterest expense 1,319 305 1,624 (20) 1,604
Net income 255 105 360 -- 360
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 September 30, 2004 and December 31, 2003, mortgage servicing
rights had carrying values of $93,000 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 nine
months ended September 30, 2004 and 2003 were $3,925 and $11,688. 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 nine months and three months ended September
30, 2004 and 2003 is as follows:
For the Three For the Nine
Months Ended Months Ended
--------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2004 2003 2004 2003
--------------------- ---------------------
(in thousands)
Service cost $ 8 $ 6 $ 25 $ 16
Interest cost 7 6 21 17
Amortization of
prior service cost 2 2 5 6
Amortization of (gain) loss 1 -- 3 --
--------------------- ---------------------
Total net periodic
benefit cost $ 18 $ 14 $ 54 $ 39
===================== =====================
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 $19.14 million from December 31, 2003 to
September 30, 2004, compared to an increase of $21.13 million for the nine
months ended September 30, 2003. During the nine months ended September 30,
2004, cash was primarily provided from earnings, proceeds from sales of one-
to-four-family residential mortgage loans, proceeds from maturities of
securities, proceeds from FHLB advances, 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,
the repayment of FHLB advances, and to purchase treasury stock.
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 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, 2004 was the origination of loans. During the nine months
ended September 30, 2004 and 2003, the Company disbursed funds for mortgage
loans (not including refinanced mortgage loans) in the amounts of $35.27
million and $22.53 million, respectively, commercial loans in the amounts of
$9.90 million and $10.17 million, respectively, and consumer loans in the
amounts of $5.50 million and $10.41 million, respectively.
As of September 30, 2004, the Company had outstanding commitments
(including undisbursed loan proceeds) of $8.81 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, 2004, totaled $34.93 million.
Management believes a significant portion of such deposits will remain with
the Company.
At September 30, 2004, the Bank exceeded all of its regulatory capital
requirements with tangible capital and core capital both at $12.21 million or
8.05% of total adjusted tangible assets, core capital at $12.21 million or
8.05% of adjusted total assets, and risk-based capital at $13.31 million or
15.07% 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. Unregistered Sales of Equity Securities and Use of Proceeds
The following schedule discloses common stock repurchased by the
Company during the three months ended September 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
- -----------------------------------------------------------------------------
July 2004 -- -- -- 8,121 (a)
August 2004 -- -- -- 8,121
September 2004 -- -- -- 8,121
- -----------------------------------------------------------------------------
Total -- -- -- 8,121
=============================================================================
(a) Includes 8,121 shares remaining to be repurchased under a stock
repurchase program announced on February 11, 2004, ("2004 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. Prior
to July 1, 2004, 29,434 shares had been repurchased under this program at an
average price of $33.11.
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
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
_________________
* 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 9, 2004 /s/ George R. Rouse
----------------------- ----------------------------
George R. Rouse
President and
Chief Executive Officer
Dated: November 9, 2004 /s/ Jane F. Adams
-------------------------- ----------------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
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, 2004
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 1,033 740,286 $ 1.40
Effect of Dilutive Securities
Stock options 56,305
Unearned incentive plan shares 5,071
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 1,033 801,662 $ 1.29
===============================
Nine months Ended
September 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 1,268 766,854 $ 1.65
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 $ 1,268 851,092 $ 1.49
===============================
Three months Ended
September 30, 2004
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 411 730,794 $ 0.56
Effect of Dilutive Securities
Stock options 50,418
Unearned incentive plan shares 4,934
-------------------------------
Diluted Earnings Per Share
Income available to common stockholders
and assumed conversion $ 411 786,146 $ 0.52
===============================
Three months Ended
September 30, 2003
-------------------------------
Weighted
Average Per Share
Income Shares Amount
-------------------------------
Basic Earnings Per Share
Income available to common stockholders $ 360 756,233 $ 0.48
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 $ 360 843,729 $ 0.43
===============================
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 9, 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: November 9, 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 September 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: November 9, 2004
--------------------------------
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