UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------ ------------------------
Commission File Number: 0-25808
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GREAT AMERICAN BANCORP, INC.
----------------------------
Delaware 52-1923366
- --------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1311 S. Neil St., P.O. Box 1010, Champaign, IL 61824-1010
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(217) 356-2265
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 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.
(1) [ X ] Yes [ ] No
(2) [ X ] Yes [ ] No
The Registrant had 1,852,606 shares of Common Stock issued and outstanding
as of October 31, 1996. These shares include 118,080 shares held by the
Registrant's Employee Stock Ownership Plan ("ESOP") and 70,031 shares held
by the Registrant's 1995 Incentive Plan that have not been committed to be
released to participants.
TABLE OF CONTENTS
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
Consolidated Income Statements
Consolidated Statements of Cash Flows
Item 2. Management's Discussion and Analysis or
Plan of Operation
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
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
SIGNATURE
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
As of September 30, 1996 and December 31, 1995
(unaudited, in thousands)
Sep 30 Dec 31
1996 1995
ASSETS -------- --------
Cash $ 6,217 8,402
Cash equivalents 7,984 16,635
-------- --------
Total cash and cash equivalents 14,201 25,037
-------- --------
Securities:
Held to maturity (estimated
fair value $3,390 and $403) 3,397 400
Available for sale 5,845 5,859
Loans 91,386 77,676
Allowance for loan losses (322) (267)
-------- --------
Net loans 91,064 77,409
-------- --------
Federal Home Loan Bank stock 454 483
Premises and equipment 7,177 7,257
Investment in joint venture 61 100
Income tax refunds receivable 331 --
Accrued interest income:
Loans 732 803
Investments 150 100
Other assets 454 258
-------- --------
Total assets $ 123,866 117,706
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand, NOW, and passbook
savings deposits $ 37,694 39,853
Time deposits 52,752 42,065
-------- --------
Total deposits 90,446 81,918
Accounts payable and
accrued expenses 1,617 1,012
Deferred income taxes 72 144
-------- --------
Total liabilities 92,135 83,074
-------- --------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets (Continued)
As of September 30, 1996 and December 31, 1995
(unaudited, in thousands)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value
Authorized and unissued
-- 1,000,000 shares -- --
Common stock, $.01 par value
Authorized -- 7,000,000 shares
Issued -- 2,052,750 shares
Outstanding -- 1,758,403 shares
in 1996; 1,912,112 in 1995 21 21
Paid-in-capital 19,424 19,381
Retained earnings 16,013 16,719
-------- --------
35,458 36,121
-------- --------
Less:
Unrealized loss on securities
available for sale,
net of income tax effect (91) (83)
Unearned employee stock
ownership plan shares (1,203) (1,406)
Unearned compensation -
incentive plan (996) --
Treasury stock (1,437) --
-------- --------
(3,727) (1,489)
-------- --------
Total stockholders' equity 31,731 34,632
-------- --------
Total liabilities and
stockholders' equity $ 123,866 117,706
======== ========
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Nine Months Ended September 30, 1996 and 1995
(unaudited, in thousands except share data)
1996 1995
-------- --------
Interest income:
Loans
Mortgage $ 4,033 3,760
Consumer and other loans 1,313 1,222
Securities and certificates
of deposit 1,065 923
-------- --------
6,411 5,905
-------- --------
Interest expense:
Deposits 2,330 2,210
FHLB advances -- 39
Other 22 21
-------- --------
2,352 2,270
-------- --------
Net interest income 4,059 3,635
Provision for loan losses 170 99
-------- --------
Net interest income
after provision
for loan losses 3,889 3,536
-------- --------
Noninterest income:
Income from joint venture 39 45
Commissions 18 39
Net gain on sale of loans 23 8
Net gain on mortgage servicing 21 --
Service charges - deposits 296 293
Other 51 32
-------- --------
448 417
-------- --------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Nine Months Ended September 30, 1996 and 1995
(unaudited, in thousands except share data)
Noninterest expense:
Compensation and employee benefits 1,811 1,659
Occupancy expense 512 522
Data processing 142 150
Insurance of accounts 751 174
Professional fees 155 59
Other 556 503
-------- --------
3,927 3,067
-------- --------
Income before income taxes 410 886
Income taxes 209 355
-------- --------
Net income $ 201 531
======== ========
Earnings per share:
Assuming no dilution
Net income $ 0.11 0.28
======== ========
Weighted average number
of shares 1,836,786 1,893,155
======== ========
Assuming full dilution:
Net income $ 0.10 0.26
======== ========
Weighted average number
of shares 2,025,003 2,052,750
======== ========
See notes to consolidated financial statements
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements
For the Quarter Ended September 30, 1996 and 1995
(unaudited, in thousands except share data)
1996 1995
-------- --------
Interest income:
Loans
Mortgage $ 1,480 1,252
Consumer and other loans 442 441
Securities 296 434
-------- --------
2,218 2,127
-------- --------
Interest expense:
Deposits 827 736
FHLB advances -- --
Other 8 7
-------- --------
835 743
-------- --------
Net interest income 1,383 1,384
Provision for loan losses 60 33
-------- --------
Net interest income
after provision
for loan losses 1,323 1,351
-------- --------
Noninterest income:
Income from joint venture 8 4
Commissions 6 5
Net gain on sale of loans -- 7
Service charges - deposits 111 93
Other 23 12
-------- --------
148 121
-------- --------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Income Statements (Continued)
For the Quarter Ended September 30, 1996 and 1995
(unaudited, in thousands except share data)
Noninterest expense:
Compensation and employee benefits 602 570
Occupancy expense 176 177
Data processing 42 51
Insurance of accounts 633 59
Professional fees 40 22
Other 171 174
-------- --------
1,664 1,053
-------- --------
Income before income taxes (193) 419
Income taxes (51) 172
-------- --------
Net income $ (142) 247
======== ========
Earnings per share:
Assuming no dilution
Net income $ (0.08) 0.13
======== ========
Weighted average number
of shares 1,765,082 1,902,254
======== ========
Assuming full dilution:
Net income $ (0.07) 0.12
======== ========
Weighted average number
of shares 1,964,029 2,052,750
======== ========
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(unaudited, in thousands)
1996 1995
-------- --------
Cash flows from operating activities:
Net income $ 201 531
Adjustments to reconcile net
income to net cash provided
by operating activities:
Amortization of deferred
loan fees (14) (16)
Amortization of discount
on securities, net (1) (42)
Employee stock ownership
plan compensation expense 281 206
Incentive plan expense 153 --
Provision for loan losses 170 99
Provision for deferred taxes (66) (79)
Net gain on sale of loans (23) (8)
Federal Home Loan Bank stock
dividend -- (6)
Depreciation 268 269
Income from joint venture (39) (45)
Change in assets and
liabilities:
(Increase) decrease in
interest receivable 21 (32)
(Increase) decrease in
income tax refunds
receivable (331) (114)
(Increase) decrease in
other assets (196) (34)
(Decrease) increase in
accounts payable and
accrued expenses 426 144
-------- --------
Net cash provided by
(used in) operating
activities 850 873
-------- --------
(Continued)
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 30, 1996 and 1995
(unaudited, in thousands)
Cash flows from investing activities:
Loan originations, net of
principal payments on loans (16,623) (1,803)
Proceeds from sales of loans 2,835 749
Purchase of securities held
to maturity (2,996) (1,373)
Proceeds from matured securities
held to maturity -- 3,000
Proceeds from matured certificates
of deposit -- 2,000
Distribution from joint venture 78 79
Purchase of premises and equipment (188) (323)
Purchase of FHLB stock -- (83)
Proceeds from the sale of FHLB stock 29 --
-------- --------
Net cash provided by
(used in) investing activities (16,865) 2,246
-------- --------
Cash flows from financing
activities:
Issuance of common stock, net of
underwriting commissions and other
expenses of $1,171 -- 17,713
Purchase of stock for incentive plan (1,185) --
Purchase of Treasury Stock (1,437) --
Dividends paid (727) --
Net increase (decrease) in
demand deposits, NOW
accounts and passbook
savings accounts (2,159) (3,891)
Net increase (decrease) in
time deposits 10,687 (1,687)
Repayment of FHLB advance -- (2,000)
-------- --------
Net cash provided by
(used in) financing activities 5,179 10,135
-------- --------
Net increase (decrease) in cash
and cash equivalents (10,836) 13,254
Cash and cash equivalents,
beginning of year 25,037 9,067
-------- --------
Cash and cash equivalents,
end of period $ 14,201 22,321
======== ========
Great American Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Continued)
For the Nine Months Ended September 30, 1996 and 1995
(unaudited, in thousands)
Supplemental disclosures:
Cash paid for:
Interest $ 2,420 2,158
======== ========
Income taxes, net of refunds $ 669 569
======== ========
Decrease (increase) in gross
unrealized loss on
securities available for sale $ (14) 121
======== ========
Increase (decrease) in deferred
income taxes attributable to
the unrealized loss on
securities available for sale $ 6 (46)
======== ========
See notes to consolidated financial statements.
Great American Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Background Information
Great American Bancorp, Inc. (the "Company") was incorporated on February
23, 1995 and on June 30, 1995 acquired all of the outstanding shares of
common stock of First Federal Savings Bank of Champaign-Urbana, (the
"Bank") upon the Bank's conversion from a federally chartered mutual
savings bank to a federally chartered stock savings bank. The Company
purchased 100% of the outstanding capital stock of the Bank using 50% of
the net proceeds from the Company's initial stock offering which was
completed on June 30, 1995. The Company sold 2,052,750 shares of common
stock in the initial offering at $10 per share. The Company began trading
on the NASDAQ Stock Market on June 30, 1995 under the symbol "GTPS".
In November, 1995, the Company's Board of Directors voted to change the
Company's fiscal year end from September 30 to December 31, beginning with
December 31, 1995.
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, 1996
and December 31, 1995, the results of operations for the nine months ended
September 30, 1996 and 1995, the results of operations for the three months
ended September 30, 1996 and 1995, and the cash flows for the nine months
ended September 30, 1996 and 1995. All adjustments to the financial
statements were normal and recurring in nature. These results have been
determined on the basis of generally accepted accounting principles. The
results of operations for the nine months ended September 30, 1996 are not
necessarily indicative of the results to be expected for the entire fiscal
year.
The consolidated financial statements are those of the Company and the
Bank. These consolidated financial statements should be read in
conjunction with the audited financial statements and notes thereto
included in the Company's 1995 Annual Report to Shareholders.
PART I -- Item 2.
GREAT AMERICAN BANCORP, INC.
Management's Discussion and Analysis
or Plan of Operation
Great American Bancorp, Inc. (the "Company") is the holding company for
First Federal Savings Bank of Champaign-Urbana (the "Bank"). The Bank
operates a wholly owned subsidiary, Park Avenue Service Corporation
("PASC"). Prior to the quarter ended September 30, 1996, PASC engaged
solely in the sale of fixed-rate, tax deferred annuities and real estate
development ventures. In August, 1996, PASC began offering full service
brokerage activities through Scout Brokerage Services, Inc., a subsidiary
of United Missouri Bank.
Financial Condition
Total assets increased from $117,706,000 at December 31, 1995 to
$123,866,000 at September 30, 1996, an increase of $6,160,000 or 5.2%. The
increase was primarily attributable to an increase in securities held to
maturity and net loans offset by a decrease in cash and cash equivalents.
Securities held to maturity increased by $2,997,000, from $400,000 at
December 31, 1995 to $3,397,000 at September 30, 1996. The securities
purchased were all U.S. Treasury and callable Agency securities with
maturities ranging from 18 months to three years. Net loans increased by
$13,655,000, or 17.6%, from $77,409,000 at December 31, 1995 to $91,064,000
at September 30, 1996. The growth in loans occurred mainly in one-to four-
family and multi-family residential loans, construction loans and
commercial loans. One-to four-family residential loans increased from
$41,179,000 at December 31, 1995 to $49,030,000 at September 30, 1996, an
increase of $7,851,000, or 19.1%. Multi-family loans increased from
$4,194,000 at December 31, 1995 to $9,501,000 at September 30, 1996, an
increase of $5,307,000, or 126.5%. Construction loans increased from
$594,000 at December 31, 1995 to $2,397,000 at September 30, 1996, an
increase of $1,803,000. Commercial loans increased $717,000, or 8.9% from
$8,038,000 at December 31, 1995 to $8,755,000 at September 30, 1996.
Security purchases and loan growth were funded by an increase in deposits
and a decline in short-term investments.
Total deposits increased from $81,918,000 at December 31, 1995 to
$90,446,000 at September 30, 1996, an increase of $8,528,000, or 10.4%.
The increase in total deposits was primarily attributable to an increase in
time deposits offset by a decline in demand deposits, NOW accounts, and
passbook savings accounts. Time deposits increased by $10,687,000, or
25.4% from $42,065,000 at December 31, 1995 to $52,752,000 at September 30,
1996. The growth was mainly in certificates of deposit maturing in two
years or less. Demand deposits, NOW accounts, and passbook savings
accounts decreased by $2,159,000, or 5.4% from $39,853,000 at December 31,
1995 to $37,694,000 at September 30, 1996. The decrease was due to seasonal
fluctutations and a shift in deposits to higher rate certificates of
deposit.
Total stockholders' equity decreased $2,901,000 from $34,632,000 at
December 31, 1995 to $31,731,000 at September 30, 1996, resulting in a
reduction in book value per share from $18.11 at December 31, 1995 to
$18.05 at September 30, 1996. The decrease is summarized as follows (in
thousands):
Stockholders' equity, December 31, 1995 $ 34,632
Net income 201
Purchase of treasury stock (1,437)
Dividends declared (906)
Unearned compensation - incentive plan (1,185)
Incentive plan shares allocated 153
ESOP shares allocated 281
Increase in unrealized loss on securities
available for sale, net of income
tax effect (8)
------
Stockholders' equity, September 30, 1996 $ 31,731
======
On October 23, 1996, the Company completed the repurchase of an additional
5% of the Company's common stock or 97,506 shares at an average price of
$14.75 per share. The repurchased shares will be held as treasury shares
to be used for general corporate purposes.
Results of Operations
Comparison of Nine Month Periods Ended September 30, 1996 and 1995
Net income was $201,000 for the nine months ended September 30, 1996,
compared to $531,000 for the nine months ended September 30, 1995. This
represents a $330,000, or 62.1% decrease. Primary earnings per share were
$0.11 in 1996, compared to $0.28 in 1995. Fully diluted earnings per share
were $0.10 in 1996, compared to $0.26 in 1995.
On September 30, 1996, legislation was enacted to recapitalize the Savings
Associations Insurance Fund ("SAIF"). This legislation provided for a one-
time special assessment on all SAIF insured deposits which the Federal
Deposit Insurance Corporation has fixed at $.657 per $100 of deposits as of
March 31, 1995. Therefore, on September 30, 1996, the Company recorded a
special one-time charge of approximately $350,000, net of taxes, or about
$0.19 per share assuming no dilution and $0.17 per share assuming full
dilution. The legislation also included a provision to reduce the annual
insurance assessments for certain thrift institutions beginning in 1997.
Based on such a reduction and the current level of the Company's deposits
and outstanding shares, the Company expects to realize annual deposit
insurance assessment savings of approximately $90,000 or $0.05 per share,
net of taxes. (See Recent Developments).
Excluding the effect of the special SAIF assessment, net income was
$551,000 for the nine months ended September 30, 1996, compared to $531,000
for the nine months ended September 30, 1995, an increase of $20,000, or
3.8%. Primary earnings per share and fully diluted earnings per share were
$0.30 and $0.27, respectively, excluding the special assessment.
Net income, excluding the special assessment, was higher in 1996 due to
increases in net interest income and other income, offset by increases in
the provision for loan losses and other expenses. Interest income was
$6,411,000 for the nine months ended September 30, 1996 compared to
$5,905,000 for the same period in 1995, an increase of $506,000, or 8.6%.
Interest income on loans for the nine months ended September 30, 1996 was
$5,346,000, $364,000, or 7.3%, greater than the $4,982,000 recorded for the
same period in 1995. Interest income on securities and certificates of
deposit for the nine months ended September 30, 1996 was $1,065,000,
$142,000, or 15.4%, higher than the $923,000 experienced for the same
period in 1995.
The increase in interest income on loans was due to the growth in loans in
1996. Average total loans for the nine months ended September 30, 1996 was
$82,902,000 compared to $77,344,000 for the same period in 1995, an
increase of $5,558,000, or 7.2%. The majority of this increase was in
mortgage loans and consumer loans. Total mortgage loans averaged
$64,457,000 for the nine months ended September 30, 1996 as compared to
$59,894,000 for the nine months ended September 30, 1995. Average total
consumer loans were $9,744,000 during the nine months ended September 30,
1996, an increase of $1,085,000, or 12.5%, over the $8,659,000 average
balance during the same period in 1995. The growth in mortgage loans was
primarily in one-to four-family and multi-family residential loans and was
due to increased marketing efforts targeted toward these types of loans.
The growth in consumer loans was due to the Company implementing several
consumer loan promotions during the latter half of 1995 and in 1996.
The average yield on loans was 8.53% for the nine months ended September
30, 1996 compared to 8.52% for the nine months ended September 30, 1995.
The yield on loans remained stable despite a general decline in market
interest rates since mid-1995. The average prime rate, for example, was
8.87% during the nine months ended September 30, 1995, compared to 8.30%
during the same period ended September 30, 1996.
The increase in interest income on securities and certificates of deposit
was due mainly to an increase in short-term investments. The average
balance of securities and certificates of deposit, which includes interest
earning cash equivalents, was $26,073,000 for the nine months ended
September 30, 1996, compared to $21,215,000 for the nine months ended
September 30, 1995, an increase of $4,858,000, or 22.9%. The average yield
on securities and certificates of deposit, however, declined from 5.77% for
the nine months ended September 30, 1995 to 5.42% for the same period ended
in 1996. Funding for the increase in short-term investments was generated
from the Company's initial stock offering in connection with the conversion
of the Bank.
Interest expense increased by $82,000, or 3.6% from $2,270,000 for the nine
months ended September 30, 1995 to $2,352,000 for the same period ended in
1996. The increase was mainly due to interest expense on deposits which
increased $120,000, or 5.4%, from $2,210,000 for the nine months ended
September 30, 1995 to $2,330,000 for the same period ended in 1996. This
increase was offset by a reduction in interest expense on FHLB advances
from $39,000 for the nine months ended September 30, 1995 to zero for the
same period ended in 1996. The increase in interest expense on deposits
was primarily attributable to an overall shift in the mix of deposits from
interest-bearing demand accounts to higher-rate certificates of deposit.
Average interest-bearing demand accounts declined from $38,682,000 in the
first nine months of 1995 to $35,840,000 during the same period ended in
1996, a decline of $2,842,000, or 7.4%. This decline was offset by an
increase of $1,684,000, or 3.8%, in average certificates of deposit from
$44,352,000 for the nine months ended September 30, 1995 to $46,036,000 for
the same period ended in 1996.
Net interest income was $4,059,000 for the nine month period ended
September 30, 1996, an increase of $424,000, or 11.7%, compared to
$3,635,000 reported for the same period ended in 1995. Net interest income
as a percent of average interest earning assets was 4.97% for the nine
months ended September 30, 1996 versus 4.92% for the same period ended in
1995. The spread between the yield on interest earning assets and the rate
on interest bearing liabilities was 4.11% and 4.40% for the nine months
ended September 30, 1996 and 1995, respectively.
The provision for loan losses was $170,000 for the nine months ended
September 30, 1996, compared to $99,000 for the same period in 1995. The
higher provision for 1996 reflects management's decision to increase the
allowance for loan losses as a result of an increase in non-performing
loans and increased charge-off activity occurring in late 1995 and in 1996.
Non-performing loans, which are loans past due 90 days or more and non
accruing loans, totaled $167,000 at September 30, 1996, compared to
$144,000 at September 30, 1995.
Non-performing loans at September 30, 1996 was comprised of five
residential mortgage borrowers with balances totaling $43,000, three
consumer borrowers with unsecured balances totaling $43,000, and two
commercial borrowers with secured balances totaling $81,000. All of these
loans are 90 days or more past due, with $59,000 of the total in non-
accrual status at September 30, 1996. The past due residential mortgage
loans were adequately secured at September 30, 1996. The Bank is working
with the consumer borrowers to establish an acceptable repayment schedule.
In the event the Bank is unable to workout an acceptable repayment schedule
for these loans, the Bank may incur a charge-off of the balance of such
loans and any accrued interest. The Bank is in the process of liquidating
the collateral on one of the delinquent commercial loans, totaling $24,000,
and may incur a loss on this loan in the event the proceeds from the sale
of collateral are insufficient to cover the balance. The Bank is
negotiating with the remaining past due commercial loan borrower to either
proceed with the sale of collateral or work out a repayment schedule with
the borrower and/or a third party guarantor. The balance of this loan is
$57,000.
Loans charged-off in 1996 were comprised of consumer loans with eight
different borrowers totaling $106,000 and one commercial borrower totaling
$13,000. One borrower accounted for $87,000 of the total consumer loan
charge-offs. Recoveries totaled $4,000, with net charge-offs totaling
$115,000 at September 30, 1996. This compares to charge-offs in the first
nine months of 1995 of $63,000, recoveries totaling $9,000, equaling net
charge-offs of $54,000. The ratios of the Company's allowance for loan
losses to total loans and allowance for loan losses to nonperforming loans
were .35% and 192.8%, respectively, at September 30, 1996, as compared to
.30% and 160.4%, respectively, at September 30, 1995.
Noninterest income totaled $448,000 for the nine months ended September 30,
1996, compared to $417,000 for the same period ended in 1995. The increase
in noninterest income was primarily due to gains on the sale of mortgage
loans and gains recorded on mortgage servicing rights, which were offset by
decreases in commissions. During 1996, the Company sold $2,812,000 in one-
to four-family mortgages, recording gains totaling $23,000 in response to
declining interest rates at the beginning of 1996. During 1995, the
Company sold $741,000 in one- to four-family mortgages with gains totaling
$8,000. The recording of mortgage servicing rights was introduced in
January, 1996 upon the adoption of Statement of Financial Accounting
Standards No. 122 "Accounting for Mortgage Servicing Rights" ("SFAS No.
122"). SFAS No. 122 requires rights to service mortgage loans for others
be recorded as an asset. The Company recorded a $21,000 gain on mortgage
servicing rights in 1996 versus zero in 1995. Commissions decreased by
$21,000, or 53.9% for the nine months ended September 30, 1996 as compared
to the same period ended in 1995. This decrease was due to reduced sales
of tax-deferred annuities as other long-term savings rates have become more
attractive.
Excluding the special SAIF assessment, noninterest expense was $3,355,000
for the nine months ended September 30, 1996, compared to $3,067,000
recorded for the nine months ended September 30, 1995, an increase of
$288,000, or 9.4%. Compensation and employee benefits expense was
$152,000, or 9.2% higher in the first nine months ended September 30, 1996
as compared to the same period in 1995, due to compensation expense
recorded for stock based benefit plans implemented in 1996. The increases
in professional fees and other noninterest expense of $96,000 and $53,000,
respectively, was due to higher franchise fees, accounting fees, and other
professional fees including fees and other costs incurred in connection
with the annual meeting of stockholders held on February 14, 1996.
Total income taxes decreased by $146,000, or 41.1% from $355,000 for the
nine months ended September 30, 1995 to $209,000 for the same period ended
in 1996. Prior to recording the special SAIF assessment, total income
taxes for the nine months ended September 30, 1996 was $431,000, or $76,000
higher than the $355,000 recorded in 1995. The increase in income taxes
was due to greater earnings along with an increase in nondeductible and
deferred expenses, primarily expenses associated with the stock based
benefit plans. The effective tax rates for the nine months ended September
30, 1996 and 1995, were 50.98% and 40.07%, respectively, after the special
SAIF assessment. Prior to the special SAIF assessment, the effective tax
rate for the nine months ended September 30, 1996 was 43.89%.
Results of Operations
Comparison of Three Month Periods Ended September 30, 1996 and 1995.
Because of the special one-time assessment, the Company recorded a loss of
$142,000 for the quarter ended September 30, 1996. Excluding the effect of
the special assessment, third quarter net income was $208,000 versus
$247,000 for the quarter ended September 30, 1995, a decline of $39,000, or
15.8%. Primary and fully diluted earnings per share, prior to the special
assessment, were $0.12 and $0.11, respectively, for the quarter ended
September 30, 1996, compared to $0.13 and $0.12, respectively, for the
quarter ended September 30, 1995. The decrease in net income was primarily
due to increases in the provision for loan losses and noninterest expenses.
Interest income increased by $91,000, or 4.3%, from $2,127,000 for the
quarter ended September 30, 1995 to $2,218,000 for the quarter ended
September 30, 1996. Interest income on loans was $229,000, or 13.5%,
greater for the quarter ended September 30 1996 as compared to the same
quarter in 1995. Interest income on securities, however, was $138,000, or
31.8% lower, in the three months ended September 30, 1996, when compared to
the same period in 1995.
Interest income on loans was higher in 1996 due to an increase in average
total loans. Average total loans for the quarter ended September 30, 1996
were $89,262,000 compared to $77,842,000 for the quarter ended September
30, 1995, an increase of $11,420,000, or 14.7%. One-to four-family and
multi-family residential mortgage loans experienced the largest amount of
growth during the three months ended September 30, 1996. The average yield
on loans, however, declined from 8.64% for the quarter ended September 30,
1995 to 8.53% for the quarter ended September 30, 1996.
Interest income from securities was lower in 1996 due to lower average
balances. The average balance of securities, which includes interest
earning cash equivalents, decreased by $8,512,000, or 28.5%, from
$29,842,000 for the quarter ended September 30, 1995 to $21,330,000 for the
quarter ended September 30, 1996. This decline was primarily in short-term
investments and was due to funding loan growth, dividends to shareholders,
and the repurchase of common stock. The average yield on securities
declined from 5.63% for the quarter ended September 30, 1995 to 5.46% for
the quarter ended September 30, 1996, due to the decline in short-term
interest rates during the latter part of 1995 and in 1996.
Interest expense increased by $92,000, or 12.4%, from $743,000 for the
quarter ended September 30, 1995 to $835,000 for the quarter ended
September 30, 1996, primarily interest expense on deposits.
Net interest income was $1,383,000 for the third quarter of 1996 compared
to $1,384,000 for the quarter ended September 30, 1995. Net interest
income as a percent of average interest earning assets was 4.97% for the
quarter ended September 30, 1996 versus 5.07% for the quarter ended
September 30, 1995. The spread between the yield on interest earning
assets and the rate on interest bearing liabilities was 4.17% for both
quarters.
The provision for loan losses was $60,000 for the quarter ended September
30, 1996, compared to $33,000 for the same quarter in 1995.
Noninterest income was $148,000 for the third quarter of 1996 compared to
$121,000 for the quarter ended September 30, 1995, an increase of $27,000,
or 22.3%. The increase was mainly in service charges on deposits and other
noninterest income. Service charges on deposits increased $18,000, from
$93,000 for the quarter ended September 30, 1995 to $111,000 for the
quarter ended September 30, 1996 due mainly to increased overdraft fees.
The Bank implemented a new fee structure for overdraft fees in the third
quarter of 1996. Other noninterest income was $23,000 for the quarter
ended September 30, 1996 compared to $12,000 for the quarter ended
September 30, 1995, due to increased fees from the sale of credit life
insurance, safe deposit box rentals and other miscellaneous fees.
Noninterest expense, excluding the SAIF special assessment, was $1,092,000
for the third quarter of 1996 versus $1,053,000 for the comparable quarter
in 1995, an increase of $39,000, or 3.7%. The higher expense in 1996 was
mainly due to increases in compensation and employee benefits expense and
professional fees which increased $32,000 and $18,000, respectively.
Compensation and employee benefits increased in 1996 due to the addition of
a stock based incentive plan introduced in February, 1996. The increase in
professional fees was due to increased attorneys fees, auditing expense and
other professional fees in 1996 as compared to 1995.
Prior to recording the SAIF special assessment, total income taxes for the
quarter ended September 30, 1996 was $171,000, compared to $172,000
reported for the quarter ended September 30, 1995. The effective tax rates
for the three months ended September 30, 1996 and 1995, prior to recording
the special assessment, were 45.1% and 41.1%, respectively.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and principal and interest
payments on loans. While maturities and scheduled amortization of loans
are predictable sources of funds, deposit flows and mortgage prepayments
are greatly influenced by general interest rates, economic conditions, and
competition. The Company's initial stock offering, which was completed on
June 30, 1995, contributed substantially to the Company's overall liquidity
levels. The Office of Thrift Supervision ("OTS"), the Company's and the
Bank's primary regulator, requires the Bank to maintain minimum levels of
liquid assets. Currently, the required ratio is 5%. The Bank's liquidity
ratios were 14.1% and 19.5% at September 30, 1996 and December 31, 1995,
respectively, well above the required minimum.
A review of the Consolidated Statements of Cash Flows included in the
accompanying financial statements shows that the Company's cash and cash
equivalents ("cash") decreased $10,836,000 for the nine months ended
September 30, 1996, compared to an increase of $13,254,000 for the nine
months ended September 30, 1995. During the nine months ended September
30, 1996, cash was primarily provided from the proceeds from the sale of
loans and an increase in time deposits. During 1996, cash was primarily
used to fund loan originations, purchase securities held to maturity,
purchase the Company's common stock for an employee incentive plan,
purchase treasury stock, and to pay dividends. Cash was also used during
this period to fund a decrease in demand deposits, NOW accounts, and
passbook savings accounts. During the nine months ended September 30,
1995, cash was primarily provided from proceeds from matured certificates
of deposit and matured securities held to maturity, and the issuance of
common stock in connection with the conversion of the Bank as of June 30,
1995. During 1995, cash was primarily used to fund a decrease in demand
deposits, NOW accounts, passbook savings accounts, and time deposits, and
for the repayment of FHLB advances. During this period, cash was also used
to fund loan originations and purchase securities held to maturity.
The Bank's primary investment activities during the nine months ended
September 30, 1996 was the origination of loans, and the purchase of
securities held to maturity. During the nine months ended September 30,
1996 and September 30, 1995, the Bank originated mortgage loans in the
amounts of $28,386,000 and $9,733,000, respectively, commercial loans in
the amounts of $11,553,000 and $10,231,000, respectively, and consumer
loans in the amounts of $10,040,000 and $9,749,000, respectively. The
increase in new mortgage loan volume in 1996 of $18,653,000, or 191.7%, was
mainly due to intensified marketing efforts and more competive pricing.
The increase in new commercial loan volume in 1996 of $1,322,000, or 12.9%,
was primarily due to an intensified officer calling program.
As of September 30, 1996, the Bank had outstanding commitments (including
undisbursed loan proceeds) of $1,308,000. The Bank 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, 1996 totaled $35,642,000. Management
believes a significant portion of such deposits will remain with the Bank.
The OTS capital regulations require savings institutions to meet three
capital standards: a 1.5% tangible capital standard; a 3% leverage (core
capital) ratio and an 8% risk-based capital standard. The core capital
requirement is effectively 4%, since OTS regulations stipulate that,
effective December 19, 1992, an institution with less than 4% core capital
will be deemed to be "undercapitalized." As of September 30, 1996, the
Bank's capital percentages for tangible capital of 21.27%, core capital of
21.27%, and risk-based capital of 35.40% significantly exceed the
regulatory requirement for each category.
On August 23, 1993, the OTS issued a final rule which sets forth the
methodology for calculating an interest rate risk component that would be
incorporated into the OTS regulatory capital rule. The regulation requires
certain institutions with more than a "normal level" of interest rate risk
to maintain capital in addition to the 8.0% risk based capital requirement.
This ruling is not expected to have a material impact on the financial
condition of the Bank. The OTS recently deferred implementation of this
regulation.
Recent Developments
On September 30, 1996, the President signed into law the Deposit Insurance
Act of 1996 (the "Funds Act") which, among other things, imposed the
special one-time assessment on SAIF member institutions, including the
Bank, to recapitalize the SAIF. As required by the Funds Act, the FDIC
imposed a special assessment of 65.7 basis points on SAIF assessable
deposits held as of March 31, 1995, payable November 27, 1996. The special
assessment was recognized as an expense in the third quarter of 1996 and is
tax deductible.
The Funds Act also spreads the obligations for payment of the Financing
Corporation ("FICO") bonds across all SAIF and BIF members. Beginning on
January 1, 1997, BIF deposits will be assessed for FICO payments at a rate
of 20% of the rate assessed on SAIF deposits. Based on current estimates
by the FDIC, BIF deposits will be assessed a FICO payment of 1.3 basis
points, while SAIF deposits will pay an estimated 6.5 basis points on the
FICO bonds. Full pro rata sharing of the FICO payments between BIF and
SAIF members will occur on the earlier of January 1, 2000 or the date the
BIF and SAIF are merged. The Funds Act specifies that the BIF and SAIF
will be merged on January 1, 1999 provided no savings associations remain
as of that time.
As a result of the Funds Act, the FDIC recently proposed to lower SAIF
assessments to 0 to 27 basis points effective January 1, 1997, a range
comparable to that of BIF members. However, SAIF members will continue to
make the higher FICO payments described above. Management cannot predict
the level of FDIC insurance assessments on an on-going basis, whether the
savings association charter will be eliminated, or whether the BIF and SAIF
will eventually be merged.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company or the Bank is currently involved in
any legal proceedings which are considered material to
the financial condition of the Company or Bank.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security
Holders
None
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Certificate of Incorporation of Great American
Bancorp, Inc.*
3.2 By-laws of Great American Bancorp, Inc.*
11.0 Computation of earnings per share (filed herewith)
27.0 Financial Data Schedule
b. Report on Form 8-K
On September 17, 1996, the Registrant filed a
Current Report on Form 8-K reporting information
under Items 5 & 7 relating to the Registrant's
stock repurchase program.
_______________
* Incorporated herein by reference into this document from Form S-1
Registration Statement, as amended, filed on March 24, 1995, Registration
No. 33-90614.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Great American Bancorp, Inc.
Dated: November 14, 1996 /s/ George R. Rouse
-------------------------------- -----------------------
George R. Rouse
President and Chief
Executive Officer
Dated: November 14, 1996 /s/ Jane F. Adams
-------------------------------- -----------------------
Jane F. Adams
Chief Financial Officer,
Secretary and Treasurer
Exhibit 11.0
Statement Regarding Computation of Earnings Per Share
For the Nine Months Ended September 30, 1996 and 1995
(unaudited)
1996 1995
--------- ---------
Assuming no dilution:
Net income (in thousands) $ 201 531
========= =========
Weighted average number
of shares:
Average shares outstanding 1,836,439 1,893,155
Average incremental shares
related to stock options 347 --
--------- ---------
1,836,786 1,893,155
========= =========
Earnings per share assuming
no dilution $ 0.11 0.28
========= =========
Assuming full dilution:
Net income (in thousands) $ 201 531
========= =========
Weighted average number
of shares:
Average shares issued 2,052,750 2,052,750
Average incremental shares
related to stock options 347 --
Average treasury shares (28,094) --
--------- ---------
2,025,003 2,052,750
========= =========
Earnings per share assuming
full dilution $ 0.10 0.26
========= =========