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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

 

for the quarterly period ended September 30, 2003

 

 

o

TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT

 

For the transition period from                          to                         

 

Commission File Number: 001-15215

 

GREAT WESTERN BANCORPORATION, INC.

(Exact name of registrant as specified in its charter)

 

Iowa

 

42-0867112

(State or other jurisdiction
of incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

10834 Old Mill Road, Suite One, Omaha, NE 68154

(Address of principal executive office)   (Zip code)

 

(402) 333-8330

(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 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 past 90 days. Yes ý No o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).  Yes o No ý

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

 

Class

 

Outstanding at November 10, 2003

 

 

 

Common Stock, $1.00 par value

 

124,952 shares

 

 



 

GREAT WESTERN BANCORPORATION, INC.
INDEX TO FORM 10-Q FOR THE QUARTERLY
PERIOD ENDED SEPTEMBER 30, 2003

 

FORWARD-LOOKING STATEMENTS

 

PART I:

FINANCIAL INFORMATION

 

 

ITEM 1:

FINANCIAL STATEMENTS

 

 

Consolidated Balance Sheets at September 30, 2003(unaudited) and June 30, 2003

 

 

Consolidated Statements of Income - Three months ended September 30, 2003 and September 30, 2002(unaudited)

 

 

Consolidated Statements of Cash Flows – Three months ended September 30, 2003 and September 30, 2002 (unaudited)

 

 

Notes to Consolidated Financial Statements

 

 

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

 

ITEM 4:

CONTROLS AND PROCEDURES

 

PART II:

OTHER INFORMATION

 

 

ITEM 1:

LEGAL PROCEEDINGS

 

 

ITEM 2:

CHANGES IN 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 AND REPORTS ON FORM 8-K

 

 

SIGNATURES

 

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

 

CERTIFICATION BY CHIEF FINANCIAL OFFICER

 

CERTIFICATION BY CHIEF EXECUTIVE OFFICER

 

CERTIFICATION BY CHIEF FINANCIAL OFFICER

 

2



 

FORWARD-LOOKING STATEMENTS

 

This report includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can include words such as “may”, “believe”, “will”, “anticipated”, “estimated”,  “projected”, “could”, “should”, “plan” or similar expressions.  Forward-looking statements are based on management’s current expectations.  Factors that might cause future results to differ from management’s expectations include, but are not limited to: fluctuations in interest rates, inflation, the effect of regulatory or government legislative changes, expected cost savings and revenue growth not fully realized, the progress of strategic initiatives and whether realized within expected time frames, general economic conditions, adequacy of allowance for loan losses, costs or difficulties associated with restructuring initiatives, changes in accounting policies or guidelines, changes in the quality or composition of Great Western’s loans and investment portfolios, technology changes and competitive pressures in the geographic and business areas where the Great Western conducts its operations.

 

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.  Additional information concerning Great Western and its business, including other factors that could materially affect the Great Western’s financial results, is included in Great Western’s filings with the Securities and Exchange Commission.

 

3



 

PART I
FINANCIAL INFORMATION

 

ITEM 1:

FINANCIAL STATEMENTS

 

GREAT WESTERN BANCORPORATION, INC.
Consolidated Balance Sheets
(In thousands, except share data)

 

 

 

September 30,
2003

 

June 30,
2003

 

 

 

(unaudited)

 

 

 

Assets

 

 

 

 

 

Cash and due from banks

 

$

56,015

 

$

64,637

 

Federal funds sold and FHLB overnight deposits

 

15,090

 

42,522

 

Cash and cash equivalents

 

71,105

 

107,159

 

 

 

 

 

 

 

Certificate of deposit

 

99

 

99

 

Securities available for sale

 

323,529

 

313,136

 

Loans, net of allowance for loan losses of $21,784 and $21,251

 

1,631,783

 

1,599,961

 

Premises and equipment

 

44,628

 

43,675

 

Accrued interest receivable

 

15,339

 

13,679

 

Core deposit and other intangibles

 

2,941

 

3,371

 

Goodwill

 

45,930

 

45,930

 

Mortgage servicing rights

 

6,582

 

5,274

 

Other assets

 

17,739

 

15,785

 

Total assets

 

$

2,159,675

 

$

2,148,069

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits

 

 

 

 

 

Noninterest bearing

 

$

258,032

 

$

262,161

 

Interest bearing

 

1,463,753

 

1,472,869

 

Total deposits

 

1,721,785

 

1,735,030

 

Federal funds purchased and securities sold under agreements to repurchase

 

71,845

 

60,163

 

FHLB advances and other borrowings

 

111,616

 

103,380

 

Notes payable

 

43,700

 

43,700

 

Company obligated mandatorily redeemable preferred securities of subsidiary trusts holding solely junior subordinated debentures

 

58,000

 

58,000

 

Accrued interest and other liabilities

 

20,666

 

17,558

 

Total liabilities

 

2,027,612

 

2,017,831

 

 

 

 

 

 

 

Minority interest in subsidiaries

 

3,908

 

3,864

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $100 par value; 500,000 shares authorized; issued and outstanding:  9,000 shares of 8% cumulative, nonvoting; 8,000 shares of 10% noncumulative, nonvoting; 100,000 shares of variable rate, noncumulative, nonvoting

 

11,700

 

11,700

 

Common stock, $1.00 par value, authorized 1,000,000 shares, issued and outstanding 124,952 shares

 

125

 

125

 

Additional paid-in capital

 

2,051

 

2,051

 

Retained earnings

 

112,743

 

106,433

 

Accumulated other comprehensive income

 

1,536

 

6,065

 

Total stockholders’ equity

 

128,155

 

126,374

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

2,159,675

 

$

2,148,069

 

 

See Notes to Consolidated Financial Statements.

 

4



 

GREAT WESTERN BANCORPORATION, INC.
Consolidated Statements of Income
For The Three Months Ended
(In thousands, except share and per share data)
(unaudited)

 

 

 

September 30,
2003

 

September 30,
2002

 

Interest and Dividend Income

 

 

 

 

 

Loans

 

$

27,190

 

$

28,189

 

Taxable securities

 

2,440

 

3,731

 

Nontaxable securities

 

442

 

422

 

Dividends on securities

 

63

 

61

 

Federal funds sold and other

 

110

 

156

 

Total interest and dividend income

 

30,245

 

32,559

 

 

 

 

 

 

 

Interest Expense

 

 

 

 

 

Deposits

 

7,643

 

10,158

 

Federal funds purchased and securities sold under agreements to repurchase

 

177

 

254

 

FHLB advances and other borrowings

 

1,022

 

1,073

 

Notes payable

 

521

 

628

 

Company obligated mandatorily redeemable preferred securities

 

1,301

 

1,183

 

Total interest expense

 

10,664

 

13,296

 

 

 

 

 

 

 

Net Interest Income

 

19,581

 

19,263

 

Provision for Loan Losses

 

955

 

1,241

 

Net Interest Income After Provision for Loan Losses

 

18,626

 

18,022

 

 

 

 

 

 

 

Noninterest Income

 

 

 

 

 

Service charges and other fees

 

3,493

 

3,212

 

Net gains from sale of loans

 

2,592

 

1,345

 

Loan servicing fees

 

744

 

916

 

Gain on securities, net

 

1,067

 

84

 

Trust department income

 

468

 

412

 

Other

 

948

 

784

 

Total noninterest income

 

9,312

 

6,753

 

 

 

 

 

 

 

Noninterest Expense

 

 

 

 

 

Salaries and employee benefits

 

8,851

 

7,627

 

Occupancy expenses

 

1,083

 

1,059

 

Data processing

 

771

 

767

 

Equipment expenses

 

776

 

694

 

Advertising

 

1,117

 

909

 

Professional fees

 

900

 

758

 

Communication expenses

 

549

 

482

 

Amortization of core deposits and other intangibles

 

370

 

475

 

Amortization and valuation adjustments of mortgage servicing rights acquired

 

717

 

4,403

 

Other

 

1,819

 

1,845

 

Total noninterest expense

 

16,953

 

19,019

 

 

 

 

 

 

 

Income Before Income Taxes and Minority Interest

 

10,985

 

5,756

 

Provision for Income Taxes

 

4,025

 

2,242

 

 

 

 

 

 

 

Income Before Minority Interest

 

6,960

 

3,514

 

Minority Interest in Net Income of Subsidiaries

 

144

 

196

 

 

 

 

 

 

 

Net Income

 

$

6,816

 

$

3,318

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

52.15

 

$

23.93

 

 

 

 

 

 

 

Cash Dividends Per Share Declared on Common Stock

 

$

1.65

 

$

1.50

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

124,952

 

125,132

 

 

See Notes to Consolidated Financial Statements.

 

5



 

GREAT WESTERN BANCORPORATION, INC.
Consolidated Statements of Cash Flows
For The Three Months Ended
(In thousands)
(unaudited)

 

 

 

September 30,
2003

 

September 30,
2002

 

Cash Flow from Operating Activities

 

 

 

 

 

Net cash used in operating activities

 

$

(670

)

$

(3,408

)

 

 

 

 

 

 

Cash Flow from Investing Activities

 

 

 

 

 

Proceeds from sales and maturities of securities available for sale

 

38,466

 

46,969

 

Purchase of securities available for sale

 

(55,151

)

(12,057

)

Proceeds from sale of other real estate owned

 

1,982

 

1,030

 

Net increase in loans

 

(22,808

)

(37,685

)

Proceeds from sale of premises and equipment

 

62

 

50

 

Purchase of premises and equipment

 

(1,963

)

(875

)

Purchase of mortgage servicing rights

 

(973

)

(42

)

Net cash used in investing activities

 

(40,385

)

(2,610

)

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

 

 

 

Net increase (decrease) in deposits

 

(13,245

)

28,848

 

Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase

 

23,282

 

(13,835

)

Proceeds from notes payable

 

3,370

 

22,501

 

Payment of other liabilities

 

(1,125

)

(837

)

Principal payments on notes payable

 

(6,734

)

(1,841

)

Purchase of minority interest in subsidiaries

 

0

 

(673

)

Dividends paid, including $44 and $69 paid to minority interest, respectively

 

(547

)

(580

)

Net cash provided by financing activities

 

5,001

 

33,583

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

(36,054

)

27,565

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

 

 

 

 

Beginning

 

107,159

 

69,278

 

Ending

 

$

71,105

 

$

96,843

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

 

 

 

Cash payments for interest

 

$

11,379

 

$

14,434

 

Cash payments for income taxes

 

1,065

 

1,641

 

 

 

 

 

 

 

Supplemental Schedules of Noncash Investing and Financing Activities

 

 

 

 

 

Net change in unrealized gain (loss) on securities available for sale, net of deferred income taxes

 

(4,529

)

1,938

 

Purchase of mortgage servicing rights for other liabilities

 

1,053

 

1,750

 

Loans transferred to other real estate owned and other assets

 

435

 

368

 

 

See Notes to Consolidated Financial Statements.

 

6



 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

1.                                       Basis of Presentation.

 

The consolidated financial statements include the accounts of Great Western and its subsidiaries.  All material intercompany accounts and transactions with subsidiaries are eliminated in consolidation.

 

The consolidated subsidiaries are as follows: Great Western Bank (100.0% owned), which is chartered in Omaha, Nebraska; Great Western Bank, (96.1% owned), which is chartered in Watertown, South Dakota; Great Western Bank, (100.0% owned), which is chartered in Clive, Iowa; Great Western Service Corporation, (100.0% owned by bank subsidiaries, excluding Great Western Bank, Omaha), a data processing organization; GWB Capital Trust I (100.0% owned); GWB Capital Trust II (100.0% owned) and GWB Capital Trust III (100.0% owned). Great Western Bank, Omaha also owns 100.0% of GWB Leasing, Inc., a leasing company.

 

The June 30, 2003 consolidated balance sheet has been derived from Great Western’s audited balance sheet as of that date. The consolidated financial statements as of September 30, 2003 and for the three months ended September 30, 2003 and 2002 are unaudited but include all adjustments (consisting only of normal recurring adjustments), which Great Western considers necessary for a fair presentation of financial position and results of its operation and its cash flows for those periods. Certain information and note disclosures normally included in Great Western’s annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in Great Western’s Form 10-K annual report for 2003 filed with the Securities and Exchange Commission.  Results for the three months ended September 30, 2003 are not necessarily indicative of the results to be expected for future periods.

 

2.                                       Earnings Per Common Share.

 

Earnings per share have been computed on the basis of weighted average number of common shares outstanding during each period presented. Dividends accumulated or declared on cumulative and noncumulative preferred stock, which totaled $300,000 and $323,000 in the three months ended September 30, 2003 and 2002 respectively, reduced earnings available to common stockholders in the computation.

 

3.                                       Comprehensive Income.

 

Comprehensive income was $2,287,000 and $5,256,000 for the three months ended September 30, 2003 and September 30, 2002 respectively. The difference between comprehensive income and net income presented in the Consolidated Statements of Income is attributed solely to change in unrealized gains and losses on securities available for sale during the periods presented.

 

4.                                       Intangible Assets.

 

On October 1, 2002, Great Western elected adoption of Statement of Financial Accounting Standards No. 147,  “Acquisitions of Certain Financial Institutions.”  This Statement addresses the financial accounting and reporting for the acquisition of all or part of a financial institution, except for a transaction between two or more mutual enterprises.  This Statement removes acquisitions of financial institutions, other than transactions between two or more mutual enterprises, from the scope of FASB Statement No. 72, “Accounting for Certain Acquisitions of Banking or Thrift Institutions”, and FASB Interpretation No. 9, “Applying APB Opinions No. 16 and 17 When a Savings and Loan Association or a Similar Institution Is Acquired in a Business Combination Accounted for by the Purchase Method.”  Transaction provisions for previously recognized unidentifiable intangible assets are effective on October 1, 2002, with earlier application permitted.  The carrying amount of an unidentifiable intangible asset shall continue to be amortized as set forth in paragraph 5 of Statement 72 after October 1, 2002, unless the transaction in which the asset arose was a business combination.  If the transaction that gave rise to the unidentifiable intangible asset was a business combination, the carrying amount of the asset shall be reclassified to goodwill as of the later of the date of acquisition or the date Statement 142 was applied in its entirety.

 

7



 

Great Western has identified those unidentifiable intangible assets that arose from a business combination.  In applying SFAS 147, Great Western has reclassified the carrying amount of unidentifiable intangible assets of $4,598,000 to goodwill as of July 1, 2002.  As of September 30, 2003, total goodwill (including reclassified unidentifiable intangible assets of $4,598,000) was $45,930,000 and core deposit intangible and other was $2,941,000.

 

5.                                       Legal Proceedings.

 

Great Western and its subsidiary banks are from time to time parties to various legal actions arising in the normal course of business. Management believes there is no proceeding threatened or pending against Great Western or its subsidiaries, which, if determined adversely, would have a material adverse effect on its financial condition or results of operation.

 

6.                                       Subsequent Events.

 

On October 30, 2003, Great Western Bank, Clive entered into a contract to acquire five branches located in Bethany, Grant City, Milan, Sheridan, and Unionville, Missouri from a national bank headquartered in Missouri.  Approximately $22,000,000 in loans, $1,000,000 of fixed assets, and $98,000,000 in deposits will be acquired.  Expected intangible assets of $6,100,000 will be recorded by Great Western Bank, Clive.  The five branches are located in or near the geographic operating market of Great Western Bank, Clive.  Subject to regulatory approval, Great Western expects the purchase to close in the quarter ending March 31, 2004.

 

7.                                       Recent Accounting Pronouncements.

 

Effective January 1, 2003, the initial recognition and measurement provisions of FASB Interpretation No. 45 “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Guarantees of Indebtedness of Others” applied to Great Western.  This Interpretation elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees issued.  It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The Interpretation also identifies several situations where the recognition of a liability at inception for a guarantor’s obligation is not required.  The Interpretation expands on the accounting guidance of SFAS No. 5 “Accounting for Contingencies,” SFAS No. 57 “Related Party Disclosures” and SFAS No. 107 “Disclosures about Indirect Guarantees of Indebtedness of Others,” which it supersedes.  The adoption of this Interpretation did not have a material effect on Great Western’s financial position, liquidity or results of operations.

 

In January 2003, the FASB issued Interpretation No. 46 “Consolidation of Variable Interest Entities.”  This Interpretation was issued in an effort to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity.  In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (i) does not have equity investors with voting rights or (ii) has equity investors that do not provide sufficient financial resources for the entity to support its activities.  A variable interest entity often holds financial assets, including loans or receivables, real estate or other property.  To further assist financial statement users in assessing a company’s risks, the Interpretation also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest.  The consolidated requirements of Interpretation No. 46 apply immediately to  interest entities created after January 31, 2003.  The consolidation requirements apply to older entities in the first fiscal year or interim period regardless of when the variable interest entity was established.  On October 9, 2003, the FASB deferred the implementation date of Interpretation No. 46 to the first period ending after December 15, 2003.  Management does not believe that this Interpretation will have a material effect on Great Western’s financial position, liquidity or results of operations; however, management continues to review guidance from the FASB and Federal Reserve.

 

In May 2003, FASB issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”.  This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.

 

8



 

It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities.  The adoption of the above pronouncement did not have a material effect on Great Western’s financial position, liquidity or results of operations.

 

ITEM 2:

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

 

GENERAL

 

Great Western is a multi-bank holding company organized under the laws of Iowa whose primary business is providing trust, commercial, consumer, and mortgage banking services through its Nebraska, South Dakota and Iowa based subsidiary banks.  Substantially all of Great Western’s income is generated from banking operations.

 

Great Western’s fiscal year end is June 30.

 

CRITICAL ACCOUNTING POLICIES

 

Great Western’s critical accounting policies involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2003, have remained unchanged from June 30, 2003.  These policies involve the provision and allowance for loan losses, and valuation of mortgage servicing rights and intangibles.  Disclosure of these critical accounting policies is incorporated by reference under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation” in Great Western’s Annual report on Form 10-K for Great Western’s fiscal year ended June 30, 2003.

 

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Average assets were $2,177,358,000 for the three months ended September 30, 2003, compared to $2,042,608,000 for the three months ended September 30, 2002, a 6.60% increase. Average interest-earning assets were $2,007,104,000 for the three months ended September 30, 2003 and $1,871,561,000 for the three months ended September 30, 2002, representing a 7.24% increase.  Average assets and average interest-earning assets increased due to internal growth and acquisitions.

 

Total assets were $2,159,675,000 at September 30, 2003, an increase of $11,606,000 or 0.54% from June 30, 2003. The increase in total assets is due to a $31,822,000 or 1.99% increase in loans, net of unearned fees, and an increase of $10,393,000 or 3.31% in securities available for sale; offset by a decrease of $27,432,000 or 64.51% in federal funds sold.

 

Loans, net unearned fees, grew $31,822,000 or 1.99% during the three months ended September 30, 2003 due to internal growth.

 

Loans originated for resale were $162,998,000 for the three months ended September 30, 2003; an increase of  $96,376,000 when compared to $66,622,000 for the three months ended September 30, 2002. The increase in loans originated for resale is due to the decline in mortgage rates.

 

Securities available for sale were $323,529,000 at September 30, 2003, an increase of $10,393,000 or 3.31% from June 30, 2003. The increase in securities available for sale is a result of investing the proceeds from federal funds sold in US Treasury and US Government Agency securities.

 

Mortgage servicing rights, net, were $6,582,000 at September 30, 2003, an increase of $1,308,000 or 24.80%, from June 30, 2003.  Mortgage servicing rights increased due to purchases of $2,025,000 and decreased by $717,000 due to amortization expense, net of valuation adjustments.  See “Noninterest Expense”.

 

9



 

The allowance for loan losses increased to $21,784,000 at September 30, 2003 from $21,251,000 at June 30, 2003. The allowance represented 1.32% and 1.31% of loans, net unearned fees as of September 30, 2003 and June 30, 2003.  The increase in allowance for loan losses was due to a greater increase in loan loss provisions when compared to net charge-offs during the period.  See “Provision for Loan Losses”.

 

For the three months ended September 30, 2003, Great Western’s annualized return on average assets (“ROA”) was 1.25%, compared to 0.65% for the three months ended September 30, 2002. Return on average stockholders’ equity (“ROE”) for the three months ended September 30, 2003 and 2002 was 21.42% and 11.79%, respectively.  The increases in ROA and ROE are due to a 105.42% increase in net income for the three months ending September 30, 2003, when compared to the same period a year ago.

 

Cash and cash equivalents, certificates of deposit, and securities available for sale totaled $394,733,000 or 18.28% of total assets at September 30, 2003, compared to $420,394,000 or 19.57% of total assets at June 30, 2003.  The decrease occurred primarily in federal funds sold.  Federal funds sold decreased $27,432,000, or 64.51%, due to a reduction of funds received from mortgage servicing loan payoffs as interest rates have increased and the investment of the proceeds from federal funds sold in US Treasury and US Government Agency securities.

 

At September 30, 2003, Great Western’s leverage ratio was 5.84%, Tier 1 risk-based capital ratio was 7.25%, and total risk-based capital ratio was 11.54%, compared to minimum required levels of 4% for leverage and Tier 1 risk-based capital ratios and 8% for total risk-based capital ratio, subject to change at the discretion of regulatory authorities to impose higher standards in individual cases. At September 30, 2003, Great Western had net risk-weighted assets of $1,709,553,000.

 

 

RESULTS OF OPERATIONS

 

Comparison of the Three Months Ended September 30, 2003 and September 30, 2002.

 

Net Interest Income

 

Total interest and dividend income for the three months ended September 30, 2003 was $30,245,000, a 7.11% decrease from $32,559,000 for the three months ended September 30, 2002. The slight decrease is the result of lower interest rates earned on interest bearing assets during the current period when compared to the same period September 30, 2002, despite an overall growth in average interest earning assets of 7.24%.

 

Total interest expense for the three months ended September 30, 2003 was $10,664,000, a 19.80% decrease from $13,296,000 for the three months ended September 30, 2002. The decrease was the result of lower interest rates paid for interest bearing liabilities for the current period when compared to the same period a year ago.

 

Average interest-bearing liabilities were $1,748,846,000 and $1,696,308,000 for the three month periods ended September 30, 2003 and September 30, 2002 respectively.  Average interest-bearing liabilities increased $55,538,000 or 3.10% between periods. This increase is primarily due to acquisitions and an increase in average interest-bearing deposits.

 

Net interest income was $19,581,000 for the three months ended September 30, 2003, compared to $19,263,000 for the same period in 2002, an increase of 1.65%. Great Western’s net interest margin decreased to 3.90% for the three months ended September 30, 2003 from

 

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4.09% for the three months ended September 30, 2002. The decrease in the net interest margin was caused by the downward repricing of interest-earning assets and interest bearing liabilities for the three months ended September 20, 2003 compared to September 30, 2002.

 

Provision for Loan Losses

 

The provision for loan losses for the three months ended September 30, 2003, was $955,000, compared to $1,241,000 for the three months ended September 30, 2002.  The decrease was due to a decline in estimated loan losses.

 

Noninterest Income

 

Noninterest income for the three months ended September 30, 2003 was $9,312,000, an increase of $2,559,000, or 37.89%, over the same period last fiscal year. The increase resulted primarily from a $281,000 increase in service charges and other fees, a $1,247,000 increase in net gains from the sale of loans and a $983,000 increase in net gains from the sale of securities.

 

Noninterest Expense

 

Noninterest expense for the three months ended September 30, 2003 was $16,953,000, a decrease of $2,066,000 or 10.86% over the same period last fiscal year.  The decrease resulted primarily from a $3,686,000 decrease in amortization and valuation adjustment of mortgage servicing rights; offset by a $1,224,000 increase in salaries and employee benefits.

 

The amortization and valuation adjustment expense of mortgage servicing rights decreased $3,686,000 to $717,000 for the three months ended September 30, 2003 from $4,403,000 for the three months ended September 30, 2002.  The decrease in the amortization and the valuation adjustment expense is a result of the impact of the declining interest rates on the value of the mortgage servicing rights recognized during the three months ended September 30, 2002, compared to more stable interest rates during the three months ended September 30, 2003, and the reduction of the net book value of the mortgage servicing rights at September 30, 2003, from September 30, 2002.

 

A change in mortgage interest rates in future periods may result in further changes in prepayment rates and further changes in amortization expenses, the result of which will be estimated at the end of each quarter.

 

Income Taxes

 

Income taxes for the three months ended September 30, 2003 and September 30, 2002 were $4,025,000 and $2,242,000 respectively. The increase is due to a 90.87% or $5,229,000, increase in pretax income; offset by a decrease in the effective rate to 36.64% from 38.95% in the previous period.  These effective tax rates are impacted by items of income and expense that are not subject to federal or state taxation.

 

 

ITEM 3:

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Asset/liability management refers to management’s efforts to minimize fluctuations in net interest income caused by interest rate changes. This is accomplished by managing the repricing of interest rate sensitive interest-earning assets and interest-bearing liabilities. Controlling the maturity or repricing of an institution’s liabilities and assets in order to minimize interest rate risk is commonly referred to as gap management. Close matching of the repricing of assets and liabilities will normally result in little change in net interest income when interest rates change. A mismatched gap position will normally result in changes in net interest income as interest rates change.

 

Management regularly monitors the interest sensitivity position and considers this position in its decisions with regard to Great Western’s interest rates and maturities for interest-earning assets acquired and interest-bearing liabilities accepted.

 

There has not been a material change in the interest rate sensitivity of Great Western during the three months ended September 30, 2003.

 

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ITEM 4:

CONTROLS AND PROCEDURES

 

Great Western’s principal executive officer and principal financial officer have concluded that Great Western’s disclosure controls and procedures as defined in Exchange Act Rule 13a-14(c), based on their evaluation of such controls and procedures conducted within 90 days prior to the date hereof, are effective to ensure that information required to be disclosed by Great Western in the reports it files under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to Great Western’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

There have been no significant changes in Great Western’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referred to above.

 

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PART II
OTHER INFORMATION

 

ITEM 1:                             LEGAL PROCEEDINGS

None

 

ITEM 2:                             CHANGES IN SECURITIES AND USE OF PROCEEDS

None

 

ITEM 3:                             DEFAULTS UPON SENIOR SECURITIES

None

 

ITEM 4:                             SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

 

ITEM 5:                             OTHER INFORMATION

None

 

ITEM 6:                             EXHIBITS AND REPORTS ON FORM 8-K

 

(a).                               Exhibits:

 

31.1 -                    Chief Executive Officer’s Certificate Pursuant to Rule 13(a) – 14 of the Securities and Exchange Act of 1934, as Amended,  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)

 

31.2 -                    Chief Financial Officer’s Certificate Pursuant to Rule 13(a) – 14 of the Securities and Exchange Act of 1934, as Amended,  as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. (1)

 

32.1 -                    Chief Executive Officer’s Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

 

32.2 -                    Chief Financial Officer’s Certificate Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)

 

(b).                              Reports on Form 8-K:

 

The Company filed a current report on Form 8-K (Item 1) subsequent to the quarter ended September 30, 2003.  The Form 8-K was filed on October 14, 2003, and reported the resignation of Deryl F. Hamann as trustee of four family trusts which holds control of Great Western Bancorporation, Inc. (Great Western); and through exercise and acceptance of Special Power and Appointment of Successor Trustees, Daniel A. Hamann, Esther Hamann Brabec, and Julie Hamann Hodgson will serve as trustees of the four family trusts.  The change in trustees resulted in a change in control of Great Western, with Daniel A. Hamann beneficially owning directly or indirectly 43.54% of the voting stock, Esther Hamann Brabec beneficially owning directly or indirectly 45.32% of the voting stock, and Julie Hamann Hodgson beneficially owning directly or indirectly 47.58% of the voting stock.  After the change in control, Deryl F. Hamann owns 22.91% of the voting stock of Great Western.

 

The Company filed a current report on Form 8-K (Item 5) subsequent to the quarter ended September 30, 2003.  The Form 8-K was filed on October 14, 2003, and reported that all of the holders of Common or Preferred Stock of the Company, excluding the current holder of Series 3 Preferred Stock, entered into a Stock Purchase Agreement.  This Agreement supersedes in its entirety the Common Stock Purchase Agreement dated December 31, 1992.

 

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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 WESTERN BANCORPORATION, INC.

 

Date:    November 10, 2003

By:

/s/ Deryl F. Hamann

 

 

Deryl F. Hamann, Chairman and Chief

 

Executive Officer
(Duly Authorized Representative)

 

(Authorized officer and principal financial officer of the registrant)

 

 

Date:  November 10, 2003

By:

/s/ James R. Clark

 

 

James R. Clark, CFO, Secretary
and Treasurer

 

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