<PAGE>
SECURITIES AND EXCHANGE COMMISSIONUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(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
or
[ ] 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 1-14154
-----
GA FINANCIAL, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 25-1780835
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4750 CLAIRTON BOULEVARD, PITTSBURGH, PENNSYLVANIA 15236
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(412)882-9946
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 8,188,000 shares of
common stock, par value $.01 per share, were outstanding as of October 31, 1996.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
For the Quarter Ended September 30, 1996
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
September 30, 1996 and December 31, 1995............... 3
Consolidated Statements of Income - For the Three
and Nine Months Ended September 30, 1996 and 1995...... 4
Consolidated Statements of Cash Flows - For the Three
and Nine Months Ended September 30, 1996 and 1995...... 5
Notes to Consolidated Financial Statements............. 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 11-21
PART II: OTHER INFORMATION............................................ 22
SIGNATURES............................................................ 23
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
September 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
Sept. 30, 1996 Dec. 31, 1995
(Unaudited)
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (In thousands)
Cash (including interest-bearing demand
deposits of $203 in 1996 and $9,215 in 1995) $ 5,178 $ 16,870
Federal funds sold 350 300
Available for sale securities, at fair value:
Investment securities 123,500 71,060
Mortgage-related securities 221,998 168,779
Loans receivable, net 210,895 180,275
Education loans held for sale 12,664 -
Accrued interest receivable 3,941 2,214
Federal Home Loan Bank stock 2,305 1,882
Office, property and equipment 5,418 5,683
Securities sold, not settled - 73,062
Prepaid expenses and other assets 2,663 1,273
- ------------------------------------------------------------------------------
TOTAL ASSETS $588,912 $521,398
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 18,584 $ 17,464
Savings accounts 398,433 407,406
Borrowed funds 34,700 -
Advances from borrowers for taxes and insurance 903 1,920
Accrued interest payable 3,420 521
Securities purchased, not settled 895 41,953
Other liabilities 5,071 3,904
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 462,006 473,168
Shareholder's Equity:
Common stock, (.01 par value);
23,000,000 shares authorized;
8,900,000 shares outstanding 89 -
Preferred stock, (.01 par value);
1,000,000 shares authorized; 0 shares
outstanding - -
Additional paid in capital 86,283 -
Unearned ESOP shares (7,120) -
Net unrealized holding (losses) gains
on securities (1,363) 2,954
Retained earnings 49,017 45,276
- ------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 126,906 48,230
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $588,912 $521,398
==============================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,709 $3,667 $13,382 $10,218
Mortgage-related securities 3,732 2,641 10,423 8,855
Investment securities 1,960 1,979 4,915 5,060
Interest on bank deposits 114 106 742 365
- ---------------------------------------------------------------------------------------------------------
Total interest income 10,515 8,393 29,462 24,498
- ---------------------------------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,137 4,261 12,437 12,278
Interest on borrowings 200 - 200 -
Other 13 14 44 47
- ---------------------------------------------------------------------------------------------------------
Total interest expense 4,350 4,275 12,681 12,325
- ---------------------------------------------------------------------------------------------------------
Net interest income before provision
for losses on loans 6,165 4,118 16,781 12,173
Provision for losses on loans 75 - 135 -
- ---------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 6,090 4,118 16,646 12,173
- ---------------------------------------------------------------------------------------------------------
Other income:
Service fees 309 284 680 614
Net gain on sales of securities 535 122 580 311
Gain on sale of student loans 162 - 311 -
Gain on settlement/curtailment of pension 769 - 769 -
Data processing service fees 205 207 607 591
Other 8 7 24 80
- ---------------------------------------------------------------------------------------------------------
Total other income 1,988 620 2,971 1,596
- ---------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,655 1,521 4,764 4,416
Occupancy and equipment 406 345 1,169 1,148
Deposit insurance premiums 3,010 242 3,493 727
Data processing service expenses 376 368 1,121 1,117
Marketing and advertising 103 77 313 239
Other 862 469 2,216 1,293
- ---------------------------------------------------------------------------------------------------------
Total non-interest expense 6,412 3,022 13,076 8,940
- ---------------------------------------------------------------------------------------------------------
Income before provision for income taxes 1,666 1,716 6,541 4,829
Provision for income taxes 584 629 2,355 1,773
- ---------------------------------------------------------------------------------------------------------
Net income $ 1,082 $1,087 $ 4,186 $ 3,056
=========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<S> <C> <C> <C> <C>
Earnings per share (1) $.13 - $.51(2) -
==================================================
Average shares outstanding 8,188 - 8,188 -
==================================================
</TABLE>
(1)Per share information for the prior periods is not comparable as GA
Financial, Inc. did not complete its stock offering until March 25, 1996.
(2)Assumes the stock conversion was completed on January 1, 1996.
-4-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
- ------------------------------------------------------------------------------------------------------
1996 1995
<S> <C> <C>
(Unaudited)
- ------------------------------------------------------------------------------------------------------
Cash flows from operating activities: (In thousands)
Net income $ 4,186 $ 3,056
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans and real estate owned 135 -
Provision for writedown of securities 100 -
Depreciation and amortization on office, property and equipment 562 653
Net premium amortization on securities 9 437
Amortization of net deferred loan fees (197) (103)
Net realized gain on sales of securities (673) (311)
Net realized gain on sale of student loans (311) -
Deferred income tax provision - 76
(Increase) decrease in accrued interest receivable (1,727) 651
Net realized (gain) on sale of REO (7) -
(Increase) in prepaid expenses and other assets (1,390) (112)
Increase in accrued interest payable 2,899 2,830
- ------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,586 7,177
- ------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 134,161 29,324
Proceeds from sale of student loans 12,543 -
Purchases of loans (62,400) (22,034)
Repayments and maturities of available for sale securities 41,060 1,768
Repayments, calls and maturities of held to maturity securities - 47,984
Purchases of available for sale securities (255,166) (3,035)
Purchases of held to maturity securities - (56,943)
Net (increase) decrease in loans 6,928 391
Purchases of office, property and equipment, net (297) (453)
Net proceeds from sale of REO 25 37
Purchase of Federal Home Loan Bank stock (423) (259)
- ------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (123,569) (3,220)
- ------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net (decrease) in demand and savings deposits (6,723) (17,599)
Net (decrease) increase in certificates of deposit (1,130) 17,309
Payments of borrowed funds (83,550) -
Proceeds from borrowed funds 118,250 -
Dividends paid (445) -
Net increase in advances from borrowers for taxes and insurance
and other liabilities 2,827 (774)
Proceeds from sale of common stock, net 79,252 -
Payments made under capital lease obligations (140) (141)
- ------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 108,341 (1,205)
- ------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (11,642) 2,752
Cash and cash equivalents at beginning of period 17,170 5,429
- ------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5,528 $ 8,181
======================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-5-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of GA Financial, Inc. (the "Company") and its subsidiary, Great
American Federal Savings and Loan Association (the "Association"), and the
Association's wholly owned subsidiary, Great American Financial Services, Inc.
at September 30, 1996 and for the three and nine months then ended. The
consolidated financial statements at December 31, 1995 and for the three and
nine months ended September 30, 1995, include only the accounts of the Company
and the Association. The Association's wholly-owned subsidiary's operations
were suspended since 1988.
In the opinion of the management of the Company, the accompanying consolidated
financial statements include all normal recurring adjustments necessary for a
fair presentation of the financial position and results of operations for the
periods presented. All significant intercompany transactions have been
eliminated in consolidation. Certain information and footnote disclosure
normally included in financial statements presented in accordance with generally
accepted accounting principles have been condensed or omitted. Student loans
are recorded at the lower of cost or fair market value. It is suggested that
the accompanying consolidated financial statements be read in conjunction with
the Association's 1995 Annual Report on Form 10-K.
2. Conversion to Capital Stock Form of Ownership
On March 22, 1996, the members of the Association approved a Plan of Conversion
to convert the Association from a federally chartered mutual savings and loan
association to a federally chartered capital stock savings bank, with the
concurrent sale of all of the newly-converted Association's outstanding capital
stock to the Company, and the sale of the Company's common stock to the public.
The Company, on March 25, 1996, sold 8,900,000 shares of common stock at $10.00
per share to depositors, directors, officers and certain employees of the
Association and to certain other eligible subscribers. The net proceeds from
the sale of the common stock, after conversion expenses of $2,628,000 were
$86,372,000. The Company purchased all of the capital stock of the Association
in exchange for 50% of the net proceeds, or $43,269,000 and utilized $7,120,000
to fund the Employee Stock Ownership Plans' (the "ESOP") purchase of conversion
stock.
Funds retained by the Company in excess of the ESOP loan were initially invested
in Treasury securities and other short term investments. The Company and the
Association may also use such funds to expand operations through the acquisition
or establishment of branch offices and the acquisition of smaller financial
institutions or assets of other financial institutions. In addition, funds may
be used for general business purposes.
At the time of Conversion, the Association established a liquidation account in
an amount equal to its capital as of December 31, 1995. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Association after the Conversion. The
liquidation account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. Dividends cannot be paid from retained earnings
allocated to the liquidation account.
The Office of Thrift Supervision ("OTS") imposes limitations upon all capital
distributions by savings institutions, including cash dividends. An institution
that exceeds all fully phased-in capital requirements before and after a
proposed capital distribution and has not been notified by the OTS that it is in
need of more than normal supervision could, after prior notice but without the
approval of the OTS, make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year, or (ii) 75% of its net income over the most recent four-quarter
period. Any additional capital distributions would require prior regulatory
approval. As of September 30, 1996, the Bank exceeded all fully phased-in
capital requirements and had not been notified by the OTS that it is in need of
more than normal supervision.
The Association has established for full-time employees who have attained the
age of 21 a separate Employee Stock Ownership Plan ("ESOP") in connection with
the conversion. The ESOP borrowed an aggregate of $7,120,000 from the Company
and purchased 712,000 common shares issued in the conversion. The Association
intends to make scheduled discretionary cash contributions to the ESOP
sufficient to service and repay the amounts borrowed over a period of up to 14
years. As shares in the ESOP are earned and committed to be released,
compensation expense will be recorded based on their fair value during each
reporting period. The
-6-
<PAGE>
2. Conversion to Capital Stock Form of Ownership (continued)
difference between the fair value of the shares committed to be released and the
cost of those shares to the ESOP will be charged or credited to additional paid-
in capital. The balance of unearned shares held by the ESOP is shown as a
reduction of stockholders' equity. Only those shares in the ESOP which have been
earned and are committed to be released will be included in the computation of
earnings per share. At September 30, 1996, none of the shares in the ESOP were
earned and committed to be released. The fair value at September 30, 1996 of the
unearned shares in the ESOP was $9,345,000 based on the last sales price of the
company's common stock of approximately $13.125 on that date.
3. Regulatory Capital Requirements
The following is a reconciliation of the Company's stockholders' equity to its
regulatory capital at September 30, 1996.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
----------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Stockholder's equity $126,906 $126,906 $126,906
General valuation - - 947
Unrealized losses on certain available-
for-sale securities 1,363 1,363 1,363
----------------------------------
Regulatory capital computed 128,269 128,269 129,216
Minimum capital requirement 8,866 17,732 17,021
----------------------------------
Regulatory capital excess $119,403 $110,537 $112,195
==================================
Computed capital ratio 21.70% 21.70% 60.73%
Minimum capital ratio 1.50% 3.00% 8.00%
----------------------------------
Excess capital ratio 20.20% 18.70% 52.73%
==================================
</TABLE>
4. Earnings Per Share
The average number of shares outstanding for the three months ended September
30, 1996 and the period since March 25, 1996 is 8,188,000. There are no common
stock equivalents outstanding as of September 30, 1996. Shares outstanding for
1996 do not include ESOP shares that were purchased and unallocated during 1996
in accordance with SOP 93-6, "Employers' Accounting for Employee Stock Ownership
Plans". Earnings per share information is not comparable for prior periods as
the Company did not complete its stock offering until March 25, 1996.
-7-
<PAGE>
5. GA Financial, Inc. (Parent Company)
The following are the parent company's condensed financial statements (in
thousands):
<TABLE>
<CAPTION>
Statement of Financial Condition Sept. 30,1996
(Unaudited)
<S> <C>
- -------------------------------------------------------------------
ASSETS
Cash $ 29
Investment securities, at fair value 35,280
Investment in the Association 90,942
Accrued interest receivable 389
Prepaid expenses and other assets 353
- -------------------------------------------------------------------
TOTAL ASSETS $126,993
===================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other $ 87
Shareholder's Equity:
TOTAL SHAREHOLDERS' EQUITY 126,906
- -------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $126,993
===================================================================
</TABLE>
<TABLE>
<CAPTION>
Statement of Income For the Nine
Months Ended
Sept. 30,1996
(Unaudited)
- -------------------------------------------------------------------
<S> <C>
Investment securities interest income $ 1,372
- -------------------------------------------------------------------
General and administrative expenses (221)
Income taxes (206)
State franchise taxes (530)
- -------------------------------------------------------------------
Income before equity in undistributed
earnings of subsidiary 415
Equity in undistributed earnings of Association 3,771
- -------------------------------------------------------------------
Net income $ 4,186
===================================================================
</TABLE>
-8-
<PAGE>
5. GA Financial, Inc. (Parent Company, continued)
<TABLE>
<CAPTION>
Statement of Cash Flows For the Nine
Months Ended
Sept. 30,1996
(Unaudited)
- -------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 4,186
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of Association (3,771)
Net discount accretion on investment securities (32)
Increase in accrued interest receivable (389)
Increase in prepaid expenses and other assets (353)
- -------------------------------------------------------------------
Net cash used in operating activities (359)
- -------------------------------------------------------------------
Cash flows from investing activities:
Purchase of Association capital stock (43,269)
Available for sale securities sold 30,562
Available for sale securities purchased (65,799)
- -------------------------------------------------------------------
Net cash used in investing activities (78,506)
- -------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of common stock, net 79,252
Dividends paid to stockholders (445)
Net increase in other liabilities 87
- -------------------------------------------------------------------
Net cash provided by financing activities 78,894
- -------------------------------------------------------------------
Net increase in cash and cash equivalents 29
Cash and cash equivalents at beginning of period -
- -------------------------------------------------------------------
Cash and cash equivalents at end of period $ 29
===================================================================
</TABLE>
The parent company was formed on March 25, 1996.
6. New Accounting Pronouncements
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of." The adoption of
this standard in 1996 did not have an effect on the Company's results of
operations.
In 1996, the Corporation will be required to adopt the provision of FASB
Statement No. 123, "Accounting for Stock Based Compensation." This statement
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees
based on the new fair value accounting rules and requires certain new
disclosures. The Corporation is required to adopt Statement No. 123 at December
31, 1996. Management will not adopt the optional measurement provisions of this
statement, and accordingly, has determined that such adoption will not have a
material adverse effect on the consolidated financial statements or results of
operations of the Corporation.
-9-
<PAGE>
7. Borrowed Funds
Borrowed funds at September 30, 1996 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Weighted
Amount Average Rate
-----------------------
<S> <C> <C>
Advances from the Federal Home Loan
Bank of Pittsburgh:
Short-term (due within one year) $24,700 5.67%
Long-term (due within four years) 5,000 6.44%
- ----------------------------------------------------------------
Total advances FHLB 29,700 5.80%
Repurchase agreement with Morgan
Stanley:
Long-term (due within three years) 5,000 6.25%
- ----------------------------------------------------------------
Total borrowed funds $34,700 5.86%
- ---------------------------------------------------------------
</TABLE>
Advances from the Federal Home Loan Bank (FHLB) are collateralized by qualifying
securities and loans. Qualifying collateral includes U.S. Treasury, government
agency and mortgage-backed securities and real estate loans based upon the
amount of outstanding advances. These advances are subject to restrictions or
penalties related to prepayments. The Association had an unused line of credit
with the FHLB of approximately $25 million at September 30, 1996.
8. Pension
On July 1, 1996 the Association merged its defined benefit plan (Plan) with the
Financial Institutions Retirement Fund (FIRF), a multi-employer plan. This
merger effectively resulted in a settlement and curtailment of the Plan. This
merger resulted in a before tax gain of $769 thousand. The Plan was modified to
reduce the benefit formula from a 60% high three year average salary to a 30%
high five year average salary.
Pension expense under the FIRF will match the Association's required
contribution to the FIRF as determined annually. The Association is not
required to make any contributions to the FIRF for fiscal 1996.
9. Subsequent Events
The Company announced on October 23, 1996 that the Board of Directors declared a
dividend of $.08 per share to stockholders of record on November 8, 1996,
payable on November 20, 1996.
The Company held a special meeting of stockholders on October 16, 1996 and
ratified the GA Financial, Inc. 1996 stock-based Incentive Plan. The Incentive
Plan authorizes the granting of options to purchase common stock, option-related
awards and awards of common stock. Subject to certain adjustments to prevent
dilution of awards to participants, the number of shares reserved for awards
under the Incentive Plan is 1,246,000, which is 14% of the outstanding shares of
the common stock as of the effective date of the Incentive Plan.
On November 6, 1996, GA Financial, Inc. announced that it has requested and
received approval from the Office of Thrift Supervision (OTS) to repurchase up
to 5%, or 445,000 shares of its outstanding common stock. Under the repurchase
program, the repurchases will be made in open-market transactions, subject to
the availability of stock, during the next six months.
10. SAIF Assessment
On September 30, 1996 legislation was signed into law to recapitalize the
Savings Institutions Insurance Fund (SAIF). This recapitalization required SAIF
insured institutions to pay a one-time special assessment of 65.7 cents for
every one hundred dollars of deposits. The one-time assessment, required to be
expensed on September 30, 1996, is tax deductible and payable on November 27,
1996. For the Company this assessment amounted to $2.8 million before tax or a
net after-tax charge to earnings per share of $.23.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
General
- -------
The Company's consolidated results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
interest-earning assets, such as loans and investments, and the interest expense
incurred on interest-bearing liabilities, such as deposits and other borrowings.
The Company also generates non-interest income such as service fees and also
generates data-processing fees from its data-processing division. The Company's
operating expense consists primarily of employee compensation, occupancy
expenses, federal deposit insurance premiums, data processing expenses, and
other general and administrative expenses. The Company's results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory agencies.
Comparison of Financial Condition at September 30, 1996 and December 31, 1995
- -----------------------------------------------------------------------------
The Company's total assets of $588.9 million at September 30, 1996 are
reflective of an increase of $67.5 million or 13% to total assets at December
31, 1995.
Cash and cash equivalents decreased $11.6 million or -69% to $5.5 million at
September 30, 1996 due to savings withdrawals and investment purchases.
Investment securities increased $52.4 million or 74% to $123.5 million at
September 30, 1996 due to purchases of investments. Portions of the stock
proceeds and investment portfolio restructuring influenced these purchases.
Mortgage-related securities increased $53.2 million or 32% to $222.0 million at
September 30, 1996 due to increased purchases of these types of securities.
Portions of the proceeds from the recent stock offering were used in these
purchases.
The following table presents details of the Company's investment securities and
mortgage-backed securities as of September 30, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available for sale securities: Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 14,901 $ 19 $ (2) $ 14,918
Mortgage-backed certificates 171,074 2,016 (2,830) 170,260
Marketable equity securities 30,820 1,041 (290) 31,571
US government agency debt 57,639 33 (779) 56,893
Corporate obligations 20,042 79 (3) 20,118
Collateralized mortgage obligations 53,187 83 (1,532) 51,738
- ----------------------------------------------------------------------------------------------------------------
Total $347,663 $3,271 $(5,436) $345,498
================================================================================================================
</TABLE>
Net loans receivable increased $30.6 million or 17% to $211.0 million at
September 30, 1996 as more mortgage loans were originated and purchased.
Residential mortgage loan purchases of $62.4 million during the first nine
months of the year were made to offset low loan demand in the Company's primary
market area.
-11-
<PAGE>
The following table presents details of the Company's loan portfolio:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
---------------------------------------
<S> <C> <C>
Mortgages:
Residential and multi-family $180,175 $129,717
Commercial 5,141 3,290
Construction and development 3,573 5,891
Consumer loans:
Home equity 21,749 20,151
Educational loans 12,664 20,766
Other:
Loans on savings accounts 2,138 2,159
Unsecured personal loans and other 1,598 1,449
- ------------------------------------------------------------------------------
Total 227,038 183,423
Less:
Undisbursed mortgage loans 1,239 1,363
Deferred loan fees 1,293 963
Allowance for losses 947 822
- ------------------------------------------------------------------------------
Net loans $223,559 $180,275
==============================================================================
</TABLE>
Student loans held for sale at September 30, 1996 totaled $12.7 million. The
Company has determined to sell student loans as those loans move into repayment
status. Student loans are recorded at the lower of cost or fair market value.
At December 31, 1995 the Company recorded a $73.1 million receivable for
securities sold but not yet settled. All of those transactions were settled in
January 1996.
Due to the increase in the Company's size from December 31, 1995 to September
30, 1996 the Company was eligible to own more Federal Home Loan Bank stock.
Investments in this stock rose to $2.3 million at September 30, 1996, an
increase of $424,000 or 22.5%.
The net change in all other assets (net property and equipment, interest
receivable, and prepaid expenses) was an increase of $2.9 million or 31% to
$12.0 million at September 30, 1996. The primary cause of this increase was an
increase in interest receivable of $1.7 million or 78% to $3.9 million at
September 30, 1996. This increase in receivable is due to the increase in
investments and loans. Prepaid expenses increased $1.4 million or 109% to $2.7
million at September 30, 1996 due to increases in prepaid taxes.
On September 30, 1996 and December 31, 1995 the Company had no real estate
owned.
Interest bearing deposits decreased $9.0 million or -.2% to $398.4 million at
September 30, 1996. Approximately $12 million in deposits were received or
designated as payment for shares subscribed to in the public offering. These
accounts were charged in March 1996 for these payments. Non-interest bearing
deposits increased $1.1 million or 6% to $18.6 million at September 30, 1996.
The Company has been aggressively pursuing checking accounts.
At September 30, 1996 borrowed funds increased to $34.7 million from $0 at
December 31, 1995. These funds bear interest at various rates and mature at
various dates. Proceeds from these borrowings were used for general liquidity
purchases and for the purchase of investment securities and mortgage-related
securities.
Advances by borrowers for taxes decreased $1.0 million or 53% to $903,000 at
September 30, 1996. This is a result of the normal changes in escrow accounts
as funds are collected and disbursed for insurance and taxes throughout the
year.
Accrued interest payable increased $2.9 million or 556% to $3.4 million at
September 30, 1996. This is a normal occurrence in that certificates of
deposit, on which the customer has elected the interest accrual option, will
accrue interest throughout the year but will be paid to the customer or added to
the account at year end.
-12-
<PAGE>
At December 31, 1995 the Company recorded liabilities of $42.0 million for
securities purchased but not settled as of December 31, 1995. All of these
transactions were settled during January 1996. At September 30, 1996 the
Company had purchase commitments for securities of $895,000 which will settle
in October 1996.
Other liabilities increased $1.2 million or 30% to $5.1 million at September 30,
1996. This was due to increases in accounts payable.
Total stockholder equity increased $78.7 million or 163% to $126.9 million at
September 30, 1996. Retained earnings increased $3.7 million or 8% of which net
income was $4.2 million for the nine month period ended September 30, 1996 and
$445,000 was dividends paid to shareholders. Net unrealized holding losses on
securities held for sale was $-1.4 million at September 30, 1996, a decrease of
$4.3 million or -146%, compared to $3.0 million at December 31, 1995 due to the
decline in market value of those investments. The other addition to
stockholders equity of $79.3 million was the net proceeds from the sale of the
Company's common stock during the recent conversion.
Comparison of the Consolidated Results of Operation for the Period of Three
- ---------------------------------------------------------------------------
Months ended September 30, 1996 and 1995.
- -----------------------------------------
Net Income. Net income was $1.1 million for the period of three months ended
September 30, 1996, a decrease of $5,000 or -.5% for the same period in 1995.
Interest Income. Interest income totaled $10.5 million for the period of three
months ended September 30, 1996, an increase of $2.1 million or 25% compared to
the $8.4 million recorded for the period of three months ended September 30,
1995. The average balances of interest-earning assets for the period of three
months ended September 30, 1996 increased to $557.6 million, an increase of
$92.9 million or 20%, compared to the average balance of interest-earning assets
of $464.7 million for the same period in 1995. Total weighted average yield on
interest-earning assets for the three month period ended September 30, 1996 was
7.54% compared to 7.22% for the comparable period in 1995. Interest on loans
for the three month period ended September 30, 1996 was $4.7 million at a
weighted average yield of 8.44%, an increase of $1.0 million or 28%, compared to
interest income on loans of $3.7 million at a yield of 8.67% for the three month
period ended September 30, 1995. This increase was due primarily to an increase
in the weighted average balance of loans as the weighted average yield on loans
decreased. The Company purchased $7.6 million of residential mortgage loans
during the third quarter of 1996. For the three month period ended September
30, 1996 interest income on mortgage-related securities was $3.7 million at a
weighted average yield of 7.33%, an increase of $1.1 million or 41%, compared to
interest income of $2.6 million at a weighted average yield of 7.26% for the
same period in 1995. The increase in interest income on mortgage-related
securities was due to an increase in the balances of those securities and an
increase in the weighted average yield on those securities. For the three month
period ended September 30, 1996 interest income on investment securities was
$2.0 million at a weighted average yield of 6.35%, a decrease of $19,000 or -1%,
compared to income of $2.0 million at a weighted average yield of 5.52% for the
same period in 1995. While the yield on investment securities increased from
one period to the next, average balances of investments decreased $12.4 million
or -9% for the two periods under comparison. Interest income on interest-
earning deposits was $114,000 at a yield of 6.23% for the period of three months
ended September 30, 1996, an increase of $8,000 or 8%, compared to income of
$106,000 at a weighted average yield of 6.01% for the comparable period in 1995.
The increases in all types of interest income was due to the influx of cash from
the stock conversion and an increase in yields on interest earning assets.
Interest Expense. Interest expense for the three month period ended September
30, 1996 was $4.4 million, an increase of $75,000 or 2%, compared to $4.3
million for the same period in 1995. Average balances of interest-bearing
liabilities was $420.1 million for the period of three months ended September
30, 1996 at a weighted average cost of 4.14% compared to average balances of
$410.0 million at a weighted average cost of 4.17% for the period of three
months ended September 30, 1995. Interest expense on money-market savings
accounts was $101,000 at a weighted average cost of 2.51% for the period of
three months ended September 30, 1996, a decrease of $17,000 or -14%, compared
to $118,000 at a weighted average cost of 2.60% recorded for the same period in
1995. The weighted average cost of these accounts has not changed materially,
but balances in this account have been declining at a steady rate for the past
several years. Interest expense on passbook accounts was $1.2 million at a
weighted average cost of 3.03% for the period of three months ended September
30, 1996, a decrease of $25,000 or -2%, compared to $1.3 million at a weighted
average cost of 3.02% for the comparable period in 1995. Interest rates on
these accounts have remained steady but average balances in these accounts have
declined slightly as some accounts were used to pay for stock sold in the recent
offering and other balances have shifted to higher paying certificate accounts.
Interest expense on certificate accounts for the period of three months ended
September 30, 1996 was $2.7 million at a rate of 5.36%, a decrease of $90,000 or
- -3%, compared to $2.8 million at a rate of 5.57%
-13-
<PAGE>
recorded for the same period in 1995. The decrease is due to lower rates paid
on certificate accounts. Interest expense on checking accounts was $126,000 at a
rate of 2.00% for the three month period ended September 30, 1996, an increase
of $8,000 or 7%, compared to $118,000 at a rate of 1.97% paid for the three
month period ended September 30, 1995. This increase was due to the steady
increase in the balances in these accounts. There was no significant change in
interest expense paid on escrow accounts for the two periods. Interest expense
on borrowed funds for the three month period ended September 30, 1996 was
$200,000 at a rate of 5.85% compared to $0 for the same period in 1995. The
expense was the result of increased borrowings to fund general liquidity needs
and investment purchases.
Net Interest Income: Net interest income for the period of three months ended
September 30, 1996 was $6.2 million, an increase of $2.1 million or 50%,
compared to $4.1 million recorded for the same period in 1995.
Provision for Loan Losses: The Company made no provision for loan losses during
the period of three months ended September 30, 1995. Loan loss reserves were
deemed adequate during that period. Beginning in January 1996 the Company began
purchasing residential mortgage loans originated in areas outside the local
lending area of the Company. Although the Company performs the same
underwriting criteria for purchased loans as it does for originated loans, the
Company has no experience concerning repayments on these loans. Consequently,
the Company added $10,000 per month to the loan loss reserve for the first six
months of 1996 and added $25,000 per month for the third quarter and will add
$25,000 per month for the fourth quarter of 1996.
Non-interest Income: Non-interest income consists of service fees, gains
(losses) on the sale of loans and securities, fees from data processing services
sold and other miscellaneous items. For the period of three months ended
September 30, 1996 non-interest income was $2.0 million, an increase of $1.4
million or 221%, compared to $620,000 recorded for the same period in 1995.
Service fees totaled $309,000 for the period of three months ended September 30,
1996, an increase of $25,000 or 9%, compared to $284,000 recorded for the same
period in 1995. This increase resulted from the Company increasing service
fees, particularly on checking accounts. Gains on the sale of securities
increased to $535,000, an increase of $413,000 or 338%, compared to the $122,000
recorded for the comparable period in 1995. This increase resulted primarily
from the timing and amounts of security sales. Gains on the sales of student
loans were $162,000 for the three month period ended September 30, 1996 compared
to $0 for the same period in 1995. This gain is the result of the decision to
sell student loans as these loans move into repayment status. Fees from the
sale of data processing services were $205,000, a decrease of $2,000 or -.1%,
compared to $207,000 recorded for the same period in 1995. This is the result
of normal billing cycles. During the quarter ended September 30, 1996 the
Company restructured its defined benefit pension plan. This restructuring
resulted in a one-time gain of $769,000. Other non-interest income for the
period of three months ended September 30, 1996 was $8,000, an increase of
$1,000 or 14% compared to the $7,000 recorded for the comparable period in 1995.
Non-interest Expense. Total non-interest expense was $6.4 million for the three
month period ended September 30, 1996, an increase of $3.4 million or 112%,
compared to $3.0 million for the same period in 1995. Salaries and employee
benefits were $1.7 million for the three month period ended September 30, 1996,
an increase of $134,000 or 9%, compared to the $1.5 million recorded for the
same three month period in 1995. The company increased salaries approximately
3% for 1996 and incurred increases in benefit costs. Occupancy costs increased
$61,000 or 18% to $406,000 for the period of three months ended September 30,
1996 compared to $345,000 recorded for the same period in 1995. The Company had
no significant additions to plant and equipment for the period being compared.
Deposit insurance premiums were $3.0 million for the three month period ended
September 30, 1996. This amount included the Savings Insurance Fund Re-
Capitalization special assessment of $2.8 million. This special assessment was
the result of legislation passed September 30, 1996 to re-capitalize the Savings
Institution Insurance Fund (SAIF). For the three month period ended September
30, 1995 deposit insurance premiums were $242,000. There was no significant
change in insurance rates for the two periods being compared. Data processing
costs increased slightly, $8,000 or 2%, from $368,000 for the three month period
ended September 30, 1995 to $376,000 for the same period in 1996. Marketing
costs increased $26,000 or 34% to $103,000 for the three month period ended
September 30, 1996 compared to $77,000 incurred for the same period in 1995.
Marketing efforts to acquire checking accounts and consumer loans were
increased. Other non-interest expenses for the period of three months ended
September 30, 1996 were $862,000, an increase of $393,000 or 84%, compared to
$469,000 recorded for the same period in 1995. This increase was due to the
Company now operating as a publicly held company. Corporate franchise taxes of
$265,000 to the states of Delaware and Pennsylvania were incurred for the third
quarter of 1996. Additionally, legal, accounting and other professional fees
are now higher due to operation as a public company.
-14-
<PAGE>
Income Tax Expense. Income tax expense of $584,000 for the three months ended
September 30, 1996 resulted in an effective tax rate of 35%. The income tax
expense recorded for the period of three months ended September 30, 1995 of
$629,000 is an effective tax rate of 36%. There was no material change in the
Company's tax rate. A dispute in the calculation of Pennsylvania Mutual Thrift
income taxes for prior years was resolved in favor the Association. $47,000
reduced current year income tax provisions.
-15-
<PAGE>
Average Balance Sheets and Analysis of Net Interest Income
- ----------------------------------------------------------
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the volume of interest-earning assets and interest-bearing liabilities and
the rates earned or paid on them. The following table presents certain
information relating to the Company's average consolidated statements of
financial condition and consolidated statements of income for the period of
three months ended September 30, 1996 and 1995. The yield and costs are derived
by dividing income or expense by the average balance of assets or liabilities,
respectively. Average balances are derived from daily average balances. The
average balance of loans receivable includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yield.
The following table presents average balances and yields on interest-earning
assets and average balances and costs of interest-bearing liabilities at
September 30, 1996 and September 30, 1995.
<TABLE>
<CAPTION>
Three months ended September 30, Three months ended September 30,
1996 1995
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits
short-term investments $ 7,319 $ 114 6.23% $ 7,055 $ 106 6.01%
Investment securities, net (1) 121,186 1,923 6.35% 141,155 1,947 5.52%
Loans receivable, net (1) (2) 223,254 4,709 8.44% 169,204 3,667 8.67%
Mortgage-backed securities, net (1) 203,547 3,732 7.33% 145,447 2,641 7.26%
FHLB stock 2,305 37 6.42% 1,882 32 6.80%
-----------------------------------------------------------------------------
Total interest-earning assets 557,611 $10,515 7.54% 464,743 $8,393 7.22%
Non-interest earning assets 14,831 12,841
--------- --------
Total assets $572,442 $477,584
========= ========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,066 $ 101 2.51% $ 18,142 $ 118 2.60%
Passbook accounts 164,624 1,245 3.03% 168,020 1,270 3.02%
NOW accounts 25,177 126 2.00% 23,996 118 1.97%
Certificate accounts 198,741 2,665 5.36% 197,706 2,755 5.57%
-----------------------------------------------------------------------------
Sub-total 404,608 4,137 4.14% 407,864 4,261 4.18%
Borrowings 13,395 196 5.85% 0 0 0.00%
Other 2,121 17 3.21% 2,200 14 2.55%
-----------------------------------------------------------------------------
Total interest-bearing liabilities 420,124 $ 4,350 4.14% 410,064 $4,275 4.17%
Non-interest bearing liabilities 24,450 21,191
Equity 127,868 46,329
--------- --------
Total liabilities and equit $572,442 $477,584
========= ========
Net interest rate spread (3) $ 6,165 3.40% $4,118 3.05%
Net interest margin (4) 4.42% 3.54%
Ratio of interest-earning assets to
interest-bearing liabilities 132.73% 113.33%
</TABLE>
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and
premiums and estimated loan loss allowances and includes loans held for
sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by interest-
earning assets.
-16-
<PAGE>
Comparison of the Consolidated Results of Operation for the Period of Nine
- --------------------------------------------------------------------------
Months ended September 30, 1996 and 1995.
- -----------------------------------------
Net Income. Net income was $4.2 million for the period of nine months ended
September 30, 1996, an increase of $1.1 million or 37% for the same period in
1995.
Interest Income. Interest income totaled $29.5 million for the period of nine
months ended September 30, 1996, an increase of $5.0 million or 20% compared to
the $24.5 million recorded for the period of nine months ended September 30,
1995. The average balances of interest-earning assets for the period of nine
months ended September 30, 1996 increased to $528.3 million, an increase of
$67.8 million or 15%, compared to the average balance of interest-earning assets
of $460.5 million for the same period in 1995. Total weighted average yield on
interest-earning assets for the nine month period ended September 30, 1996 was
7.44% compared to 7.09% for the comparable period in 1995. Interest on loans
for the nine month period ended September 30, 1996 was $13.4 million at a yield
of 8.50%, an increase of $3.2 million or 31%, compared to interest income on
loans of $10.2 million at a yield of 8.23% for the nine month period ended
September 30, 1995. This increase was due to an increase in the weighted
average balance of loans and the increase in the weighted average yield. The
Company purchased $62.4 million of residential mortgage loans during the nine
months of 1996. For the nine month period ended September 30, 1996 interest
income on mortgage-related securities was $10.4 million at a weighted average
yield of 7.0%, an increase of $1.6 million or 19%, compared to interest income
of $8.8 million at a weighted average yield of 7.25% for the same period in
1995. Although average balances in mortgage-related securities increased
between the two periods, securities with shorter average lives and accelerated
payment functions were added to the portfolio. These securities tend to have
lower yields than standard thirty-year fixed rate securities. For the nine
month period ended September 30, 1996 interest income on investment securities
was $4.9 million at a yield of 6.31%, a decrease of $145,000 or -6%, compared to
income of $5.1 million at a weighted average yield of 5.33% for the same period
in 1995. Interest income on interest-earning deposits was $742,000 at a yield
of 6.30% for the period of nine months ended September 30, 1996, an increase of
$377,000 or 103%, compared to income of $365,000 at a weighted average yield of
6.08% for the comparable period in 1995. The increases in all types of interest
income was due to the influx of cash from the stock conversion and an increase
in yields on interest earning assets.
Interest Expense. Interest expense for the nine month period ended September
30, 1996 was $12.7 million, an increase of $356,000 or 3%, compared to $12.3
million for the same period in 1995. Average balances of interest-bearing
liabilities was $412.4 million for the period of nine months ended September 30,
1996 at a weighted average cost of 4.10% compared to average balances of $409.5
million at a weighted average cost of 4.01% for the period of nine months ended
September 30, 1995. Interest expense on money-market savings accounts was
$309,000 at a weighted average cost of 2.50% for the period of nine months ended
September 30, 1996, a decrease of $46,000 or -13%, compared to $355,000 at a
weighted average cost of 2.51% recorded for the same period in 1995. The
weighted average cost of these accounts has not changed materially, but balances
in this account have been declining at a steady rate for the past several years.
Interest expense on passbook accounts was $3.7 million at a weighted average
cost of 3.00% for the period of nine months ended September 30, 1996, a decrease
of $154,000 or -4%, compared to $3.9 million at a weighted average cost of 3.00%
for the comparable period in 1995. Interest rates on these accounts have
remained steady but average balances in these accounts have declined slightly as
some accounts were used to pay for stock sold in the recent offering and other
balances have shifted to higher paying certificate accounts. Interest expense
on certificate accounts for the period of nine months ended September 30, 1996
was $8.1 million at a rate of 5.37%, an increase of $336,000 or 4%, compared to
$7.7 million at a rate of 5.34% recorded for the same period in 1995. The
increase is due to increases in account balances and increases in rates paid on
these accounts due to a general rise in interest rates from one period to the
next. Interest expense on checking accounts was $369,000 at a rate of 2.01% for
the nine month period ended September 30, 1996, an increase of $23,000 or 7%,
compared to $346,000 at a rate of 2.00% paid for the nine month period ended
September 30, 1995. This increase was due to the steady increase in the
balances in these accounts. There was no significant change in interest expense
paid on escrow accounts for the two periods.
Net Interest Income: Net interest income for the period of nine months ended
September 30, 1996 was $16.8 million, an increase of $4.6 million or 38%,
compared to $12.2 million recorded for the same period in 1995.
Provision for Loan Losses: The Company made no provision for loan losses during
the period of nine months ended September 30, 1995. Loan loss reserves were
deemed adequate during that period. Beginning in January 1996 the Company began
purchasing residential mortgage loans originated in areas outside the local
lending area of the Company. Although the Company performs the same
underwriting criteria for purchased loans as it does for originated loans, the
Company has no experience concerning repayments on these loans. Consequently,
the Company added $135,000 to the
-17-
<PAGE>
loan loss reserve because of the increases in the loan portfolio and the
increase in the average loan balance in purchased loans.
Non-interest Income: Non-interest income consists of service fees, gains
(losses) on the sale of loans and securities, fees from data processing services
sold and other miscellaneous items. For the period of nine months ended
September 30, 1996 non-interest income was $3.0 million, an increase of $1.4
million or 86%, compared to $1.6 million recorded for the same period in 1995.
Service fees totaled $680,000 for the period of nine months ended September 30,
1996, an increase of $66,000 or 11%, compared to $614,000 recorded for the same
period in 1995. This increase resulted from the Company increasing service
fees, particularly on checking accounts. Gains on the sale of securities was
$580,000, an increase of $269,000 or 87%, compared to the $311,000 recorded for
the comparable period in 1995. This increase resulted primarily from the timing
and amounts of security sales. For the period of nine months ended September
30, 1996 gains on the sale of student loans were $311,000 compared to $0 for the
same period in 1995. The Company has decided to sell student loans when those
loans reach repayment status. In September 1996 the Company restructured its
defined benefit pension plan and realized a one-time before tax gain of $769,000
from the restructuring. Fees from the sale of data processing services were
$607,000, an increase of $16,000 or 3% compared to $591,000 recorded for the
same period in 1995. This is the result of normal fee increases. Other non-
interest income for the period of nine months ended September 30, 1996 was
$24,000, a decrease of $56,000 or -70% compared to the $80,000 recorded for the
comparable period in 1995.
Non-interest Expense. Total non-interest expense was $13.1 million for the nine
month period ended September 30, 1996, an increase of $4.1 million or 46%,
compared to $8.9 million for the same period in 1995. Salaries and employee
benefits were $4.8 million for the nine month period ended September 30, 1996,
an increase of $348,000 or 8%, compared to the $4.4 million recorded for the
same nine month period in 1995. The company increased salaries approximately 3%
for 1996 and incurred increases in benefit costs. Until the Company's defined
benefit retirement program was restructured effective June 30, 1996, the Company
was accruing expenses for the first six months of 1996 for this plan as well as
for the newly instituted ESOP plan and 401K plan. Occupancy costs increased
$21,000 or 2% to $1.2 million for the period of nine months ended September 30,
1996 compared to $1.2 million recorded for the same period in 1995. The Company
had no significant additions to plant and equipment for the period being
compared. Deposit insurance premiums were $3.5 million for the nine month
period ended September 30, 1996, an increase of $2.8 million or 380%, compared
to $727,000 recorded for the same period in 1995. Premiums paid in September
30, 1996 included the one-time special assessment enacted by legislation signed
on September 30, 1996. The special assessment to the Company totaled $2.8
million. There was no significant change in insurance rates for the two periods
being compared. Data processing costs increased slightly, $4,000 or .4%, from
$1.1 million for the nine month period ended September 30, 1995 to $1.1 million
for the same period in 1996. Marketing costs increased $74,000 or 31% to
$313,000 for the nine month period ended September 30, 1996 compared to $239,000
incurred for the same period in 1995. Marketing efforts to acquire checking
accounts and consumer loans were increased. Other non-interest expenses for the
period of nine months ended September 30, 1996 were $2.2 million, an increase of
$923,000 or 71%, compared to $1.3 million recorded for the same period in 1995.
This increase was due to the Company now operating as a publicly held company.
Corporate franchise taxes of $530,000 to the states of Delaware and Pennsylvania
were incurred for the first nine months of 1996. Additionally, legal,
accounting and other professional fees are now higher due to operation as a
public company.
Income Tax Expense. Income tax expense of $2.4 million for the nine months
ended September 30, 1996 resulted in an effective tax rate of 36%. The income
tax expense recorded for the period of nine months ended September 30, 1995 of
$1.8 million is an effective tax rate of 37%. There was no material change in
the Company's tax rate. A dispute in the calculation of Pennsylvania Mutual
Thrift income taxes for prior years was resolved in favor of the Association.
$47,000 reduced current year income tax provisions.
Liquidity and Capital Resources
- -------------------------------
The Company's primary sources of funds are deposits; principal and interest
payments on loans, mortgage-backed securities and related securities; proceeds
from maturing investment securities; advances from the Federal Home Loan Bank;
and other borrowed funds. While scheduled maturities of investments and
amortizations of loans are predictable sources of funds, deposit flows and
prepayments on mortgage loans and mortgage-backed and related securities are
greatly influenced by general interest rates, economic conditions and
competition.
-18-
<PAGE>
The Association is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by the Office of Thrift
Supervision regulations. The minimum required liquidity and short-term
liquidity ratios are currently 5% and 1% respectively. The Association's
liquidity and short-term liquidity for the month of September, 1996 were 26.21%
and 6.37% respectively. The high levels of liquidity were due to the influx of
cash due to the recent stock offerings and management's maintenance of higher
than required levels of liquidity in order to better manage interest rate risk.
At September 30, 1996 the Company had commitments to originate loans of $105,000
and to purchase mortgage-backed securities of $6 million. The Company
anticipates that it will have sufficient funds available to meet these
commitments.
At September 30, 1996 the Company's total stockholder equity exceeded each of
the OTS capital requirements. OTS required tangible capital ratio to total
assets is 1.5%; the Company had 21.7%. Core capital to total assets requirement
was 3%; the Company had 21.7%. Risk based capital to adjusted risk based assets
requirement was 8 %; the Company had 61%.
Average Balance Sheets and Analysis of Net Interest Income
- ----------------------------------------------------------
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the volume of interest-earning assets and interest-bearing liabilities and
the rates earned or paid on them. The following table presents certain
information relating to the Company's average consolidated statements of
financial condition and consolidated statements of income for the period of nine
months ended September 30, 1996 and 1995. The yield and costs are derived by
dividing income or expense by the average balance of assets or liabilities,
respectively. Average balances are derived from daily average balances. The
average balance of loans receivable includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees which are
considered adjustments to yield.
-19-
<PAGE>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at September 30,
1996 and September 30, 1995.
<TABLE>
<CAPTION>
Nine months ended September 30, Nine months ended September 30,
1996 1995
Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-earning deposits and
short-term investments $ 15,697 $ 742 6.30% $ 8,020 $ 366 6.08%
Investment securities, net (1) 101,709 4,812 6.31% 127,456 5,096 5.33%
Loans receivable, net (1) (2) 209,983 13,382 8.50% 162,632 10,218 8.38%
Mortgage-related securities, net (1) 198,670 10,423 7.00% 160,575 8,728 7.25%
FHLB stock 2,212 103 6.21% 1,825 90 6.58%
----------------------------------------------------------------------------
Total interest-earning assets 528,271 $29,462 7.44% 460,508 $24,498 7.09%
Non-interest earning assets 17,050 13,477
---------- ----------
Total assets $545,321 $473,985
========== ==========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,500 $ 309 2.50% $ 18,838 $ 355 2.51%
Passbook accounts 164,705 3,708 3.00% 172,174 3,862 3.00%
NOW accounts 24,443 369 2.01% 23,491 346 2.00%
Certificate accounts 199,842 8,051 5.37% 192,525 7,715 5.34%
----------------------------------------------------------------------------
Sub-total 405,490 12,437 4.09% 407,028 12,278 4.03%
Borrowings 4,615 200 5.78% 64 8 6.39%
Other 2,271 44 2.58% 2,426 39 2.14%
----------------------------------------------------------------------------
Total interest-bearing liabilities 412,376 $12,681 4.10% 409,518 $12,325 4.01%
Non-interest bearing liabilities 32,047 20,388
Equity 100,898 44,079
---------- ----------
Total liabilities and equity $545,321 $473,985
========== ==========
Net interest rate spread (3) $16,781 3.34% $12,173 3.08%
Net interest margin (4) 4.24% 3.52%
Ratio of interest-earning assets to
interest-bearing liabilities 128.10% 112.45%
</TABLE>
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, undisbursed loan funds, discounts and
remiums and estimated loan loss allowances and includes loans held for
sale and non-performing loans.
(3) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(4) Net interest margin represents net interest income divided by interest
earning assets.
Allowance for Loan Losses
- -------------------------
The following table sets forth the changes in the allowance for loan losses for
the nine months ended September 30, 1996 (in thousands):
<TABLE>
<S> <C>
Balance, December 31, 1995 $ 817
Provision for loan losses 135
Net charge-offs (5)
------
Balance, September 30, 1996 $ 947
======
</TABLE>
-20-
<PAGE>
Non-Performing Assets
- ---------------------
The following table presents information regarding the Company's non-performing
assets at the dates indicated:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1996 1995
---------------------------
<S> <C> <C>
(in thousands)
Non-performing loans:
Non-accrual loans $1,104 $1,460
Accruing loans which are contractually
past due 90 days or more 0 0
- ------------------------------------------------------------------------
Total non-performing loans 1,104 1,460
Real estate owned 0 0
- ------------------------------------------------------------------------
Total non-performing assets $1,104 $1,460
========================================================================
Non-performing loans as a % of gross
loans receivable 0.49% 0.81%
Non-performing loans to total assets 0.19% 0.28%
Allowance for loan loss as a % of
gross loans receivable 0.42% 0.45%
Allowance for loan loss to
non-performing loans 0.86% 56.30%
</TABLE>
Since the Association had no loans considered impaired under Financial
Accounting Standards Board Statement No. 114 during the nine months ended
September 30, 1996, the average recorded investment was zero. As a result,
there was no interest income recognized on impaired loans during the nine months
ended September 30, 1996.
Other Developments
- ------------------
The Company's data processing division, DataOne Financial Services, currently
provides data processing services to the Association and to two other financial
institutions. One of these other institutions has notified DataOne that it will
not renew its contract when in expires in September 1996. DataOne is attempting
to replace this company with a new client.
The Company has entered into an agreement with Wal-Mart stores to establish a
branch office in Wal-Mart's new super store under construction in Rostraver
Township. This office began operations in October 1996. The Company has also
entered into agreements with Wal-Mart to open branches in Wal-Mart stores in
North Fayette Township and in the Borough of West Mifflin. The North Fayette
branch is expected to open in January 1997 and the West Mifflin branch is
expected to open in March 1997.
The Company has also entered into an agreement to purchase approximately $28
million of deposits from First Home Savings of Pittsburgh. These deposits are
in First Home branches located in communities now being served by several of the
Company's branches. The Company does not expect to incur significant additional
costs to service these deposits. The Company agreed to pay a premium of 5% for
these deposits. This transaction is subject to regulatory approval and is
expected to close in December 1996.
On September 30, 1996 legislation was signed into law to recapitalize the
Savings Institutions Insurance Fund (SAIF). This recapitalization required SAIF
insured institutions to pay a one-time special assessment of 65.7 cents for
every one hundred dollars of deposits. The one-time assessment, required to be
expensed on September 30, 1996, is tax deductible and payable on November 27,
1996. For the Company this assessment amounted to $2.8 million before tax or a
net after-tax charge to earnings per share of $.23.
-21-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
On February 23, 1996, a lawsuit was filed against the Association and
its directors by six depositors of the Association relating to the
Association's Conversion. The complaint alleges that the decision by
the board of directors to adopt a plan of conversion which provides
eligible depositors of the Association that reside in certain
Pennsylvania Counties (Local Community Depositors) with a subscription
preference over other eligible depositors who do not reside in such
counties constitutes a breach by the board of directors of their
fiduciary duties and implied covenants of good faith and fair dealing.
The complaint requests money damages of an unspecified amount and "an
order of appropriate injunctive relief", although the nature of such
injunctive relief is unspecified.
On March 26, 1996, the parties reached an agreement in principle for the
voluntary dismissal of the lawsuit. The agreement contemplates an
exchange of mutual releases and for each side to bear its own costs and
fees.
Item 2. Changes in Securities
- ------- ---------------------
None
Item 3. Defaults upon Senior Securities
- ------- -------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company held a special meeting of stockholders on October 16, 1996
and ratified the GA Financial, Inc. 1996 stock-based Incentive Plan.
The Incentive Plan authorizes the granting of options to purchase common
stock, option-related awards and awards of common stock. Subject to
certain adjustments to prevent dilution of awards to participants, the
number of shares reserved for awards under the Incentive Plan is
1,246,000, which is 14% of the outstanding shares of the common stock as
of the effective date of the Incentive Plan. Of the 8,900,000 shares
eligible to vote, 6,635,134 or 75% were voted. The number of votes cast
for the plan was 5,318,072. The number of votes against was 1,299,760,
and the number that abstained was 17,302.
Item 5. Other Information
- ------- -----------------
On November 6, 1996, GA Financial, Inc. announced that it has requested
and received approval from the Office of Thrift Supervision (OTS) to
repurchase up to 5%, or 445,000 shares of its outstanding common stock.
Under the repurchase program, the repurchases will be made in open-
market transactions, subject to the availability of stock, during the
next six months.
Item 6. A. Exhibits
- ------- ------------
99. Press Release on Stock Repurchase
27. Financial Data Schedule
B. Reports on Form 8-K
-----------------------
None
-22-
<PAGE>
GA FINANCIAL, INC. AND SUBSIDIARIES
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.
GA FINANCIAL, INC.
--------------------------------------------
(Registrant)
Date November 12, 1996 By /s/John M. Kish
----------------- ---------------------------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
Date November 12, 1996 By /s/Raymond G. Suchta
----------------- ---------------------------------------------
Raymond G. Suchta
Chief Financial Officer and Treasurer
-23-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE THIRD
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,975
<INT-BEARING-DEPOSITS> 203
<FED-FUNDS-SOLD> 350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 345,498
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 224,506
<ALLOWANCE> 947
<TOTAL-ASSETS> 588,912
<DEPOSITS> 417,017
<SHORT-TERM> 24,700
<LIABILITIES-OTHER> 10,289
<LONG-TERM> 10,000
0
0
<COMMON> 89
<OTHER-SE> 126,817
<TOTAL-LIABILITIES-AND-EQUITY> 588,912
<INTEREST-LOAN> 13,382
<INTEREST-INVEST> 16,080
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 29,462
<INTEREST-DEPOSIT> 12,437
<INTEREST-EXPENSE> 12,681
<INTEREST-INCOME-NET> 16,781
<LOAN-LOSSES> 135
<SECURITIES-GAINS> 580
<EXPENSE-OTHER> 13,076
<INCOME-PRETAX> 6,541
<INCOME-PRE-EXTRAORDINARY> 6,541
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,186
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 7.44
<LOANS-NON> 1,104
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 822
<CHARGE-OFFS> 18
<RECOVERIES> 8
<ALLOWANCE-CLOSE> 947
<ALLOWANCE-DOMESTIC> 947
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99
Press release, dated November 6, 1996
GA FINANCIAL, INC. ANNOUNCES STOCK REPURCHASE
Pittsburgh, PA. GA Financial, Inc. (AMEX: GAF) today announced that it has
requested and received regulatory approval from the Office of Thrift Supervision
(OTS) to repurchase up to 5% or 445,000 shares of its outstanding common stock.
Under the repurchase program, the repurchases will be made in open-market
transactions, subject to the availability of stock, during the next six months.
John M. Kish, Chairman and CEO of GA Financial, Inc. commented, "We believe that
the repurchase program will enhance shareholder value, as such repurchases have
the effect of increasing the earnings per share and book value of the remaining
shares outstanding. Our Board adopted this program because it represents a good
long-term investment opportunity for the Company due to the current market price
of the common stock."
GA Financial is the holding company of Great American Federal Savings and Loan
Association, headquartered in Pittsburgh, Pennsylvania, which operates through
its administrative/branch office in Whitehall and through ten other full service
branches and its one loan origination office located in and around Pittsburgh,
Pennsylvania. The Association's deposits are insured by the Federal Deposit
Insurance Corporation.
For More Information Contact:
John M. Kish
Chairman/CEO
Raymond G. Suchta
Chief Financial Officer
412-882-9946
412-882-8580 (FAX)
