<PAGE>
UNITED 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 June 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)882-8580
-------------
(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: 8,900,000 shares of
common stock, par value $.01 per share, were outstanding as of July 30, 1996.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
For the Quarter Ended June 30, 1996
INDEX
PART I. FINANCIAL INFORMATION Page
-----
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 30, 1996 and December 31, 1995.................... 3
Consolidated Statements of Income - For the Three
and Six Months Ended June 30, 1996 and 1995............ 4
Consolidated Statements of Cash Flows - For the Three
and Six Months Ended June 30, 1996 and 1995............ 5
Notes to Consolidated Financial Statements............. 6- 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 10-20
PART II: OTHER INFORMATION......................................... 21
SIGNATURES.......................................................... 22
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- - ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
June 30,1996 Dec. 31, 1995
(Unaudited)
- - ----------------------------------------------------------------------
<S> <C> <C>
ASSETS (In thousands)
Cash (including interest-bearing demand
deposits of $4,103
in 1996 and $9,215 in 1995) $ 10,665 $ 16,870
Federal funds sold 500 300
Available for sale securities, at fair
value:
Investment securities 117,279 71,060
Mortgage-related securities 201,562 168,779
Loans receivable, net 219,817 180,275
Accrued interest receivable 3,644 2,214
Foreclosed assets 18 -
Federal Home Loan Bank stock 2,306 1,882
Office, property and equipment 5,352 5,683
Securities sold, not settled - 73,062
Prepaid expenses and other assets 1,208 1,273
- - ----------------------------------------------------------------------
TOTAL ASSETS $562,351 $521,398
======================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 19,599 $ 17,464
Savings accounts 406,231 407,406
Advances from borrowers for taxes and
insurance 2,587 1,920
Accrued interest payable 2,521 521
Securities purchased, not settled - 41,953
Other liabilities 2,993 3,904
- - ----------------------------------------------------------------------
TOTAL LIABILITIES 433,931 473,168
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 86,288 -
Unearned ESOP shares (7,120) -
Net unrealized holding gains on
securities 783 2,954
Retained earnings 48,380 45,276
- - ----------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 128,420 48,230
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $562,351 $521,398
======================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Income
For the Quarters Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
(Unaudited) (Unaudited)
- - -------------------------------------------------------------------------------------------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 4,658 $3,341 $ 8,673 $ 6,551
Mortgage-related securities 3,511 3,025 6,691 6,214
Investment securities 1,822 1,596 2,955 3,081
Interest on bank deposits 225 161 628 259
- - ---------------------------------------------------------------------------------------------------------------
Total interest income 10,216 8,123 18,947 16,105
- - ---------------------------------------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,095 4,151 8,300 8,017
Other 18 15 31 33
- - ---------------------------------------------------------------------------------------------------------------
Total interest expense 4,113 4,166 8,331 8,050
- - ---------------------------------------------------------------------------------------------------------------
Net interest income before provision
for losses on loans 6,103 3,957 10,616 8,055
Provision for losses on loans 30 - 60 -
- - ---------------------------------------------------------------------------------------------------------------
Net interest income after provision for
losses on loans 6,073 3,957 10,556 8,055
- - ---------------------------------------------------------------------------------------------------------------
Other income:
Service fees 189 173 371 330
Net gain on sales of securities 35 143 45 189
Gain on sale of student loans 149 - 149 -
Data processing service fees 198 192 402 384
Other 5 12 16 73
- - ---------------------------------------------------------------------------------------------------------------
Total other income 576 520 983 976
- - ---------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,487 1,346 3,109 2,895
Occupancy and equipment 373 380 763 803
Deposit insurance premiums 242 242 483 485
Data processing service expenses 341 348 745 749
Marketing and advertising 108 63 210 162
Other 846 388 1,354 824
- - ---------------------------------------------------------------------------------------------------------------
Total non-interest expense 3,397 2,767 6,664 5,918
- - ---------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 3,252 1,710 4,875 3,113
Provision for income taxes 1,159 618 1,771 1,144
- - ---------------------------------------------------------------------------------------------------------------
Net income $ 2,093 $1,092 $ 3,104 $ 1,969
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<TABLE>
<S> <C> <C> <C> <C>
Earnings per share (1) $.26 - $.38 (2) -
===== ==== ======== =====
</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 Six Months Ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
- - ----------------------------------------------------------------
1996 1995
(Unaudited)
- - ----------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities: (In thousands)
Net income $ 3,104 $ 1,969
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for losses on loans and real
estate owned 60 -
Provision for writedown of securities 100 -
Depreciation and amortization on
office, property and equipment 422 429
Net (discount accretion) premium
amortization on securities (3) 454
Amortization of net deferred loan fees (125) (77)
Net realized gain on sales of securities (145) (189)
Net realized gain on sale of loans (149) -
(Increase) decrease in accrued interest
receivable (1,430) 12
Decrease (increase) in prepaid expenses
and other assets 65 399
Increase in accrued interest payable 2,000 1,954
- - ----------------------------------------------------------------
Net cash provided by operating
activities 3,899 4,951
- - ----------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for
sale securities 109,085 30,105
Proceeds from sale of loans 7,539 -
Repayments and maturities of available
for sale securities 25,218 1,041
Repayments, calls and maturities of
held to maturity securities - 23,617
Purchases of available for sale
securities (185,594) (643)
Purchases of held to maturity securities - (30,329)
Net increase in loans (46,885) (10,687)
Purchases of office, property and
equipment, net (91) (368)
Purchase of Federal Home Loan Bank stock (424) (259)
- - ----------------------------------------------------------------
Net cash (used in) provided by
investing activities (91,152) 12,477
- - ----------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand and
savings deposits 4,303 (13,912)
Net (decrease) increase in certificates
of deposit (3,343) 15,102
Net increase in advances from borrowers
for taxes and insurance
and other liabilities 1,124 942
Proceeds from sale of common stock, net 79,257 -
Payments made under capital lease
obligations (93) (94)
- - ----------------------------------------------------------------
Net cash provided by financing
activities 81,248 2,038
- - ----------------------------------------------------------------
Net increase in cash and cash
equivalents (6,005) 19,466
Cash and cash equivalents at beginning
of period 17,170 5,429
- - ----------------------------------------------------------------
Cash and cash equivalents at end of
period $ 11,165 $ 24,895
================================================================
</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 June 30, 1996 and for the three and six months then ended. The consolidated
financial statements at December 31, 1995 and for the three and six months ended
June 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. 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 $2,462,000 were
$86,538,000. 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 have been 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 June 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 average 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 June 30, 1996, none of the shares in the ESOP were earned
and committed to be released. The fair value at June 30, 1996 of the unearned
shares in the ESOP was $7,832,000 based on the last sales price of the company's
common stock of approximately $11.00 on that date.
3. Regulatory Capital Requirements
The following is a reconciliation of the Company's stockholders' equity to its
regulatory capital at June 30, 1996.
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
----------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
Stockholder's equity $128,420 $128,420 $128,420
General valuation - - 871
Unrealized gains on certain available-
for-sale securities (970) (970) (970)
----------------------------------
Regulatory capital computed 127,450 127,450 128,321
Minimum capital requirement 8,412 16,824 16,035
----------------------------------
Regulatory capital excess $119,038 $110,626 $112,286
==================================
Computed capital ratio 22.73% 22.73% 64.02%
Minimum capital ratio 1.50% 3.00% 8.00%
----------------------------------
Excess capital ratio 21.23% 19.73% 56.02%
==================================
</TABLE>
4. Earnings Per Share
The average number of shares outstanding for the three months ended June 30,
1996 is 8,188,000. There are no common stock equivalents outstanding as of June
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 June 30,1996
(Unaudited)
- - --------------------------------------------------------------------
<S> <C>
ASSETS
Cash $ 45
Investment securities 35,854
Investment in the Association 92,316
Accrued interest receivable 192
Prepaid expenses and other assets 55
- - ------------------------------------------------------------------
TOTAL ASSETS $128,462
==================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Other $ 42
Shareholder's Equity:
TOTAL SHAREHOLDERS' EQUITY 128,420
- - ------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $128,462
==================================================================
</TABLE>
<TABLE>
<CAPTION>
Statement of Income For the Six Months Ended
Months Ended
June 30,1996
(Unaudited)
- - ------------------------------------------------------------------------
<S> <C>
Investment securities interest income $ 535
- - ------------------------------------------------------------------------
General and administrative expenses (154)
State franchise taxes (265)
- - ------------------------------------------------------------------------
Income before equity in undistributed 116
earnings of subsidiary
Equity in undistributed earnings of 2,988
Association
- - ------------------------------------------------------------------------
Net income $ 3,104
========================================================================
</TABLE>
-8-
<PAGE>
5. GA Financial, Inc. (Parent Company, continued)
<TABLE>
<CAPTION>
Statement of Cash Flows For the Six Months Ended
Months Ended
June 30,1996
(Unaudited)
- - -----------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 3,104
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in undistributed earnings of Association (2,988)
Net discount accretion on investment securities (10)
Increase in accrued interest receivable (192)
Increase in prepaid expenses and other assets (55)
- - -----------------------------------------------------------------------
Net cash used in operating activities (141)
- - -----------------------------------------------------------------------
Cash flows from investing activities:
Purchase of Association capital stock (43,270)
Available for sale securities purchased (35,843)
- - -----------------------------------------------------------------------
Net cash used in investing activities (79,113)
- - -----------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of common stock, net 79,257
Net increase in other liabilities 42
- - -----------------------------------------------------------------------
Net cash provided by financing activities 79,299
- - -----------------------------------------------------------------------
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period $ 45
=======================================================================
</TABLE>
The parent company was formed on March 25, 1996.
7. 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.
-9-
<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 June 30, 1996 and December 31, 1995
- - ------------------------------------------------------------------------
The Company's total assets of $562.4 million at June 30, 1996 are reflective of
an increase of $41.0 million or 8% to total assets at December 31, 1995.
Cash and cash equivalents decreased $6.0 million or -35% to $11.2 million at
June 30, 1996 due to investment purchases.
Investment securities increased $46.2 million or 65% to $117.3 million at June
30, 1996 due to purchases of investments. Portions of the stock proceeds and
investment portfolio restructuring influenced these purchases.
Mortgage-related securities increased $32.8 million or 19% to $201.6 million at
June 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 June 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 $ 14,890 $ 4 ($ 8) $ 14,886
Mortgage-backed certificates 148,814 2,969 (775) 151,008
Marketable equity securities 43,313 896 (296) 43,913
US government agency debt 39,147 1 (787) 38,361
Corporate obligations 20,070 84 (35) 20,119
Collateralized mortgage obligations 51,363 167 (976) 50,554
- - ----------------------------------------------------------------------------------------------------------------
Total $317,597 $4,121 ($2,877) $318,841
================================================================================================================
</TABLE>
Net loans receivable increased $39.5 million or 22% to $219.8 million at June
30, 1996 as more mortgage loans were originated and purchased. Residential
mortgage loan purchases of $54.9 million during the first six months of the year
were made to offset low loan demand in the Company's primary market area.
-10-
<PAGE>
The following table presents details of the Company's loan portfolio:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
----------------------------------
<S> <C> <C>
Mortgages:
Residential and multi-family $175,535 $129,717
Commercial 4,898 3,290
Construction and development 3,256 5,891
Consumer loans:
Home equity 20,946 20,151
Educational loans 14,604 20,766
Other:
Loans on savings accounts 2,054 2,159
Unsecured personal loans and other 1,531 1,449
- - -------------------------------------------------------------------------
Total 222,824 183,423
Less:
Undisbursed mortgage loans 911 1,363
Deferred loan fees 1,225 963
Allowance for losses 871 822
- - -------------------------------------------------------------------------
Net loans $219,817 $180,275
=========================================================================
</TABLE>
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 June 30,
1996 the Company was eligible to own more Federal Home Loan Bank stock.
Investments in this stock rose to $2.3 million at June 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 $1.0 million or 11% to
$10.2 million at June 30, 1996. The primary cause of this increase was an
increase in interest receivable of $1.4 million or 65% to $3.6 million at June
30, 1996. This increase in receivable is due to the increase in investments and
loans.
On December 31, 1995 the Company had no real estate owned. During the period of
six months ended June 30, 1996 the Company was forced to foreclose on one
property valued at $18,000. This property was under a sales agreement at June
30, 1996.
Interest bearing deposits decreased $1.2 million or -.2% to $406.2 million at
June 30,1 996. 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 $2.1 million or 12% to $19.6 million at June 30,1 996. The
Company has been aggressively pursuing checking accounts.
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 June 30, 1996 there were no
purchased but not settled securities transactions.
Advances by borrowers for taxes increased $667,000 or 35% to $2.6 million at
June 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 million or 384% to $2.5 million at June
30, 1996. This is a normal occurrence in that certificates of deposits, on
which the customer has elected the interest accrual option, will accrue interest
throughout the year but will be credited to the account at year end.
-11-
<PAGE>
Other liabilities decreased $911,000 or -23% to $3.0 million at June 30, 1996.
This reduction was due primarily to decreases in deferred income taxes for
available for sale securities.
Total stockholder equity increased $80.2 million or 166% to $128.4 million at
June 30, 1996. Retained earnings increased $3.1 million or 6.9% which was net
income for the six month period ended June 30, 1996. Net unrealized holding
gains on securities held for sale was $783,000 at June 30, 1996, a decrease of
$2.2 million or 74%, compared to $3.0 million at December 31, 1995 due to the
decline in market value of available for sale securities. 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 June 30, 1996 and 1995.
- - ------------------------------------
Net Income. Net income was $2.1 million for the period of three months ended
June 30, 1996, an increase of $1.0 million or 92% for the same period in 1995.
Interest Income. Interest income totaled $10.2 million for the period of three
months ended June 30, 1996, an increase of $2.1 million or 26% compared to the
$8.1 million recorded for the period of three months ended June 30, 1995. The
average balances of interest-earning assets for the period of three months ended
June 30, 1996 increased to $544.8 million, an increase of $84.8 million or 18%,
compared to the average balance of interest-earning assets of $460.0 million for
the same period in 1995. Total weighted average yield on interest-earning
assets for the three month period ended June 30, 1996 was 7.42% compared to
6.99% for the comparable period in 1995. Interest on loans for the three month
period ended June 30, 1996 was $4.7 million at a weighted average yield of
8.52%, an increase of $1.3 million or 39%, compared to interest income on loans
of $3.3 million at a yield of 8.16% for the three month period ended June 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 $28
million of residential mortgage loans during the second quarter of 1996. For
the three month period ended June 30, 1996 interest income on mortgage-backed
securities was $3.5 million at a weighted average yield of 6.96%, an increase of
$486,000 or 16%, compared to interest income of $3.0 million at a weighted
average yield of 7.29% for the same period in 1995. Although average balances
in mortgage-backed 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 three month period ended June 30, 1996 interest
income on investment securities was $1.8 million at a weighted average yield of
6.23%, an increase of $221,000 or 14%, compared to income of $1.6 million at a
weighted average yield of 5.10% for the same period in 1995. Interest income on
interest-earning deposits and short-term investments was $225,000 at a yield of
6.61% for the period of three months ended June 30, 1996, an increase of $64,000
or 40%, compared to income of $161,000 at a yield of 6.05% 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 June 30,
1996 was $4.1 million, a decrease of $53,000 or -1.2%, compared to $4.2 million
for the same period in 1995. Average balances of interest-bearing liabilities
was $406.1 million for the period of three months ended June 30, 1996 at a
weighted average cost of 4.01% compared to average balances of $409.3 million at
a weighted average cost of 4.03% for the period of three months ended June 30,
1995. Interest expense on money-market savings accounts was $102,000 at a
weighted average cost of 2.46% for the period of three months ended June 30,
1996, a decrease of $15,000 or -12.8%, compared to $117,000 at a weighted
average cost of 2.47% 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 2.95% for the period of three months ended June 30, 1996, a decrease of
$54,000 or 4.2%, compared to $1.3 million at a weighted average cost of 2.96%
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 June 30, 1996 was
$2.6 million at a rate of 5.27%, an increase of $6,000 or .2%, compared to $2.6
million at a rate of 5.4% recorded for the same period in 1995. The increase is
due to increases in account balances. Interest expense on checking accounts was
$123,000 at a rate of 2.00% for the three month period ended June 30, 1996, an
increase of $7,000 or 6%, compared to $116,000 at a rate of 1.96% paid for the
three month period ended June 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.
-12-
<PAGE>
Net Interest Income: Net interest income for the period of three months ended
June 30, 1996 was $6.1 million, an increase of $2.1 million or 54%, compared to
$4.0 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 June 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 intends to add $25,000 per month for the remaining six months
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 June
30, 1996 non-interest income was $576,000, an increase of $56,000 or 10.7%,
compared to $520,000 recorded for the same period in 1995. Service fees totaled
$189,000 for the period of three months ended June 30, 1996, an increase of
$16,000 or 9%, compared to $173,000 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 fell to $35,000, a decrease
of $108,000 or -76%, compared to the $143,000 recorded for the comparable period
in 1995. The Company invests in mutual funds which in turn invest in government
securities and adjustable rate mortgage loans. Generally accepted accounting
principles require that when a reduction in value in an equity type investment
is determined to be other than temporary that reduction in value be recorded and
reflected in the current period's results of operations. During the second
quarter ended June 30, 1996 one mutual fund investment was determined to have a
reduction in value that was other than temporary. Accordingly, this investment
was reduced $100,000 and that loss was reflected in operating results for that
period. Fees from the sale of data processing services were $198,000, an
increase of $6,000 or 6.3%, compared to $192,000 recorded for the same period in
1995. This is the result of normal fee increases. During the quarter ended June
30, 1996 the Company sold $7.4 million of student loans for a gain of $149,000.
The sale was necessary because the Company was beginning to reach statutory
limits on holdings of this type of investment. Other non-interest income for
the period of three months ended June 30, 1996 was $5,000, a decrease of $7,000
or -58%, compared to the $12,000 recorded for the comparable period in 1995.
Non-interest Expense. Total non-interest expense was $3.4 million for the three
month period ended June 30, 1996, an increase of $630,000 or 23%, compared to
$2.8 million for the same period in 1995. Salaries and employee benefits were
$1.5 million for the three month period ended June 30, 1996, an increase of
$141,000 or 10%, compared to the $1.3 million recorded for the same three 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
incurring expenses for this plan as well as for the newly instituted ESOP plan
and 401K plan. Occupancy costs decreased $7,000 or -2% to $373,000 for the
period of three months ended June 30, 1996 compared to $380,000 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
$242,000 for each three month period ended June 30, 1996 and 1995 respectively.
There was no significant change in insured deposits or insurance rates for the
two periods being compared. Data processing costs decreased slightly, $7,000 or
- - -2%, from $348,000 for the three month period ended June 30, 1995 to $241,000
for the same period in 1996. Marketing costs increased $45,000 or 71% to
$108,000 for the three month period ended June 30, 1996 compared to $63,000
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 six months ended June 30, 1996 were $1.3 million, an increase of
$504,000 or 64%, compared to $824,000 recorded for the same period in 1995.
Other non-interest expenses for the period of three months ended June 30, 1996
were $846,000, an increase of $458,000 or 118%, compared to $388,000 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 second quarter 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 $1.2 million for the three months
ended June 30, 1996 resulted in an effective tax rate of 36%. The income tax
expense recorded for the period of three months ended June 30, 1995 of $618,000
is also an effective tax rate of 36%.
-13-
<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 June 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 June
30, 1996 and June 30, 1995.
<TABLE>
<CAPTION>
Three months ended June 30, 1996 Three months ended June 30, 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 $ 13,464 $ 225 6.61% $ 10,521 $ 161 6.05%
Investment securities, net (1) 113,352 1,785 6.23% 121,282 1,564 5.10%
Loans receivable, net (1) (2) 216,228 4,658 8.52% 161,993 3,341 8.16%
Mortgage-backed securities,
net (1) 199,466 3,511 6.96% 164,340 3,025 7.29%
FHLB stock 2,305 37 6.35% 1,882 32 6.73%
---------------------------------------------------------------------
Total interest-earning assets 544,815 10,216 7.42% 460,018 8,123 6.99%
Non-interest earning assets 14,845 14,415
----------- ------------
Total assets $559,660 $474,433
=========== ============
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,406 $ 102 2.46% $ 18,737 $ 117 2.47%
Passbook accounts 163,781 1,224 2.95% 170,920 1,278 2.96%
NOW accounts 24,314 123 2.00% 23,415 116 1.96%
Certificate accounts 198,823 2,646 5.27% 193,415 2,640 5.40%
---------------------------------------------------------------------
Sub-total 403,324 4,095 4.02% 406,487 4,151 4.04%
FHLB advances 352 5 5.70% 193 3 6.14%
Other 2,421 13 2.12% 2,625 12 1.80%
---------------------------------------------------------------------
Total interest-bearing liabilities 406,097 4,113 4.01% 409,305 4,166 4.03%
Non-interest bearing liabilities 26,579 20,957
Equity 126,984 44,171
----------- ------------
Total liabilities and equity $559,660 $474,433
=========== ============
Net interest rate spread (3) $ 6,103 3.41% $3,957 2.96%
Net interest margin (4) 4.43% 3.40%
Ratio of interest-earning assets to
interest-bearing liabilities 134.16% 112.39%
</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.
-14-
<PAGE>
Comparison of the Consolidated Results of Operation for the Period of Six Months
- - --------------------------------------------------------------------------------
ended June 30, 1996 and 1995.
- - -----------------------------
Net Income. Net income was $3.1 million for the period of six months ended June
30, 1996, an increase of $1.1 million or 58% for the same period in 1995.
Interest Income. Interest income totaled $18.9 million for the period of six
months ended June 30, 1996, an increase of $2.8 million or 18% compared to the
$16.1 million recorded for the period of six months ended June 30, 1995. The
average balances of interest-earning assets for the period of six months ended
June 30, 1996 increased to $513.4 million, an increase of $55.1 million or 12%,
compared to the average balance of interest-earning assets of $458.3 million for
the same period in 1995. Total weighted average yield on interest-earning
assets for the six month period ended June 30, 1996 was 7.38% compared to 7.03%
for the comparable period in 1995. Interest on loans for the six month period
ended June 30, 1996 was $8.7 million at a yield of 8.53%, an increase of $1.3
million or 39%, compared to interest income on loans of $6.5 million at a yield
of 8.23% for the six month period ended June 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 $55 million of residential
mortgage loans during the first six months of 1996. For the six month period
ended June 30, 1996 interest income on mortgage-backed securities was $6.7
million at a weighted average yield of 6.82%, an increase of $478,000 or 8%,
compared to interest income of $6.2 million at a weighted average yield of 7.39%
for the same period in 1995. Although average balances in mortgage-backed
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 six month period ended June 30, 1996 interest income on
investment securities was $2.9 million at a yield of 6.29%, a decrease of
$134,000 or -4%, compared to income of $3.0 million at a weighted average yield
of 5.2% for the same period in 1995. Interest income on interest-earning
deposits and short-term investments was $628,000 at a yield of 6.30% for the
period of six months ended June 30, 1996, an increase of $369,000 or 143%,
compared to income of $259,000 at a yield of 6.09% 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 six month period ended June 30, 1996
was $8.3 million, an increase of $281,000 or 3.5%, compared to $8.0 million for
the same period in 1995. Average balances of interest-bearing liabilities was
$408.5 million for the period of six months ended June 30, 1996 at a weighted
average cost of 4.08% compared to average balances of $409.2 million at a
weighted average cost of 3.93% for the period of six months ended June 30, 1995.
Interest expense on money-market savings accounts was $208,000 at a weighted
average cost of 2.49% for the period of six months ended June 30, 1996, a
decrease of $29,000 or -12%, compared to $237,000 at a weighted average cost of
2.47% 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 $2.5 million at a weighted average cost of 2.99% for the
period of six months ended June 30, 1996, a decrease of $129,000 or -5%,
compared to $2.6 million at a weighted average cost of 2.97% 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 six months ended June 30, 1996 was $5.4 million at a
rate of 5.38%, an increase of $426,000 or 8.6%, compared to $5.0 million at a
rate of 5.22% 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 $243,000 at a rate of 2.02% for the six month
period ended June 30, 1996, an increase of $15,000 or 6.6%, compared to $228,000
at a rate of 1.96% paid for the six month period ended June 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 six months ended
June 30, 1996 was $10.6 million, an increase of $2.6 million or 32%, compared to
$8.1 million recorded for the same period in 1995.
Provision for Loan Losses: The Company made no provision for loan losses during
the period of six months ended June 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 intends to add $25,000 per month to the
-15-
<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 six months ended June 30,
1996 non-interest income was $983,000, an increase of $7,000 or .7%, compared to
$976,000 recorded for the same period in 1995. Service fees totaled $371,000
for the period of six months ended June 30, 1996, an increase of $41,000 or 12%,
compared to $330,000 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 fell to $45,000, a decrease of
$144,000 or -76%, compared to the $189,000 recorded for the comparable period in
1995. This decrease resulted primarily from the timing and amounts of security
sales. Fees from the sale of data processing services were $402,000, an
increase of $18,000 or 4.7%, compared to $384,000 recorded for the same period
in 1995. This is the result of normal fee increases. During the quarter ended
June 30, 1996 the Company sold $7.4 million of student loans for a gain of
$149,000. The sale was necessary because the Company was beginning to reach
statutory limits on holdings of this type of investment. Other non-interest
income for the period of six months ended June 30, 1996 was $16,000, a decrease
of $57,000 or -78%, compared to the $73,000 recorded for the comparable period
in 1995. Other non-interest income for the period of six months ended June 30,
1996 included $54,000 in interest from the Commonwealth of Pennsylvania on a
prior year tax refund.
Non-interest Expense. Total non-interest expense was $6.7 million for the six
month period ended June 30, 1996, an increase of $746,000 or 13%, compared to
$5.9 million for the same period in 1995. Salaries and employee benefits were
$3.1 million for the six month period ended June 30, 1996, an increase of
$214,000 or 7%, compared to the $2.9 million recorded for the same six 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
incurring expenses for this plan as well as for the newly instituted ESOP plan
and 401K plan. Occupancy costs decreased $40,000 or -5% to $763,000 for the
period of six months ended June 30, 1996 compared to $803,000 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
$483,000 for the six month period ended June 30, 1996, a decrease of $2,000 or -
.4%, compared to $485,000 recorded for the same period in 1995. There was no
significant change in insurance rates for the two periods being compared. Data
processing costs decreased slightly, $4,000 or -.5%, from $749,000 for the six
month period ended June 30, 1995 to $745,000 for the same period in 1996.
Marketing costs increased $48,000 or 30% to $210,000 for the six month period
ended June 30, 1996 compared to $162,000 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 six months ended June
30, 1996 were $1.3 million, an increase of $504,000 or 64%, compared to $824,000
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 are accrued for the first six 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 $1.8 million for the six months ended
June 30, 1996 resulted in an effective tax rate of 36%. The income tax expense
recorded for the period of six months ended June 30, 1995 of $1.1 million is an
effective tax rate of 37%. There was no material change in the Company's tax
rate.
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.
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 June, 1996 were 8.51% and
24.81% respectively. The
-16-
<PAGE>
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 June 30, 1996 the Company had commitments to originate and purchase loans of
$729,000 and to purchase mortgage-backed securities of $7.0 million. The
Company anticipates that it will have sufficient funds available to meet these
commitments.
At June 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 22.8%. Core capital to total assets requirement was 3%;
the Company had 22.8%. Risk based capital to adjusted risk based assets
requirement was 8%; the Company had 64%.
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 six
months ended June 30, 1996 and 1995. The yield and costs are derived 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.
-17-
<PAGE>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1996
and June 30, 1995.
<TABLE>
<CAPTION>
Six months ended June 30, 1996 Six months ended June 30, 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 $ 19,934 $ 628 6.30% $ 8,511 $ 259 6.09%
Investment securities, net (1) 91,864 2,889 6.29% 120,494 3,023 5.02%
Loans receivable, net (1) (2) 203,271 8,673 8.53% 159,289 6,551 8.23%
Mortgage-backed securities, net (1) 196,207 6,691 6.82% 168,264 6,214 7.39%
FHLB stock 2,165 66 6.10% 1,796 58 6.46%
-----------------------------------------------------------------
Total interest-earning assets 513,441 18,947 7.38% 458,354 16,105 7.03%
Non-interest earning assets 18,171 13,801
---------- -----------
Total assets $531,612 $472,155
========== ===========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,720 208 2.49% $ 19,191 237 2.47%
Passbook accounts 164,745 2,463 2.99% 174,285 2,592 2.97%
NOW accounts 24,072 243 2.02% 23,234 228 1.96%
Certificate accounts 200,399 5,386 5.38% 189,892 4,960 5.22%
-----------------------------------------------------------------
Sub-total 405,936 8,300 4.09% 406,602 8,017 3.94%
FHLB advances 176 5 5.68% 97 3 6.19%
Other 2,347 26 2.22% 2,540 30 2.36%
-----------------------------------------------------------------
Total interest-bearing liabilities 408,459 8,331 4.08% 409,239 8,050 3.93%
Non-interest bearing liabilities 35,888 19,769
Equity 87,265 43,147
---------- -----------
Total liabilities and equity $531,612 $472,155
========== ===========
Net interest rate spread (3) $10,616 3.30% $ 8,055 3.10%
Net interest margin (4) 4.14% 3.51%
Ratio of interest-earning assets to
interest-bearing liabilities 125.70% 112.00%
</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 six months ended June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1995 $ 822
Provision for loan losses 60
Net charge-offs (11)
------
Balance, June 30, 1996 $ 871
======
</TABLE>
-18-
<PAGE>
Non-Performing Assets
- - ----------------------------------------
The following table presents information regarding the Company's
non-performing assets at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
-------------------------------
(in thousands)
<S> <C> <C>
Non-performing loans:
Non-accrual loans $ 936 $1,460
Accruing loans which are
contractually
past due 90 days or more 0 0
- - -----------------------------------------------------------------------
Total non-performing loans 936 1,460
Real estate owned 18 0
- - -----------------------------------------------------------------------
Total non-performing assets $ 954 $1,460
=======================================================================
Non-performing loans as a % of gross 0.43% 0.81%
loans receivable
Non-performing loans to total assets 0.17% 0.28%
Allowance for loan loss as a % of 0.39% 0.45%
gross loans receivable
Allowance for loan loss to 93.06% 56.30%
non-performing loans
</TABLE>
Since the Association had no loans considered impaired under Financial
Accounting Standards Board Statement No. 114 during the six months ended June
30, 1996, the average recorded investment was zero. As a result, there was no
interest income recognized on impaired loans during the six months ended June
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. Approximate monthly
revenues from this client are $30,000. DataOne is attempting to replace this
company with a new client.
The Company invests in mutual funds which in turn invest in government
securities and adjustable rate mortgage loans. Generally accepted accounting
principles require that when a reduction in value in an equity type investment
is determined to be other than temporary that reduction in value be recorded and
reflected in the current period's results of operations. During the second
quarter ended June 30, 1996 one mutual fund investment was determined to have a
reduction in value that was other than temporary. Accordingly, this investment
was reduced $100,000 and that loss was reflected in operating results for that
period.
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. The Company expects to begin operations at this branch in October of
1996.
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. This transaction is subject to regulatory
approval and may not close until early 1997.
In an effort to reduce our administrative expenses of low balance mortgage-
backed investments, the Company sold $11 million of these types of investments
in July 1996. Low balance investments carry the same safe-keeping and
administrative costs as high balance investments. The sale of these low balance
investments resulted in a gain of approximately $500,000. The proceeds from
this sale will be invested in similar types of investments, but with much higher
balances.
During its meeting held July 30, 1996, the Board of Directors declared a
dividend of $.05 per share to stockholders of record on August 12, 1996, payable
on August 23, 1996.
-19-
<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
- - ------- ---------------------------------------------------
None
Item 5. Other Information
- - ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- - ------- --------------------------------
None
-20-
<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 August 14, 1996 By /s/ John M. Kish
_____________________ _______________________________________
John M. Kish
Chairman of the Board and
Chief Executive Officer
Date August 14, 1996 By /s/ Raymond G. Suchta
_____________________ _______________________________________
Raymond G. Suchta
Chief Financial Officer and Treasurer
-21-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SECOND
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,562
<INT-BEARING-DEPOSITS> 4,103
<FED-FUNDS-SOLD> 500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 318,841
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 220,688
<ALLOWANCE> 871
<TOTAL-ASSETS> 562,351
<DEPOSITS> 425,830
<SHORT-TERM> 0
<LIABILITIES-OTHER> 8,101
<LONG-TERM> 0
0
0
<COMMON> 89
<OTHER-SE> 128,331
<TOTAL-LIABILITIES-AND-EQUITY> 562,351
<INTEREST-LOAN> 8,673
<INTEREST-INVEST> 10,274
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 18,947
<INTEREST-DEPOSIT> 8,300
<INTEREST-EXPENSE> 8,331
<INTEREST-INCOME-NET> 10,616
<LOAN-LOSSES> 60
<SECURITIES-GAINS> 45
<EXPENSE-OTHER> 6,664
<INCOME-PRETAX> 4,875
<INCOME-PRE-EXTRAORDINARY> 4,875
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,104
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
<YIELD-ACTUAL> 3.41
<LOANS-NON> 954
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 822
<CHARGE-OFFS> 13
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 871
<ALLOWANCE-DOMESTIC> 871
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
