<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, 1997
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 (IRS Employer Identification No.)
of 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: 7,984,900 shares of
common stock, par value $.01 per share, were outstanding as of July 31, 1997.
<PAGE>
GA FINANCIAL, INC.
FORM 10-Q
June 30, 1997
INDEX
Page
----
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Statements of Financial Condition -
June 30, 1997 and December 31, 1996........................ 1
Consolidated Statements of Income - For the Three and Six
Months Ended June 30, 1997 and 1996........................ 2
Consolidated Statements of Cash Flows - For the Six
Months Ended June 30, 1997 and 1996........................ 3
Notes to Consolidated Financial Statements................. 4- 6
Report of Independent Accountants.......................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 8-16
PART II: OTHER INFORMATION............................................... 17
SIGNATURES................................................................ 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
- ------- --------------------
GA Financial, Inc.
Consolidated Statements of Financial Condition
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30,1997 Dec. 31, 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
ASSETS (Dollars in thousands)
<S> <C> <C>
Cash (including interest-bearing demand deposits of $1,018
in 1997 and $15,592 in 1996) $ 8,851 $ 22,349
Federal funds sold 1,900 1,950
Available for sale securities, at fair value:
Investment securities 138,931 119,347
Mortgage-related securities 299,092 244,482
Loans receivable, net 264,447 216,376
Education loans held for sale 15,054 15,383
Accrued interest receivable 5,642 4,252
Federal Home Loan Bank stock 8,333 2,326
Office, property and equipment 5,703 5,644
Prepaid expenses and other assets 1,795 1,939
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $749,748 $634,048
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Noninterest-bearing demand deposits $ 21,229 $ 19,685
Savings accounts 437,498 429,881
Borrowed funds 168,851 51,525
Advances from borrowers for taxes and insurance 2,293 1,780
Accrued interest payable 3,613 699
Securities purchased, not settled - 5,830
Other liabilities 2,472 2,244
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 635,956 $511,644
Shareholders' Equity:
Preferred stock, (.01 par value); 1,000,000 shares authorized; 0 shares issued - -
Common stock, (.01 par value); 23,000,000 shares authorized;
8,900,000 shares issued 89 89
Additional paid in capital 85,617 86,316
Treasury stock, at cost (915,100 shares at June 30, 1997 and
445,000 shares at December 31, 1996) (14,310) (6,768)
Unearned employee stock ownership plan (ESOP) shares (6,612) (6,612)
Unearned recognition and retention plan (RRP) shares (3,512) (523)
Net unrealized holding (losses) gains on securities 211 88
Retained income 52,309 49,814
- --------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 113,792 122,404
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $749,748 $634,048
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-1-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Income
For the Quarters Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
For the Quarter For the Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
Dollars in thousands, except per share amounts (Unaudited) (Unaudited)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 5,362 $ 4,658 $10,084 $ 8,673
Mortgage-related securities 5,346 3,511 9,991 6,691
Investment securities 2,363 1,822 4,445 2,955
Interest on bank deposits 135 225 301 628
- -----------------------------------------------------------------------------------------------------------------------
Total interest income 13,206 10,216 24,821 18,947
- -----------------------------------------------------------------------------------------------------------------------
Interest expense:
Savings accounts 4,573 4,095 9,032 8,300
Interest on borrowings 2,198 5 3,152 5
Other 13 13 26 26
- -----------------------------------------------------------------------------------------------------------------------
Total interest expense 6,784 4,113 12,210 8,331
- -----------------------------------------------------------------------------------------------------------------------
Net interest income before provision for losses on loans 6,422 6,103 12,611 10,616
Provision for losses on loans 75 30 150 60
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for losses on loans 6,347 6,073 12,461 10,556
- -----------------------------------------------------------------------------------------------------------------------
Other income:
Service fees 280 189 506 371
Net gain on sales of securities 28 35 28 45
Net gain on sales of education loans - 149 74 149
Data processing service fees 142 198 279 402
Other 1 5 9 16
- -----------------------------------------------------------------------------------------------------------------------
Total other income 451 576 896 983
- -----------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Compensation and employee benefits 1,834 1,487 3,620 3,109
Occupancy and equipment 434 373 880 763
Deposit insurance premiums 72 242 139 483
Data processing service expenses 353 341 778 745
Marketing expenses 95 108 241 210
Other 817 846 1,570 1,354
- -----------------------------------------------------------------------------------------------------------------------
Total non-interest expense 3,605 3,397 7,228 6,664
- -----------------------------------------------------------------------------------------------------------------------
Income before provision for income taxes 3,193 3,252 6,129 4,875
Provision for income taxes 1,175 1,159 2,254 1,771
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 2,018 $ 2,093 $ 3,875 $ 3,104
=======================================================================================================================
Earnings per share $.26 $.26 $.50 $.38(1)
======================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
(1) Assumes the stock conversion was completed on January 1, 1996.
-2-
<PAGE>
GA Financial, Inc.
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
For the Six Months Ended
- --------------------------------------------------------------------------------------------------------------------
June 30,
1997 1996
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities: (Dollars in thousands)
<S> <C> <C>
Net income $ 3,875 $ 3,104
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for losses on loans and real estate owned 150 60
Provision for writedown of securities - 100
Depreciation and amortization on office, property and equipment 418 422
Net (discount accretion) on securities (53) (3)
Amortization of net deferred loan fees (76) (125)
Compensation expense on RRP shares 407 -
Compensation expense on unallocated ESOP shares 119 -
Net realized (gain) on sales of securities (28) (145)
Net realized (gain) on sale of student loans (74) (149)
Net realized (gain) on sale of REO (2) -
(Increase) in accrued interest receivable (1,390) (1,430)
Decrease in prepaid expenses and other assets 35 65
Increase in accrued interest payable 2,914 2,000
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,295 3,899
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of available for sale securities 68,015 109,085
Proceeds from sale of student loans 2,673 7,539
Repayments and maturities of available for sale securities 20,651 25,218
Net proceeds from sale of REO 2 -
Purchases of available for sale securities (168,376) (185,594)
Net increase in loans (50,415) (46,885)
Purchases of office, property and equipment, net (479) (91)
Purchase of Federal Home Loan Bank stock (6,007) (424)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (133,936) (91,152)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase in demand and savings deposits 5,196 4,303
Net increase (decrease) in certificates of deposit 3,965 (3,343)
Net increase in advances from borrowers for taxes and insurance
and other liabilities 827 1,124
Purchase of RRP stock (4,095) -
Purchase of treasury stock (7,542) -
Proceeds from sale of common stock, net - 79,257
Payments made under capital lease obligations (86) (93)
Payments of borrowed funds (224,545) -
Proceeds from borrowed funds 341,871 -
Dividends paid (1,498) -
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 114,093 81,248
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (13,548) (6,005)
Cash and cash equivalents at beginning of period 24,299 17,170
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 10,751 $ 11,165
====================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
-3-
<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").
In the opinion of the management of the Association, 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 1996 Annual Report on Form 10-K. The
consolidated financial statements as of June 30, 1997 and for the six months
ended June 30, 1997 and June 30, 1996 have been reviewed by Coopers & Lybrand
L.L.P., the Association's independent auditors, whose report is included herein.
Currently, other than investing in various securities, the Company does not
directly transact any material business other than through the Association.
Accordingly, the discussion herein addresses the operations of the Company as
they are conducted through the Association.
2. Capital Requirements and Regulatory Restrictions
As a savings and loan holding company, the Company is not required to maintain
any minimum level of capital; however, the Association is subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory -
and possibly additional discretionary - actions by regulators that, if
undertaken, could have a direct material effect on the Association's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Association must meet specific capital guidelines
that involve quantitative measures of the Association's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Association's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets and of Tier I
capital to total assets. It is management's opinion that the Association meets
all capital adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the Office of Thrift
Supervision (the "OTS") categorized the Association as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the Association must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Association's category.
-4-
<PAGE>
<TABLE>
<CAPTION>
Tier I Tier I Total
Leverage Risk-Based Risk-based
Capital Capital Capital
-----------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
June 30, 1997:
Equity capital (1) $97,055 $97,055 $97,055
General valuation allowance (2) - - 1,199
Plus unrealized losses on certain available-
for-sale securities (32) (32) (32)
Less core deposit intangible (1,188) (1,188) (1,188)
-----------------------------------------------------------
Total regulatory capital 95,835 95,835 97,034
Minimum regulatory capital 29,265 10,491 20,983
-----------------------------------------------------------
Excess regulatory capital $66,570 $85,344 $76,051
===========================================================
Regulatory capital as a percentage 13.10% 36.54% 37.00%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
-----------------------------------------------------------
Excess regulatory capital as a percentage 9.10% 32.54% 29.00%
===========================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
===========================================================
</TABLE>
<TABLE>
<CAPTION>
Tier I Tier I Total
Leverage Risk-Based Risk-based
Capital Capital Capital
-----------------------------------------------------------
<S> <C> <C> <C>
(Dollars in thousands)
December 31, 1996:
Equity capital (1) $93,430 $93,430 $93,430
General valuation allowance (2) - - 1,031
Less unrealized gains on certain available-
for-sale securities (5) (5) (5)
Less core deposit intangible (1,277) (1,277) (1,277)
-----------------------------------------------------------
Total regulatory capital 92,148 92,148 93,179
Minimum regulatory capital 24,161 8,456 16,913
-----------------------------------------------------------
Excess regulatory capital $67,987 $83,692 $76,266
===========================================================
Regulatory capital as a percentage 15.26% 43.59% 44.08%
Minimum regulatory capital as a percentage 4.00% 4.00% 8.00%
-----------------------------------------------------------
Excess regulatory capital as a percentage 11.26% 39.59% 36.08%
===========================================================
Well capitalized requirement under
prompt corrective actions provisions 5.00% 6.00% 10.00%
===========================================================
</TABLE>
(1) Represents equity capital of the Association as reported to the Office of
Thrift Supervision.
(2) Limited to 1.25% of risk-weighted assets.
3. New Accounting Pronouncements
In February 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share" ("SFAS
128"). SFAS 128 specifies the computation, presentation, and disclosure
requirements for earnings per share and is substantially similar to the standard
recently issued by the International Accounting Standards Committee titled
"International Accounting Standards, Earnings per Share" ("IAS 33"). SFAS 128
is effective for financial statements issued for periods ending after December
15, 1997. The impact of SFAS 128 is not expected to have a material impact on
the Company's earnings per share calculation.
-5-
<PAGE>
4. Derivative Financial Instruments with Off-Balance Sheet Risk
A reconciliation of forward and standby commitment activity for the period
follows:
<TABLE>
<CAPTION>
(Dollars in thousands) Forward Commitments Standby Commitments
-------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1996 $ 10,000 $4,000
Purchase commitments 111,600 -
Commitments sold (4,000) -
Commitments settled (115,600) -
-------------------------------------------------------
Balance at June 30, 1997 $ 2,000 $4,000
=======================================================
</TABLE>
The fair value of the $6.0 million in commitments was approximately $6.2
million at June 30, 1997.
5. Earnings per Share and Dividends per Share:
Earnings per share is calculated by dividing net income by the weighted average
number of common shares and common stock equivalents outstanding. Shares
outstanding for 1997 do not include 661,143 ESOP shares that were unallocated in
accordance with SOP 93-6, "Employers' Accounting for Employees Stock Ownership
Plans." Reported earnings per share is calculated based on 7,759,763 common
shares and common stock equivalents for the year ended 1997. Shares granted but
not yet issued of 626,500 under the Company's stock option plan are considered
common stock equivalents for earnings per share calculations. Dividends paid
were $.10 per share for the quarter ended June 30, 1997 and $.08 per share for
the quarter ended March 31, 1997.
6. Consolidated Statements of Shareholders' Equity:
The consolidated statement of shareholders' equity for the six month period
ending June 30, 1997 is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Additional Unearned Unearned Net Unrealized Total
Common Paid in Treasury ESOP RRP Holding Gains Retained Shareholders'
Stock Capital Stock Plan Shares Plan Shares (Losses) Earnings Equity
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at 12/31/96 $89 $86,316 $ (6,768) $(6,612) $ (523) $ 88 $49,814 $122,404
Net income - - - - - - 3,875 3,875
Change in net
unrealized holding
gains (losses) on
securities, net of
tax - - - - - 123 - 123
Treasury stock
purchased - - (7,542) - - - - (7,542)
RRP shares purchased - (699) - - (3,396) - - (4,095)
Cash dividends - - - - - - (1,380) (1,380)
Shares allocated - - - - - - - -
under ESOP
Shares allocated
under RRP - - - - 407 - - 407
------------------------------------------------------------------------------------------------------
Balance at 6/30/97 $89 $85,617 $(14,310) $(6,612) $(3,512) $211 $52,309 $113,792
=======================================================================================================
</TABLE>
-6-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
The Board of Directors of
GA Financial, Inc.:
We have reviewed the accompanying consolidated statements of financial condition
of GA Financial, Inc. and subsidiary (the Company) as of June 30, 1997, and the
related consolidated statements of income and cash flows for the three-month and
six-month period then ended. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated statement of financial condition as of December 31,
1996 and the related consolidated statements of income, cash flows and
shareholders' equity for the year then ended (not presented herein); and in our
report dated January 28, 1997 except as to the information presented in Note 19,
for which the date is February 19, 1997, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying consolidated statement of financial condition as of
December 31, 1996, is fairly stated in all material respects in relation to the
consolidated statement of financial condition from which it has been derived.
/s/Coopers & Lybrand, L.L.P.
Pittsburgh, Pennsylvania
July 23, 1997
-7-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
- ------- -----------------------------------------------------------------------
of Operations
-------------
General
- -------
The Company's and the Association'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 and the Association refer
hereinto collectively as the "Association". The Association also generates non-
interest income such as service fees and also generates data-processing fees
from its data-processing division. The Association's operating expense consists
primarily of employee compensation, occupancy expenses, federal deposit
insurance premiums, data processing expenses, and other general and
administrative expenses. The Association'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, 1997 and December 31, 1996
- ------------------------------------------------------------------------
The Association's total assets of $749.7 million at June 30, 1997 increased
$115.7 million or 18.2% from December 31, 1996. This increase was primarily
attributed to the Association's increased borrowings of $117.3 million in the
first six months of 1997. These funds were primarily invested in mortgage-
related and investment securities. $40.5 million was invested in home equity
consumer loans.
Cash and cash equivalents of $10.8 million at June 30, 1997 decreased $13.5
million or 55.8% from December 31, 1996. The year-end balance included $25.4
million in branch deposits the Association purchased from First Home Savings in
December, 1996. These funds were then invested in mortgage-related and
investment securities in the first quarter of 1997.
Investment securities classified as available for sale increased $19.6 million
or 16.4% to $138.9 million at June 30, 1997. This was primarily due to the
investment of the funds generated by the deposit purchase of $25.4 million in
December, 1996 and borrowed funds from the Federal Home Loan Bank (the "FHLB")
of Pittsburgh.
Mortgage-related securities classified as available for sale increased $54.6
million or 22.3% to $299.1 million at June 30, 1997. This is due to mortgage-
related securities purchases funded by borrowings from the FHLB of Pittsburgh.
There were no securities held by the Association which were classified as `held
to maturity' for either of the respective periods.
The following table presents details of the Association's investment securities
and mortgage-backed securities as of
June 30, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available for sale securities: Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury $ 8,959 $ 20 - $ 8,979
Mortgage-backed certificates 226,868 2,145 $(1,586) 227,427
Collateralized mortgage obligations 73,088 53 (1,476) 71,665
Marketable equity securities 28,171 1,815 (207) 29,779
US government agency debt 68,380 26 (470) 67,936
Corporate obligations 21,689 51 (35) 21,705
Municipal obligations 10,496 65 (29) 10,532
- ----------------------------------------------------------------------------------------------------------------------------
Total $437,651 $4,175 $(3,803) $438,023
============================================================================================================================
</TABLE>
-8-
<PAGE>
The following table presents details of the Association's investment securities
and mortgage-backed securities as of
December 31, 1996:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Available for sale securities: Cost Gains Losses Fair Value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US Treasury $ 14,912 $ 37 - $ 14,949
Mortgage-backed certificates 171,611 2,536 $(1,920) 172,227
Collateralized mortgage obligations 73,706 250 (1,701) 72,255
Marketable equity securities 28,654 1,263 (187) 29,730
US government agency debt 48,646 92 (318) 48,420
Corporate obligations 17,294 61 (1) 17,354
Municipal obligations 8,865 58 (29) 8,894
- ----------------------------------------------------------------------------------------------------------------------------
Total $363,688 $4,297 $(4,156) $363,829
============================================================================================================================
</TABLE>
Loans receivable increased $48.1 million or 22.2% to $264.4 million at June 30,
1997. This was primarily due to the Association's purchase of $40.5 million of
home equity loans funded by FHLB borrowings.
Education loans held for sale decreased $329,000 or 2.1% to $15.1 million at
June 30, 1997. The Association sold approximately $2.6 million of education
loans during the six-month period which was offset by the origination of $2.7
million education loans for the period. There were principal repayments of
approximately $388,000.
The following table presents details of the Association's loan portfolio
(dollars in thousands):
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------------------------------------------
Mortgages:
<S> <C> <C>
Residential and multi-family 193,218 184,961
Commercial 4,937 5,053
Construction and development 3,072 3,545
Consumer loans:
Home equity 62,542 22,153
Education loans 15,054 15,383
Other:
Loans on savings accounts 2,137 2,062
Unsecured personal loans and other 1,722 1,698
- --------------------------------------------------------------------------------------------------
Total 282,682 234,855
Less:
Undisbursed mortgage loans 505 684
Deferred loan fees 1,477 1,381
Allowance for losses 1,199 1,031
- --------------------------------------------------------------------------------------------------
Net loans 279,501 231,759
==================================================================================================
</TABLE>
Accrued interest receivable increased $1.4 million or 32.7% to $5.6 million at
June 30, 1997. This was due to an increase in investment and mortgage-related
securities purchases. The average balances for investment and mortgage-related
securities increased for the period.
FHLB stock increased $6.0 million or greater than 100% to $8.3 million at June
30, 1997. This was a result of an increase in borrowings with the FHLB of
$117.3 million. The Association is required to purchase FHLB stock based upon
levels of borrowings and levels of mortgage loans.
Prepaid expenses and other assets decreased $144,000 to $1.8 million at June 30,
1997. This was primarily a result of the amortization of $89,000 in core
deposit intangibles.
Total deposits increased $9.2 million or 2.0% to $458.7 million at June 30,
1997. This was primarily a result of interest being credited to deposit
accounts that have matured.
-9-
<PAGE>
Borrowed funds increased $117.3 million from $51.5 million at December 31, 1996
to $168.9 million at June 30, 1997. This was the result of management's
determination to place increased emphasis on the utilization of FHLB borrowings
to fund asset growth, particularly investments in mortgage-related and
investment securities and home equity consumer loans. FHLB borrowings can be
invested at yields higher than the cost of the borrowed funds thereby increasing
net interest income.
There were no securities purchased, not settled at June 30, 1997. The $5.8
million of securities purchased not settled at December 31, 1996 settled in
January, 1997.
Accrued interest payable increased $2.9 million or greater than 100% to $3.6
million at June 30, 1997. This was a result of the timing of accrued interest
payable being credited to deposit accounts.
Other liabilities increased $228,000 or 10.2% to $2.5 million at June 30, 1997.
This was primarily the result of an increase in accrued current income taxes.
Total shareholders' equity decreased $8.6 million or 7.0% to $113.8 million at
June 30, 1997. This was primarily due to the purchase of $7.5 million of
treasury stock and the purchase of 306,000 recognition and retention plan shares
for $4.9 million. This purchase completed the acquisition of shares to fund the
1996 stock incentive plan.
Comparison of the Consolidated Results of Operation for the Period of Three
- ---------------------------------------------------------------------------
Months Ended June 30, 1997 and 1996.
- ------------------------------------
Net Income. Net income was $2.0 million for the period of three months ended
June 30, 1997, a decrease of $75,000 or 3.6% for the same period in 1996.
Interest Income. Interest income totaled $13.2 million for the period of three
months ended June 30, 1997, an increase of $3.0 million or 29.3 % compared to
the $10.2 million recorded for the period of three months ended June 30, 1996.
The increase was primarily attributable to an increase in the average balance of
interest-earning assets and to a lesser extent an increase in the weighted
average yield on interest-earning assets. The average balances of interest-
earning assets for the period of three months ended June 30, 1997 increased to
$698.6 million, an increase of $153.8 million or 28.2%, compared to the average
balance of interest-earning assets of $544.8 million for the same period in
1996. Weighted average yield on interest-earning assets for the three month
period ended June 30, 1997 was 7.56% compared to 7.50% for the comparable period
in 1996. This was primarily due to reinvesting funds in higher yielding long-
term securities. Interest on loans for the three month period ended June 30,
1997 was $5.4 million at a weighted average yield of 8.05%, an increase of
$704,000 or 15.1%, compared to interest income on loans of $4.7 million at a
weighted average yield of 8.62% for the three month period ended June 30, 1996.
This increase was due to an increase in the average balance of loans. The
Association purchased $11.3 million of residential mortgage loans, which are
outside of its normal lending area, during the second quarter of 1997. For the
three month period ended June 30, 1997 interest income on mortgage-backed
securities was $5.3 million at a weighted average yield of 7.73%, an increase of
$1.8 million or 52.3%, compared to interest income of $3.5 million at a weighted
average yield of 7.04% for the same period in 1996. Average balances in
mortgage-backed securities increased between the two periods as did the weighted
average yield on these investments. This is primarily due to a higher rate
environment and longer term instruments. The proceeds from the increase in
borrowings were partially reinvested in mortgaged-backed securities. For the
three month period ended June 30, 1997 interest income on investment securities
was $2.4 million at a weighted average yield of 6.50%, an increase of $541,000
or 29.7%, compared to income of $1.8 million at a weighted average yield of
6.30% for the same period in 1996. The increase in interest income was due to
the purchase of investment securities funded by FHLB borrowings. Interest
income on interest-earning deposits and short-term investments was $135,000 at a
weighted average yield of 5.20% for the period of three months ended June 30,
1997, a decrease of $90,000 or 40.0%, compared to income of $225,000 at a
weighted average yield of 6.68% for the comparable period in 1996. The decrease
was due to a decrease in investments in federal funds sold and in interest-
bearing demand deposits. This is a normal fluctuation for these temporary
investments.
Interest Expense. Total interest expense for the three month period ended June
30, 1997 was $6.8 million, an increase of $2.7 million or 64.9%, compared to
$4.1 million for the same period in 1996. Average balances of interest-bearing
liabilities was $582.3 million for the period of three months ended June 30,
1997 at a weighted average cost of 4.66% compared to average balance of $406.1
million at a weighted average cost of 4.05% for the period of three months ended
June 30, 1996. The increase in interest expense and the weighted average cost
was primarily due to an increase in the average balance of interest-bearing
liabilities primarily in the form of FHLB borrowings which bear higher rates
than the Association's deposits. Average deposits increased $30.1 million or
7.5% to $433.4 million primarily due to the $25.4
-10-
<PAGE>
million deposit purchase in December, 1996. The average rate paid on deposits
increased from 4.06% to 4.22% due to upward market pressures. Average
borrowings increased to $146.7 million or greater than 100% for the quarter
ending June 30, 1997. Management currently believes it is more efficient to fund
asset growth through FHLB borrowings rather than through attempting to fund
asset growth through increased deposit liabilities. Management believes that
FHLB borrowings can be invested at yields higher than the cost of the borrowed
funds thereby increasing net interest income. FHLB borrowings have been
reinvested in investments and mortgaged-related securities and home equity
consumer loans.
Net Interest Income: Net interest income after provision for loan losses for
the period of three months ended June 30, 1997 was $6.3 million, an increase of
$274,000 or 4.5%, compared to $6.1 million recorded for the same period in 1996.
Provision for Loan Losses: The provision for loan losses during the period of
three months ended June 30, 1997 was $75,000 as compared to $30,000 for the same
period in 1996. The increase in the provision reflects the overall increase in
the Association's loan portfolio primarily through continued purchasing
residential mortgage loans originated in areas outside the local lending area of
the Association. Although the Association performs the same underwriting
criteria for purchased loans as it does for originated loans, due to the recent
nature of such purchases the Association does not have as much loss experience
data for such loans. As a result, the allowance for loan losses to total loans
and total non-performing loans was .42% and 132%, respectively at June 30, 1997
and as compared to .45% and 115%, respectively at June 30, 1996. The allowance
for loan losses is maintained at an amount management considers adequate to
cover estimated losses on loans receivable which are deemed probable and
estimable based on information currently known to management. While management
believes the Association's allowance for loan losses is sufficient to cover
losses inherent in its loan portfolio at this time, no assurances can be given
that the Association's level of allowance for loan losses will be sufficient to
cover future loan losses incurred by the Association, or that future adjustments
to the allowance for loan losses will not be necessary if economic and other
conditions differ substantially from the economic and other conditions analyzed
by management to determine the current level of the allowance for loan losses.
Non-interest Income: Non-interest income consists of service fees, gains and
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, 1997 non-interest income was $451,000, a decrease of $125,000, or 21.7%,
compared to $576,000 recorded for the same period in 1996. Service fees totaled
$280,000 for the period of three months ended June 30, 1997, an increase of
$91,000 or 48.1%, compared to $189,000 recorded for the same period in 1996.
This increase primarily resulted from the Association increasing service fees,
particularly on checking accounts. Net gains on the sale of securities is
$28,000, a decrease of $7,000 or 20%, compared to the $35,000 recorded for the
comparable period in 1996. This decrease resulted primarily from the timing and
amounts of security sales. There were no gains on the sale of education loans
for the quarter ended June 30, 1997, a decrease of $149,000 over the same period
in 1996. Education loans are sold as they enter repayment status. Fees from
the sale of data processing services were $142,000, a decrease of $56,000 or
28.3%, compared to $198,000 recorded for the same period in 1996. This is the
result of the loss of one customer in the second quarter of 1997. The
Association's data services division added two new clients in the quarter and
they are expected to generate approximately $30,000 a quarter in new revenue in
future quarters.
Non-interest Expense. Total non-interest expense was $3.6 million for the three
month period ended June 30, 1997, an increase of $208,000 or 6.1%, compared to
$3.4 million for the same period in 1996. Compensation and employee benefits
were $1.8 million for the three month period ended June 30, 1997, an increase of
$347,000 or 23.3%, compared to the $1.5 million recorded for the same three
month period in 1996. Compensation and benefits increased due to the
amortization of the stock-based compensation expense, the opening of three full
service branches located in Wal-Mart stores and the expansion of the customer
service department. The operation of these branches result in increases in
salaries and benefits and also increases in occupancy costs, data processing
costs, marketing expenses and other miscellaneous expenses. Occupancy costs
increased $61,000 or 16.4% to $434,000 for the period of three months ended June
30, 1997 compared to $373,000 recorded for the same period in 1996. Deposit
insurance premiums decreased $170,000 or 70.2% to $72,000 for the three month
period ended June 30, 1997 compared to $242,000 recorded for the same period
ended June 30, 1996. This decrease is due to the recapitalization of the
Savings Association Insurance Fund in September 1996. This recapitalization
resulted in lower insurance premiums for member institutions. Data processing
costs increased slightly, $12,000 or 3.5%, from $341,000 for the three month
period ended June 30, 1996 to $353,000 for the same period in 1997. Marketing
expenses decreased slightly from $108,000 to $95,000. Other non-interest
expenses for the period of three months ended June 30, 1997 were $817,000, a
decrease of $29,000 or 3.4%, compared to $846,000 recorded for the same period
in 1996.
Income Tax Expense. Income tax expense of $1.2 million for the three months
ended June 30, 1997 resulted in an effective tax rate of 36.8%. The income tax
expense recorded for the period of three months ended June 30, 1996 of $1.2
million is an effective tax rate of 35.6%. There was no material change in the
Association's income tax rate.
-11-
<PAGE>
Comparison of the Consolidated Results of Operation for the Period of Six Months
- --------------------------------------------------------------------------------
Ended June 30, 1997 and 1996.
- -----------------------------
Net Income. Net income was $3.9 million for the period of six months ended June
30, 1997, an increase of $771,000 or 24.8% for the same period in 1996. This
increase was primarily due to an increase in net interest income which was a
result of investing the proceeds from the funds borrowed from the FHLB of
Pittsburgh.
Interest Income. Total interest income totaled $24.8 million for the period of
six months ended June 30, 1997, an increase of $5.9 million or 31.0 % compared
to the $18.9 million recorded for the period of six months ended June 30, 1996.
The average balances of interest-earning assets for the period of six months
ended June 30, 1997 increased to $662.4 million, an increase of $149.0 million
or 29.0%, compared to the average balance of interest-earning assets of $513.4
million for the same period in 1996. Weighted average yield on interest-earning
assets for the six month period ended June 30, 1997 was 7.49% compared to 7.38%
for the comparable period in 1996. This was primarily due to reinvesting
borrowed funds in higher yielding long-term securities. Interest on loans for
the six month period ended June 30, 1997 was $10.1 million at a weighted average
yield of 8.07%, an increase of $1.4 million or 16.3%, compared to interest
income on loans of $8.7 million at a weighted average yield of 8.53% for the six
month period ended June 30, 1996. This increase was due to an increase in the
average balance of loans. The Association purchased $19.4 million of
residential mortgage loans, which are outside of its normal lending area, during
the first six months of 1997. For the six month period ended June 30, 1997
interest income on mortgage-backed securities was $10.0 million at a weighted
average yield of 7.50%, an increase of $3.3 million or 49.3%, compared to
interest income of $6.7 million at a weighted average yield of 6.82% for the
same period in 1996. Average balances in mortgage-backed securities increased
between the two periods as did the weighted average yield on these investments.
For the six month period ended June 30, 1997 interest income on investment
securities was $4.4 million at a weighted average yield of 6.49%, an increase of
$1.5 million or 50.4%, compared to income of $3.0 million at a weighted average
yield of 6.29 % for the same period in 1996. The increase in interest income
on investment securities was due to the purchase of investment securities.
Mortgage-backed securities and investment securities have been funded with the
FHLB borrowings. Interest income on interest-earning deposits and short-term
investments was $301,000 at a weighted average yield of 6.60% for the period of
six months ended June 30, 1997, a decrease of $327,000 or 52.1%, compared to
income of $628,000 at a weighted average yield of 6.30% for the comparable
period in 1996. The decrease was due to a decrease in liquid investments in
federal funds sold and in interest-bearing demand deposits. Decreases in these
liquid investments are the result of normal changes in business cycles.
Interest Expense. Total interest expense for the six month period ended June
30, 1997 was $12.2 million, an increase of $3.9 million or 46.6%, compared to
$8.3 million for the same period in 1996. Average balances of interest-bearing
liabilities was $541.6 million for the period of six months ended June 30, 1997
at a weighted average cost of 4.51% compared to average balance of $408.5
million at a weighted average cost of 4.08% for the period of six months ended
June 30, 1996. The increase in interest expense and the weighted average cost
was primarily due to an increase in the average balance of interest-bearing
liabilities in the form of FHLB borrowings which bear higher rates than the
Association's deposits. Average deposits increased $26.1 million or 6.4% to
$432.1 million due to the $25.4 million deposit purchase in December, 1996. The
average rate paid on deposits increased from 4.09% to 4.18% due to upward market
pressures. Average borrowings increased $107.3 million or greater than 100% to
$107.5 million at June 30, 1997. Management currently believes it is more
efficient to fund asset growth through FHLB borrowings rather than attempting to
fund asset growth through increased deposit liabilities. Management believes
that FHLB borrowings can be invested at yields higher than the cost of the
borrowed funds thereby increasing net interest income. FHLB borrowings have
been reinvested in investment and mortgage-related securities and home equity
consumer loans.
Net Interest Income: Net interest income for the period of six months ended
June 30, 1997 was $12.5 million, an increase of $1.9 million or 18.0%, compared
to $10.6 million recorded for the same period in 1996.
Provision for Loan Losses: The Association's provision for loan losses was
$150,000 during the period of six months ended June 30, 1997. The increase in
the provision reflects the overall increase in the Association's loan portfolio
primarily through continued purchasing residential mortgage loans originated in
areas outside the local lending area of the Association. The Association
purchased $19.4 million of these loans in the six months ended June 30, 1997.
Although the Association performs the same underwriting criteria for purchased
loans as it does for originated loans, due to the recent nature of such
purchases the Association does not have as much loss experience data for such
loans as it does for loans originated by the Association. During the first six
months of 1997, the Association's provision for loan losses of $150,000 reflects
the increase of the Association's residential loan portfolio. During 1996 and
1997 the Association initially increased its purchases of single family
residential mortgage loans secured by properties located in areas outside the
lending area of the Association. The allowance for loan losses is maintained at
an amount management considers adequate to cover estimated losses on loans
receivable which are deemed probable and estimable based on information
currently
-12-
<PAGE>
known to management. While management believes the Association's allowance for
loan losses is sufficient to cover losses inherent in its loan portfolio at this
time, no assurances can be given that the Association's level of allowance for
loan losses will be sufficient to cover future loan losses incurred by the
Association, or that future adjustments to the allowance for loan losses will
not be necessary if economic and other conditions differ substantially from the
economic and other conditions analyzed by management to determine the current
level of the allowance for loan losses.
Non-interest Income: Non-interest income consists of service fees, gains and
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,
1997 non-interest income was $896,000, a decrease of $87,000 or 8.9%, compared
to $983,000 recorded for the same period in 1996. Service fees totaled $506,000
for the period of six months ended June 30, 1997, an increase of $135,000 or
36.4%, compared to $371,000 recorded for the same period in 1996. This increase
resulted from the Association increasing service fees, particularly on checking
accounts. Net gains on the sale of securities is $28,000, a decrease of $17,000
or 37.8%, compared to the $45,000 recorded for the comparable period in 1996.
This decrease resulted primarily from the timing and amounts of security sales.
Gains on the sale of education loans for the six months ended June 30, 1997 were
$74,000, a decrease of 50.3%. Education loans are sold as they enter repayment
status. Fees from the sale of data processing services were $279,000, a
decrease of $123,000 or 30.6%, compared to $402,000 recorded for the same period
in 1996. This is the result of the loss of one customer. The Association's
data services division added two new clients in the quarter and they are
expected to generate approximately $30,000 a quarter in new revenue in future
quarters. Other non-interest income for the period of six months ended June 30,
1997 was $9,000, a decrease of $7,000 or 43.8%, compared to the $16,000 recorded
for the comparable period in 1996. These are miscellaneous expenses.
Non-interest Expense. Total non-interest expense was $7.2 million for the six
month period ended June 30, 1997, an increase of $564,000 or 8.5%, compared to
$6.7 million for the same period in 1996. Compensation and employee benefits
were $3.6 million for the six month period ended June 30, 1997, an increase of
$511,000 or 16.4%, compared to the $3.1 million recorded for the same six month
period in 1996. Compensation and benefits increased due to the amortization of
the stock-based compensation expense, the opening of three full service branches
located in Wal-Mart stores and the expansion of the customer service department.
The operation of these branches result in increases in salaries and benefits and
also increases in occupancy costs, data processing costs, marketing expenses and
other miscellaneous expenses. Occupancy costs increased $117,000 or 15.3% to
$880,000 for the period of six months ended June 30, 1997 compared to $763,000
recorded for the same period in 1996. Deposit insurance premiums decreased
$344,000 or 71.2% to $139,000 for the six month period ended June 30, 1997
compared to $483,000 recorded for the same period ended June 30, 1996. This
decrease is due to the recapitalization of the Savings Association Insurance
Fund in September 1996. This recapitalization resulted in lower insurance
premiums for member institutions. Data processing costs increased $33,000 or
4.4%, from $745,000 for the six month period ended June 30, 1996 to $778,000 for
the same period in 1997. Other non-interest expenses for the period of six
months ended June 30, 1997 were $1.6 million, an increase of $216,000 or 16.0%,
compared to $1.4 million recorded for the same period in 1996.
Income Tax Expense. Income tax expense of $2.3 million for the six months ended
June 30, 1997 resulted in an effective tax rate of 36.8%. The income tax
expense recorded for the period of six months ended June 30, 1996 of $1.8
million is an effective tax rate of 36.3%. There was no material change in the
Association's income tax rate.
-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 Association's average consolidated statements of
financial condition and consolidated statements of income for the period of
three months ended June 30, 1997 and 1996. 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 Association has
discontinued accruing interest. The yields and costs include fees and expenses
which are considered adjustments to yield.
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1997
and June 30, 1996 (Dollars in thousands).
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997 Three Months Ended June 30, 1996
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 $ 10,386 $ 135 5.20% $ 13,464 $ 225 6.68%
Investment securities, net (1) 137,363 2,250 6.55% 113,352 1,785 6.30%
Loans receivable, net (1) (2) 266,366 5,362 8.05% 216,228 4,658 8.62%
Mortgage-backed securities, net (1) 276,513 5,346 7.73% 199,466 3,511 7.04%
FHLB stock & other equity investments 8,017 113 5.64% 2,305 37 6.42%
-----------------------------------------------------------------------
Total interest-earning assets 698,645 $13,206 7.56% 544,815 $10,216 7.50%
Non-interest earning assets 27,623 14,845
----------- ---------
Total assets $726,268 $559,660
=========== =========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,577 $ 103 2.49% $ 16,406 $ 102 2.49%
Passbook accounts 161,720 1,209 2.99% 163,781 1,224 2.99%
NOW accounts 27,352 139 2.03% 24,314 123 2.02%
Certificate accounts 227,780 3,122 5.48% 198,823 2,646 5.32%
-----------------------------------------------------------------------
Total 433,429 4,573 4.22% 403,324 4,095 4.06%
FHLB advances & other borrowings 146,712 2,198 5.99% 352 5 5.68%
Other 2,109 13 2.47% 2,421 13 2.15%
-----------------------------------------------------------------------
Total interest-bearing liabilities 582,250 $ 6,784 4.66% 406,097 $ 4,113 4.05%
Non-interest bearing liabilities 29,130 26,579
Shareholders' equity 114,888 126,984
----------- ---------
Total liabilities and shareholders'
equity $726,268 $559,660
=========== ========
Net interest rate spread (3) $ 6,422 2.90% $ 6,103 3.45%
Net interest margin (4) 3.68% 4.48%
Ratio of interest-earning assets to
interest-bearing liabilities 119.99% 134.16%
</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>
The following table presents average balances yields on interest-earning assets
and average balances and costs of interest-bearing liabilities at June 30, 1997
and June 30, 1996 (Dollars in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997 Six Months Ended June 30, 1996
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 $ 9,120 $ 301 6.60% $ 19,934 $ 628 6.30%
Investment securities, net (1) 131,132 4,282 6.53% 91,864 2,889 6.29%
Loans receivable, net (1) (2) 249,874 10,084 8.07% 203,271 8,673 8.53%
Mortgage-backed securities, net (1) 266,510 9,991 7.50% 196,207 6,691 6.82%
FHLB stock & other equity investments 5,796 163 5.62% 2,165 66 6.10%
-------------------------------------------------------------------
Total interest-earning assets 662,432 $24,821 7.49% 513,441 $18,947 7.38%
Non-interest earning assets 23,776 18,171
---------- ---------
Total assets $686,208 $531,612
========== =========
Liabilities and equity:
Interest-bearing liabilities:
Money market savings accounts $ 16,668 $ 206 2.47% $ 16,720 $ 208 2.49%
Passbook accounts 160,639 2,389 2.97% 164,745 2,463 2.99%
NOW accounts 27,391 274 2.00% 24,072 243 2.02%
Certificate accounts 227,361 6,163 5.42% 200,399 5,386 5.38%
-------------------------------------------------------------------
Total 432,059 9,032 4.18% 405,936 8,300 4.09%
FHLB advances & other borrowings 107,482 3,152 5.87% 176 5 5.68%
Other 2,063 26 2.52% 2,347 26 2.22%
-------------------------------------------------------------------
Total interest-bearing liabilities 541,604 $12,210 4.51% 408,459 $ 8,331 4.08%
Non-interest bearing liabilities 27,271 35,888
Shareholders' equity 117,333 87,265
---------- --------
Total liabilities and shareholders'
equity $686,208 $531,612
========== ========
Net interest rate spread (3) $12,611 2.98% $10,616 3.30%
Net interest margin (4) 3.81% 4.13%
Ratio of interest-earning assets to
interest-bearing liabilities 122.31% 125.70%
</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, 1997 (Dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1996 $1,031
Provision for loan losses 150
Net recoveries 18
------
Balance, June 30, 1997 $1,199
======
</TABLE>
-15-
<PAGE>
Non-Performing Assets
- ---------------------
The following table presents information regarding the Association's non-
performing assets at the dates indicated:
<TABLE>
<CAPTION>
June 30, 1997 Dec. 31, 1996
-------------------------------
(in thousands)
Non-performing loans:
<S> <C> <C>
Non-accrual loans $905 $896
Accruing loans which are contractually
past due 90 days or more - -
Restructured loans - -
- ----------------------------------------------------------------------------------------------------
Total non-performing loans $905 $896
Real estate owned - -
- ----------------------------------------------------------------------------------------------------
Total non-performing assets $905 $896
====================================================================================================
Non-performing loans as a % of gross loans receivable .32% .39%
Non-performing loans to total assets .12% .14%
Allowance for loan loss as a % of gross loans receivable .42% .45%
Allowance for loan loss to non-performing loans 132% 115%
</TABLE>
Liquidity and Capital Resources
- -------------------------------
The Association's primary sources of funds are deposits; principal and interest
payments on loans, mortgage-backed securities and mortgage-related securities;
proceeds from maturing investment securities; advances from the FHLB; 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, 1997 were 20.71% and
3.71% respectively. The high levels of liquidity were due to management's
maintenance of higher than required levels of liquidity in order to better
manage interest rate risk by investing in investments that are eligible to be
included in liquidity calculations.
At June 30, 1997 the Association had commitments to originate and purchase loans
of $547,000 and to purchase mortgage-backed securities of $6.0 million. The
Association anticipates that it will have sufficient funds available to meet
these commitments.
At June 30, 1997 the Association's equity capital exceeded each of the OTS
capital requirements. OTS requires Tier I capital to adjusted assets of 4.00%
and the Association had 13.10%. Tier I capital to risk-based assets requirement
is 4.00% and the Association had 36.54%. The total capital to risk-based assets
requirement is 8.00% and the Association had 37.00%.
Other Developments
- ------------------
The Board of Directors declared a dividend of $.12 per share to stockholders of
record on August 7, 1997, payable on August 20, 1997. This is an increase of
20% over the previous dividend of $.10 per share.
The company completed a stock repurchase program on May 30, 1997. Under the
repurchase, 422,750 shares, or 5% of the shares outstanding, were repurchased at
an average cost of $15.95. All of the stock was repurchased through registered
broker-dealers in open-market transactions.
-16-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
None
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 annual meeting of shareholders of GA Financial, Inc. was held on
April 30, 1997. Of 8,454,618 shares eligible to vote, 84.2%, or
7,119,034 were voted by proxy.
The shareholders voted to approve the re-election of the two nominees
for directors, as described in the proxy statement for the annual
meeting. The results for the re-election of John M. Kish as a
director were 7,068,857 shares, or 94.3%, in favor and 50,177 shares,
or .7%, withheld. The results for the re-election of Darrell J. Hess
as a director were 7,060,736 shares, or 99.2%, in favor and 58,298
shares, or .8%, withheld. The other continuing directors are John G.
Micenko, William G. Boyer, Thomas M. Stanton, Thomas E. Bugel and
David R. Wasik.
The recommendation by the Board of Directors to ratify the
appointment of Coopers & Lybrand L.L.P. as the corporation's
independent auditors, as described in the proxy statement for the
annual meeting, was approved with 7,019,874 shares, or 98.6% in
favor, 87,882 shares, or 1.2%, against and 11,278 shares, or .2%,
abstaining.
Item 5. Other Information
- ------- -----------------
None
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Exhibit 11 - Earnings Per Share
Exhibit 27 - Financial Data Schedule
-17-
<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 11, 1997 By /s/ John M. Kish
----------------- --------------------------
John M. Kish
Chairman of the Board and Chief Executive Officer
Date August 11, 1997 By /s/ Raymond G. Suchta
------------------ -----------------------------
Raymond G. Suchta
Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
-18-
<PAGE>
EXHIBIT 11
----------
GA FINANCIAL, INC.
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED JUNE 30, 1997
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1997 June 30, 1996
------------------------ ------------------------
<S> <C> <C>
Net Income $ 2,018 $ 2,093
===================================================
Weighted average shares outstanding:
Weighted average shares issued 8,158,502 8,900,000
Less: Unallocated shares held by ESOP (661,143) (712,000)
Plus: Weighted average common shares
to be issued using average market
price or period and market price,
whichever is higher 129,834 -
---------------------------------------------------
7,627,193 8,188,000
===================================================
Earnings per share $ .26 $ .26
===================================================
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
------------------------ ------------------------
<S> <C> <C>
Net Income $ 3,875 $ 3,104
===================================================
Weighted average shares outstanding:
Weighted average shares issued 8,291,072 8,900,000
Less: Unallocated shares held by ESOP (661,143) (712,000)
Plus: Weighted average common shares
to be issued using average market
price or period and market price,
whichever is higher 129,834 -
---------------------------------------------------
7,759,763 8,188,000
===================================================
Earnings per share $ .50 $ .38
===================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTD FROM THE 1997 FIRST
QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 8,851
<INT-BEARING-DEPOSITS> 1,018
<FED-FUNDS-SOLD> 1,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 438,023
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 280,700
<ALLOWANCE> 1,199
<TOTAL-ASSETS> 749,748
<DEPOSITS> 458,727
<SHORT-TERM> 134,851
<LIABILITIES-OTHER> 8,378
<LONG-TERM> 34,000
0
0
<COMMON> 89
<OTHER-SE> 113,703
<TOTAL-LIABILITIES-AND-EQUITY> 749,748
<INTEREST-LOAN> 10,084
<INTEREST-INVEST> 14,737
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 24,821
<INTEREST-DEPOSIT> 9,032
<INTEREST-EXPENSE> 12,210
<INTEREST-INCOME-NET> 12,611
<LOAN-LOSSES> 150
<SECURITIES-GAINS> 28
<EXPENSE-OTHER> 7,228
<INCOME-PRETAX> 6,129
<INCOME-PRE-EXTRAORDINARY> 6,129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,875
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
<YIELD-ACTUAL> 7.49
<LOANS-NON> 905
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,031
<CHARGE-OFFS> 9
<RECOVERIES> 27
<ALLOWANCE-CLOSE> 1,199
<ALLOWANCE-DOMESTIC> 1,199
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
